Friday, January 30, 2009

`Insourcing' - and why it is bad for you

Amid all the bad news for the third sector, here's some more.

Last week,a body I hadn't heard of before called the Association for Public Service Excellence released `Insourcing: A Guide To Bringing Local Auhority Services Back In-house claiming a "strategic and operational case for bringing services back in-house from the private and third sectors".

Its funny, but although very little makes my head hurt these days, this did.

So why the hot collar? The report, based on case studies of about 55 local authorities, said the benefits to councils of bringing services back under their control included improved cost-efficiency, better-performing and higher-quality services, as well as enhanced community wellbeing.

In a piece for the Guardian, while being careful not to call for renationalisation of any out-sourced services "without serious consideration", its CEO, Paul O'Brien seems to seriously believe, on the basis of his case-studies, that the public sector generally offers better efficiency, performance, quality and value. And that the tide has turned, historically and ideologically, for the sector which he champions.

Indeed his piece was also tinged with that a kind of `told-you-so', leftish schaudenfraude about the problems being faced in the private sector. The same sector, of course, that directly provides 20 odd percent of the tax to pay for public services.

On finishing his piece, I had to wonder where Paul had spent his life this last twenty or so years. If, like me, he has spent it dealing daily with the human consequences of inefficient, underperforming, low quality, expensive public services, then I am fairly confident he would not be able to write about the public sector the way he does.

Indeed, my life-experience tells me that uncontested in-house services provided by people who never had to account to anybody, whose performance was seldom measured and whose interests, as producers of services, were always put well before those of the end user, tend to be grossly inferior, by and large, pound for pound, to those I have seen provided externally. And definitely worse than those found in the third sector.

You see, Paul, and many like him who champion big government just don't understand three very important things: The first is that is services don't have to be run by the public sector in order to be publicly accountable.

Indeed, in my experience, being `in-house' actually doesn't help accountability because those doing the accounting (Councillors) are put in a conflicted position. They `own' the problem and, in my experience, are less likely to be tough on it.

It is much harder, therefore, to take a hard, detached view about the effectiveness of a public service when you also employ the people who deliver them. Accountability is improved by distance, not proximity.

Secondly, Paul and Co don't understand that most of the improvement that we have seen in public services in the last 20 years has been down to the fact that we have done away with monopoly.

Even when `in house' wins, as occasionally happens, it has to do so against competition. This means transparency on cost and outcomes, insofar as councils can be completely impartial to their own in-house bidders.

Look at my own sector, learning disabilities and mental health. It was actually Thatcher who decreed that 80% of community services had to be procured out of house. I am totally confident that had that not happened, provision for these groups would still be in 1985 (as it is in much of the residual 20% remaining `in-house'.

Thirdly, there is a great big misapprehension about the value for money argument. Yes, there will be cases when the public sector looks cheaper. But how often is the full cost of that public provision actually made clear?

The truth is hardly-ever. Indeed, I have never once in 20 years encountered a single public service where anyone involved, even at senior level could answer the question of what it truly costed to provide that service in-house.

And that's before you include the cost of pensions. This is often excluded from the calculations of public sector costs because its equivalence in other sectors would be so costly as to render the public sector hopelessly uncompetitive.

My heat subsided, however, after a good chat with a friend of mine from the private equity world (who has helped us a lot more than any council ever did).

He pointed out that although there is a bit of froth right now about the new age for public services, the truth is that the country can't afford them and that, very soon, the economics of having to provide modern public services that don't cost the earth, will revert to the long-term trend: outsourcing.

I think he's right. After the election, whoever wins will have to put up taxes and reduce public spending in order to keep international lenders willing to lend. To keep the British public on-side, there will need to be proper reform of public services and continues, massive outsourcing.

Enjoy your moment in the sun, Paul. It won't last very long.

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