THE PURCHASER PROVIDER SPLIT
Where stand the quangos?
I think we already know
The goal of public services should be to deliver the highest quality service at the lowest possible cost.
The market-based public sector reforms of the past 20 years, which had included, for example, more outsourcing and more division between the purchasers and providers of public services, has been an attempt to raise productivity, efficiency and to better respond to changing demand.
Economic theory and empirical evidence holds that the separation of purchasing and providing functions brings net gains, at least in terms of economic efficiency. These reforms, if anything, need to accelerate, according to a recent report from the OECD. With the UK still in recession and with public funds short it is even more imperative for us. The best way to provide public services is to split the government as purchaser from the providers. In most services (though not all – think of the police) it is possible to have competing providers and a monopoly public purchaser or even to give the money directly to individuals. How come then a host of quangos particularly in education, -think SSAT- are both purchaser and provider.
Look at the support the SSAT gives Academy and Specialist schools-where is the division here between purchaser and provider? Work is simply given by the purchaser essentially the SSAT, to the provider the SSAT, with other providers not getting a look in. Indeed the SSAT is granted contracts without the need to compete for them, to support Academies. What are the chances of us taxpayers getting value for money out of this self-serving arrangement or for that matter the schools involved? Slim to none. The schools have no choice, of course, of an alternative provider should they not be happy with the service they get from the SSAT (and some aren’t). Contracts should be awarded self-evidently to the best possible, best value provider. Most countries that discussed or introduced new forms of purchaser-provider separation during the 1990s did so on the basis that there would be supply-side competition. So, open competitive bidding was introduced. The main aim of competitive tendering and why it is needed now more than ever, is that it generates cost reductions and savings on public spending. In these public procurements, the government or its agent must choose the lowest cost or best value bid. The battle between service providers to win a contract is a process which increases economic efficiency, because in economic competition, competitors constantly try to find new or better ways to satisfy customers’ needs .
The provider might be a private, not for profit or a public agency. None of which has a monopoly of virtue and each has his strengths. However for a Government wedded to the idea of introducing more private and not for profit provision of public services, failing to ensure purchaser/providers splits or open procurement in some areas of the education/Childrens Services sector is decidedly at odds with its rhetoric and policy.
Importantly, to be effective and deliver cost savings the bidding process has to be fair, transparent and on a level playing field. Not asking much is it? But subsidized quangos are now upsetting the apple cart They are increasingly entering the market pitting themselves against other non-subsidised providers in pursuit of new income streams, to sustain their large top heavy bureaucracies. They self –evidently have a huge built in competitive advantage. Why? Because quangos benefit from public subsidies and at least implicit government financial guarantees, with privileged access, as well, to market sensitive information and guaranteed markets ie state schools ,which in the SSATs case are bound to them with an umbilical cord. They will argue that they are not cross subsidizing. But why then are they so highly secretive and fail all the basic financial transparency tests. Try getting any financial information from a quango and they will invoke the ‘commercial in confidence’ ruse. Are they exploiting their status and lack of accountability? You bet. We need a vibrant expanding Market and mixed economy of providers. But the development of this market is compromised by the lack of competitive neutrality, and the increased political risks and costs introduced for other suppliers by quangos activities in the market. Supply side education reforms can only work and deliver efficiencies if there is a split between provider and purchaser and fair competition. Why is this so hard to grasp for politicians and civil servants? Its not actually, they already know it, but its so much easier not to do anything about it.
But the grim state of public finances may, sooner rather than later, force their hand on this.