Can we safely privatise the public good?

Three interesting moments intersected in the past week: our Health Minister announced the latest wide-ranging review of aged care, to be led by former Finance Secretary David Tune; the Productivity Commission released its preliminary recommendations for competitive supply of human services; and the Human Services Minister stated:

“Every single aspect of Medicare which is currently operated by government will continue to be operated by government, including the processing of the Medicare rebates” (SMH, 25 September)

The last of these is entirely understandable following the so-called ‘Mediscare’ during the election campaign, though it rather feels like a declaration that the Government is committed to shuffling the paper while private operators provide the actual healthcare.  Put that one down to the perversity of politics.

Elsewhere in recent times, the prominent economist John Quiggin has asserted that international opinion has turned against private provision of health, education and criminal justice (Guardian, 12 September).

He cites issues in the NHS, Serco’s troubles in NZ, and the gaming of our Federal vocational education finance rules by some of the more unscrupulous providers. We presume Harvard University, St Vincent’s Healthcare and a raft of other local and international private successes didn’t fit within the prescribed length of the article.

But this is not to say that the general argument lacks merit.  There have been failures, and it clearly irritates the community more if a private company in receipt of public monies drops the ball as opposed to incompetence within Government itself.

The issue here is profit, and whether it is an efficient substitute for the purer and more esoteric motivations of the public service.

The Productivity Commission’s Human Services Review is clear in its response:

“With some exceptions, the user of the service is best-placed to make choices about the services that match their needs and preferences.  Putting this power into their hands lets individuals exercise greater control over their own lives and can generate incentives for services providers to be more responsive to users’ needs”. (Overview, p.7)

This flows from the original Harper Review recommendation to introduce greater competition and choice in human services in pursuit of efficiency, quality and responsiveness and to enhance competitive neutrality.  It’s really about consumer choice, with competition as a necessary consequence.

The Commission does note limits, particularly in the case of information asymmetry, where it is difficult to imagine appropriately-informed choice.  Nonetheless, it identifies six areas for increased private provision, viz.: social housing; public hospital services; palliative care; public dental services; remote Indigenous human services; and ‘grant-based family and community services’.  A broad and ambitious list, given the sensitivity of the issues covered.

We should remember that this is particularly about services, rather than infrastructure.  It’s often the case that those preaching competition and those protecting the public good are speaking different dialects: the former is interested in consumer-facing services; and the latter in the anchoring infrastructure.

And this is difficult to reconcile.  We can simultaneously understand both: the Government’s enhanced capacity to regulate services from ownership of a regional base hospital; and the public benefiting from competing specialists operating within that structure.

Historically, this has been a core challenge in aged care, which the Tune review will likely seek to address.  While the Howard Government’s original aged care finance scheme was theoretically limited to the provision of care services, it all too rapidly became clear that there was an implied subsidy for bricks and mortar.

While the private (both for-profit and NFP) provision of aged care infrastructure has delivered vital benefits to Australia, it has also at times skewed the priorities between community and residential care.  Translating policy goals into finance rules is always tricky.

So is there a guiding principle for policy delivery?  Back in 1984, the sometime public servant and diplomat JWC Cumes considered the question.  After 40 years of public service, he predicted reforms wherein:

“The implementing agencies would be separate from day-to-day government.  Their structure and framework, scope and work will be defined by the government, where appropriate through legislation.

“They will have something of the nature of our present statutory corporations but preferably will be modelled, to the extent possible, on our great public, limited liability corporations.  Those at the head of the implementing agencies will be quite differe3nt from our present public servants, and more like the senior management of our private enterprise corporations …

“In effect, they would handle all the implementing aspects of government.  They would not make macro-policy but they would be independent in its implementation …

“Their efficiency would be judged, to the extent possible, in market terms, according to market criteria”. (A Bunch of Amateurs, pp.194-5)

Cumes wasn’t just talking about healthcare and education, but services such as the issuing of passports and collection of customs duties.

It feels like an overdue vision.  While Cumes didn’t anticipate the fever of asset recycling or the extension of the Trade Practices Commission’s remit via the ACCC, he described the defining shift: efficiency judged according to market criteria.

This can’t be done without the creation of a market.  But competition means winners and losers which, in social policy, often means the Government picking up the pieces.

The next phase of the PC review, along with the Tune Review and the plethora of other social policy inquiries and debates, will offer arguments on both sides.  Undoubtedly, the key lies in better constructed rules for access to public finance, but the limits will continue to be tested.

Alastair Furnival & Catherine McGovern