Post on 04-Jul-2018
Diversity and Contestability in the
Public Service Economy
- Gary L. Sturgess
NSW Premier’s ANZSOG Chair
of Public Service Delivery Copenhagen Business
School 30 September 2014
The public service economy
Vincent & Elinor Ostrom
The public service sector is an economy
“A public economy need
not be an exclusive
government monopoly. It
can be a mixed economy
with substantial private
participation in the delivery
of public services.”
- Vincent & Elinor Ostrom
Public service industries
“The water industry, for example, is composed of
a very large number of highly independent
federal, state and local government agencies,
operating side by side with large numbers of
private utility companies, cooperative
associations and individual proprietorships.
“The American educational system can be
conceptualized as an industry composed
predominantly of many independent public
enterprises and non-profit private enterprises. . .”
- Vincent & Elinor Ostrom
Supply side and demand side
“Governments, like
households, might be viewed
first as collective consumption
units.”
- Vincent Ostrom
Different scale & scope
“. . . a small collective consumption
unit might contract with a large
production unit and each might take
advantage of diverse scale
considerations in both the
consumption and production of a
public good or service.
“It may also happen that the collective
consumption unit is large but that
efficient production is realized on a
smaller scale.”
- Vincent Ostrom et al
A mixed economy
In Australia –
• 90% of residential aged care is
delivered by the private and third
sectors
• 40% of hospital inpatients are treated
in a private hospital
• 30% of school students attend a
private school
• 20% of prisoners are managed by a
private provider
What difference does this make?
• The public service economy represents
20-25% of the national economy.
• Productivity is poor – in fact, we don’t even
know how to measure productivity.
• Limited scope for ‘creative destruction’.
• Customers are denied choice (even where
it might be permitted).
What difference does this make?
• Services are producer-focused, not
customer-focused.
• Supply side is immune from contestability.
• Lack of diversity in supply.
• Lack of innovation in service delivery – no
search for ‘efficient boundaries’.
• Markets/supply chains are poorly designed
and managed.
Competition & Contestability
10
Choice Contracting Contestability
Choice: competition for services
• Medicare
• School education
• Vocational education
• Disability services
12
Through-
life support
Availability
contracting
Public-
private
partnerships
Alliance
contracting
GOCOs
Framework
contracting
Contingency
contracting
Public-private joint
ventures
Integration
contracts
Social
impact
bonds
Competitive tendering: competition for
the right to manage monopolies
Contestability: the credible threat of
competition
“The essence of contestability is that planning and
competition should be used together. . .
“In a contestable health service, it is the possibility that
contracts may move that creates an incentive within the
system, rather than the actual movement of contracts.
Of course, for this to be a real incentive, then contracts
must shift from time to time. . .”
- British health economist, Chris Ham, 1996
Contestability
‘Way Forward‘
Prisons
Parklea
Diversity
If the only tool you
have is a hammer,
then every problem
looks like a nail.
– Abraham Maslow
Diversity What makes the
craftsman is not the tool,
but the toolbox.
Our capacity to
understand a problem is
constrained by the
range of possible
solutions at our
command.
Diversity
Social Impact Bonds
Diversity
Public-private joint
ventures
Diversity
Public Service Mutuals
Discussion