What’s behind Govt’s call for inquiry into how services are delivered?

Some narrowing of eyes and curling of lips has greeted the Productivity Commission's inquiry into how to improve the market for social services.

What, people wonder, is the Government's agenda in setting the commission this task?

Don't we pay taxes for the Government to provide social services such as educating the young and caring for the sick, rather than paying other providers to do it?

How long will it be before the state is seen as a dispensable middleman in those service "industries"?


Set it alongside the policy of greatly expanding "social housing", to be achieved, it seems, largely by shrinking the state housing sector.

Set it alongside the Government's determination to run surpluses and get net public debt back below 20 per cent of gross domestic product by 2020. As in the corporate world, there is an ever-present risk that the drive to take costs out results in false economies.

Set it alongside charter schools and Serco running Mt Eden Prison.

To suspicious eyes, it starts to look as if the Government, whatever its protestations to the contrary, is in ideological thrall to the 1980s dogmas that the smaller the state the better, and that whatever the problem, the solution is a market.

The inquiry's terms of reference tell it to focus on improving the purchasing and commissioning of services "including services currently delivered by the state sector".

But the commission has ruled out of the inquiry's scope any "quantitative assessment of the productivity of the New Zealand public sector".

Granted, that would be a task ranking somewhere between daunting and impossible.

Illustration / Anna Crichton

It leaves the impression, however, that policymakers are looking past the ranks of the public servants in front of them - demoralised by years of sinking lids and endless restructuring - for the smarter, more innovative, more flexible, more effective and cheaper public services that it is confident competitive tendering will discover.


So how big is the "market for social services" now?

The commission says in the issues paper it released last month that it has not been able to find any consolidated data on government purchases of social services from non-government providers.

But it says there are at least 11,000 contracts between central government and non-government providers. There are more than 4000 such providers contracted to the ministries of Health, Social Development and Justice, and Te Puni Kokiri. They include for-profit and not-for-profit organisations, with many of the latter being charities.

The charities register showed around $3.3 billion of government funding for charitable providers of social services last year, about half their total income.

To put that in context, total government spending on social services in the current fiscal year will be around $34 billion.

The charities benefit from around 800,000 hours of volunteer labour a week.

And as a general rule, people employed by NGOs don't do it because the money is good.

So a concern, if the agenda here is increased reliance on that sector, is that it is about saving money by reducing the pay and working conditions of the people actually providing the services.

The commission's issues paper quotes some concerns that have been raised by not-for-profit providers of services to district health boards.

They say contract payments are not increasing in line with their costs and DHBs often fund other providers' services at a lower rate than they fund their own. Prices paid by DHBs vary widely across the country and providers are regularly required to re-tender.

They also complain of often being audited by multiple government agencies in the same year to collect exactly the same information.

Those are arguments for improving outsourcing practice, of course, not scrapping it.

The commission acknowledges that the theoretical gains in efficiency from competition and contestability have to be balanced against potential problems.

"A lack of independent reliable information that can be used to compare provider performance may mean the best provider is not selected," it says.

Some providers have multiple contracts covering different services. Losing one of them might undermine their ability to deliver on the others. "This reduces the scope for terminating a contract should service quality fall below an acceptable level."

The commission also notes the importance of continuous relationships in the effectiveness of services provided to vulnerable people, especially in such areas as counselling and social work. "Who provides a service may be as important to the client as the service itself."

The use of the word "client" fudges the issue that we are talking about services where the person receiving is not paying for it and is therefore in a weaker position than that term normally implies.

One model the commission is interested in learning more about is "client-directed budgets", which is a move away from centralised arrangements, where officials or providers decide what is best for someone, towards giving the people concerned more choice and control. It is in use with some people with disabilities.

The issues paper also reflects on the inherent tension between accountability and flexibility.

The government agency has to manage the risk that the service provider fails to perform, which is not only harmful for the people - sorry, clients - involved but potentially embarrassing for a government minister.

The agencies tend to manage that risk by having highly specified contracts, which reduces the scope for innovation and for the flexibility for providers to respond to clients' changing needs.

For example, a contract specifying that a service be delivered through home visits may run up against a situation where the client faces the threat of violence if seen to be co-operating with the authorities.

Submissions on the issues paper close next Tuesday. The commission will put out a draft report in March, providing the opportunity for another round of submissions.

Suspicions about the Government's motives in commissioning this work should not put people off providing answers to some pretty sensible questions.