PPPs are rotting to the core

PPPs in perspective
Colin Crouch

If public-private partnerships are meant to make public services more like businesses, why do they force public sector providers to contract out core activities that private firms prefer to retain in-house?

The use of private contractors in the public sector is presented as a way of making services behave more like business. Ironically, because the reform agenda is being ideologically driven, it has the opposite effect and is a strong example of the distorting impact of political intervention.

The dominant political rhetoric of New Labour and Conservatives alike declares that those who work in public services are less competent than those in the private sector, virtually by definition, because the latter operate in a competitive market. Therefore, almost any involvement of a private contractor in a public service is deemed to be an efficiency gain. As a result, there is no longer the concept of public services having a core business that should not be contracted out. For example, it is now seen to be just as appropriate for private contractors to provide school lessons, and even inspection and monitoring services, as to supply school pencils.

This is very different from the behaviour of private firms, or at least from firms that see themselves as providing quality products. Such enterprises rank their activities in a continuum running from core to marginal. Towards the latter end are ancillary activities, at which the firm is making no particularly distinctive contribution. These are often contracted out to suppliers.

Core activities are those that are vital to a firm's reputation and business aims. A firm will, therefore, monitor them closely to ensure their quality. In principle, such an activity could be given to a subcontractor, but then the firm would want to maintain close, continuing contact with it. The contractor has to share the firm's vision and specificity; changing contractors is very costly, as a big learning curve has to be climbed. Therefore, no real market exists, and the supplier becomes more or less part of the main organisation.

Normally a contractor is used only when it has a competence which, though vital to the firm, is used only rarely by it. It is also likely that the contractor is doing similar work for other firms to achieve economies of scale. Typically, core business stays in-house.

This model does not apply to down-market enterprises. These may operate solely as anonymous marketing agents, bringing together products from a wide range of frequently changing contractors with a main goal of low prices. Contractors do not need to be monitored or inculcated into the firm's quality culture, because it does not have one, and their performance is judged by price alone. Here real markets exist. Alternatively, such firms are not anonymous but instead strongly cultivate their brand name. Here the core business is caring for the brand and the advertising that sustains it, not the quality of the products as such, so actual production can be contracted out safely.

On the face of it, one might expect public services such as health and education, where quality of delivery is fundamental and dependent on skilled and committed delivery, to be seen as core businesses, and thus retained in-house. Like the high-quality producing firm, an education or health service provider cannot keep changing its professional staff every couple of years; so few gains can be had from a true market. The extension of contracting out to these fields in public service is therefore deeply puzzling from a business perspective.

Particularly odd in these circumstances is the fact that many of the corporations that are winning the contracts do not themselves have experience of providing the services. Their core business is winning public contracts across a range of sectors. They then often subcontract the services themselves to other firms in ever-lengthening subcontractor chains, the opacity of which became evident when an angry public sought to discover who was responsible for the various railway crises.

The contracting out of professional public services neither creates true markets nor guarantees that service delivery is in reliable hands. What has happened is a double displacement of the core business. First, the government has become like those firms whose main activity is the advancement of the brand name, not the quality of the product. The object of the public-private partnership agenda is to give the government a reputation for dynamism and modernisation. Second, most of the firms aiding the government in the process have their main expertise in lobbying Whitehall and town hall for business. What then goes on in schools and hospitals becomes a tertiary concern.

Colin Crouch is head of the department of social and political sciences and professor of sociology at the European University Institute, Florence. His book, Commercialisation or citizenship: education policy and the future of public services, was recently published by the Fabian Society.This article was first published in Public Finance, the internet magazine of the UK's public sector, and is reproduced with the kind permission of the author.

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Suggested citation
Crouch, Colin, 'PPPs are rotting to the core', Evatt Journal, Vol. 3, No. 4, June 2003.<http://evatt.org.au/news/ppps-are-rotting-core.html>