3.5.3.6  The Role of Profit in Public-Service Delivery

 (The latest version of this page is at Pattern Descriptions.  An archived copy of this page is held at https://www.patternsofpower.org/edition02/3536.htm)

A common argument against using the commercial sector for public-service delivery is based on the assertion that private profit is incompatible with public benefit:

·      It can be argued that a company€™s profit is merely an additional cost to the taxpayer, so it should be cheaper for the State to recruit its own employees.  This argument is invalid if the efficiency gains made by private companies exceed the profits they make €“ as was the case in the example quoted above, when Britain privatised its telecommunications.

·      It can also be argued that there might be a conflict of interest between making a profit and providing an adequate service or, to put it another way, that employees in private companies lack the 'public service ethos'.  For example, after the UK rail network had been privatised, to a company called Railtrack, there were several fatal accidents and the company was penalised €“ resulting in its liquidation.[1]  People argued that Railtrack had prioritised profit over safety.  There are interesting aspects of this case:

€’      A private company ought, in theory, to have prioritised safety in order to avoid losing its reputation and losing the business.  In practice, though, the mistakes were made, its shareholders lost their money and lives were lost.  It appears that the management team was unable to act according to its own best long-term interests, whether through incompetence, short-termism, or there being no obvious competitor who would take over the business.

€’      Another argument is that the mistakes would have been made anyway, whether the company was private or not.  Public employees have to decide what work to carry out when there are budget limitations, and they may make mistakes.  Whilst the employees€™ motivation cannot be either proved or disproved, there is no suspicion of profit motive in a public service €“ so people's perceptions of the reasons for the accidents would have been different (a political benefit of public ownership). 

·      A different aspect of the conflict-of-interest argument is exemplified by the allegation that private health providers might decide to carry out the operations which were most profitable rather than those which maximised quality of life and life expectancy for the patients.  There is a suspicion that this may be happening with (private) American healthcare €“ which compares badly to other countries when relating costs to life-expectancy.[2]  This problem can be overcome if the providers aren€™t the decision-makers.  A patient€™s doctor can act as a personal adviser who is independent from the providers of clinics, hospitals and care homes.  The doctors could be public servants in this model with a 'public service ethos' and, as with the UK €˜Internal Health Market€™ in the early 1990s,[3] the other providers could be a mix of private and public €“ to gain the benefits of competition.  Similar structures can be devised for other public services.

These concerns about profits and conflicts of interest can be avoided by giving a role to civil society, rather than either the commercial sector or government.  After the liquidation of Railtrack, for example, the rail network was transferred to a non-profit-making organisation: Network Rail.[4]  This approach allowed the government to set objectives and apply regulation, whilst keeping the management of the rail network separate from national politics and budgets €“ but it has been argued that it still lacks accountability to the public, who own it and who are its customers.[5] 

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