3.5.3.6 Profit in Public Service Delivery
Profit in public service delivery, as advocated by individualists, raises issues of conflicts of interest and value for money.
Whereas the State itself can choose to deliver services directly, with its own employees, it can also choose to pay for outsourced service delivery. Outsourcing back-office facilities, such as infrastructure and IT support, allows them to be shared across government departments with efficiency benefits. “Outsourcing saves on average 20 per cent the first time it is done”, according to the article To outsource or not to outsource, but “it is then vital for the government body to make sure it has the resources, capacity and capability to manage both the procurement process and the contract once it is awarded”.
There are circumstances where private companies offer no advantage to the taxpayer. One common argument is 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 can be the case, for example, when the service is a natural monopoly (3.5.3.4).
It can also be argued that there might be a conflict of interest between making a profit in public service delivery and providing an adequate service. To put it another way, employees in private companies lack the ‘public service ethos’. This was alleged in relation to the Southall rail disaster in 1999, for example, as reported by the Independent: “Railway firms `putting profit before safety’.
There are two 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 might 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 insurers and private health providers can try to maximise profit rather than seek the optimum cost-benefit choice. They might decide to offer drug treatments, or carry out 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 might explain the findings in a BBC Reality Check, Does UK spend half as much on health as US?:
“If you look at all healthcare spending, including treatment funded privately by individuals, the US spent 17.2% of its GDP on healthcare in 2016, compared with 9.7% in the UK”
“…in 2014, average life expectancy at birth in the USA was 78.8, compared with 81.4 in the UK according to the Office for National Statistics (ONS).”
Given the fact that the UK National Health Service (NHS) is also free to every citizen at the point of use, it offers much better value to the taxpayer than the American dependence on private providers.
Despite the many advantages of using private companies to provide some public services, they are clearly not the best choice in all cases.
This page is intended to form part of Edition 4 of the Patterns of Power series of books. An archived copy of it is held at https://www.patternsofpower.org/edition04/3536b.htm