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Does privatisation of human services hurt outcomes? - July 2017

Proposition: "For-profit provision of human services like health and education leads to poor client outcomes and high costs to government."

Collaborator credits: we would like to thank John Quiggin for his assistance in framing this poll question. We would also like to thank Anthony Scott for his expert overviews of the results..

Overview of poll results by Professor Anthony Scott

Professor Anthony Scott

Professor Anthony Scott

Improving both the level of and access to health care and education are important societal objectives. Equity of access and universal access is perhaps more important than efficiency in the provision of these services. The health and education sectors in Australia are characterised by a relatively large share of both private for-profit and not-for-profit provision and private finance.

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Responses (30)


 

Harry Bloch

Agree

7

This is a strong statement on an issue that has, unfortunately, not been subject to systematic evaluation. Governments have too readily relied on ideological suppositions and hidden behind commercial-in-confidence rather than subjecting private provision of education and health services to critical evaluation. There is substantial anecdotal evidence of poor outcomes for clients and high costs to government to weigh against contrary examples. In the absence of systematic evaluation, we are left to choose among anecdotes or rely on more general understanding of the efficiency and efficacy of public and private enterprise.


 

Alison Booth

Agree

6


 

David Butler

Uncertain (neither agree nor disagree)

6

Much non-Government provision of health care and education is not really for-profit. Private schools are likely at least as good as state schools and HBF, BUPA etc don't obviously lead to worse outcomes in health care, for members or non-members. Taking the question literally, we have little for-profit provision as I understand it in Australia so I don't know what evidence there is for or against. If we did, my guess is the provision would be decent for those who purchased it (if they want to stay in business in the long term) but also expensive and with much greater inequality in consumption. If Government then stepped in to purchase on behalf of those without, costs would likely be higher than at present. The US is the obvious example.


 

Matthew Butlin

Disagree

8

Australia has successfully operated mixed provision (for profit and not for profit)of human services for many years - private schools and hospitals have been a feature of both education and health care. In either case - public or private provision - there can be incentives for inefficiency and cutting corners. As framed, I disagree with the proposition. Private provision does not necessarily and directly lead to worse outcomes - what is especially important is having well-designed incentives in the system that reinforce and reward good outcomes and penalise abuse and over servicing.


 

Lisa Cameron

Agree

7

There is great variability in the quality of education and health services provided by the private sector. Some are high quality and some poor quality. Some are also over-priced given the quality of the service received. It is often difficult for clients to assess the level of quality prior to purchase and there are incentives for private providers to exploit the system and drive up the costs to both the government and clients. In general, the system could be improved by greater transparency and information made available to potential clients on the quality of service and the price. For example, information on patient outcomes and cost of service of medical providers, particularly specialists and hospitals.


 

Deborah Cobb-Clark2

Uncertain (neither agree nor disagree)

9


 

Lin Crase

Disagree

8

The critical question is 'to what are we comparing?' Benevolent government agencies? The risks of government failure are at least equal to those of market failure and each instance of provision needs consideration on its relative merits.


 

Kevin Davis

Agree

8

The problem of asymmetric information is prevalent in these areas such that users have limited ability to assess quality and value and can be taken advantage of by unscrupulous operators. Short term self-interest of providers, unless reputational concerns are paramount, and unless accompanied by a commitment to fairness, can lead to problems when for-profit operators actions are not regulated appropriately or subject to consumer-oriented competitors which may provide a benchmark for assessing quality and value. Not-for-profits (mutuals, "charitable" entities or governments) can play such a role and have been important in both health and eduction.


 

Janine Dixon

Uncertain (neither agree nor disagree)

6


 

Brian Dollery

Agree

6


 

Uwe Dulleck

Disagree

9

To avoid a race to the bottom with respect to quality of service, I do indeed believe that for profit provision requires smarter regulation, forcing providers to be compensated at least partially on outcomes not inputs into the service (for education, think about part of the fees being only paid when a student has a job). If good regulation is in place, I do not think that the statement applies and the "usual" cost savings may realise.


 

Saul Eslake

Disagree

6

The answer to this question depends importantly, I think, on the extent to which users of various 'human services' are allowed to choose between 'for profit', 'not for profit' and 'pure public service' providers. For example, the provision of school education by 'for profit' providers (as I would characterise most 'independent' schools, albeit that the profits are ploughed back into facilities, etc, rather than distributed to 'shareholders') is generally perceived by the 'clients' (parents who pay to send their children to those schools) as leading to superior 'client outcomes' (otherwise why would they pay for something they can get for close to 'free' of direct charge) and at (in most cases) less cost to government. Likewise most users of private hospitals and other private health facilities use them, despite their cost, because they perceive them as offering better 'client outcomes'. Hence my answer to the question as framed. However, I readily concede that where the provision of services is wholly transferred to private, 'for profit', providers, without there being any choice available to 'clients', the result can often be inferior service and higher costs - and this extends beyond 'human services'.


 

Allan Fels

Agree

8


 

Gigi Foster

Uncertain (neither agree nor disagree)

7

Both health and education services have a strong credence-good dimension, due to information asymmetries about service quality between suppliers and consumers, and both also often involve some of the biggest and most influential investments of people's lives. For these reasons, the institutional backdrop against which for-profit delivery of such services occurs must be set up very carefully. The potential for scams, particularly in the case that providers have no existing long-run institutional reputation to protect and/or serve each of their customers only once (reducing the market-facilitated punishment for poor service), is high. Ideally, for-profit providers would be allowed into such markets only when there is already an accessible, low-cost, good-quality public provider, so that real choice is available to consumers; when a cap is set on the fees that can be legally charged, in order to reduce the size of the profits obtainable by any for-profit entrant; and in the presence of a quality-certifying mechanism operated by independent (i.e., not captured) monitors. There are examples of good-quality health and education services delivered by for-profit providers both in Australia and overseas, so it's not impossible to engineer.


 

Renee Fry-McKibbin

Disagree

8


 

Lata Gangadharan

Agree

8

There will be trade-offs between the profit objective and social responsibility and the costs would be incurred by the government.


 

Geoffrey Kingston

Disagree

7

Health and education services are best provided by a competitive mix of public and private enterprises. Experience shows that exclusively public provision leads to mediocrity and excessive bureaucracy.


 

Rodney Maddock

Strongly disagree

10

As a categorical statement this is clearly wrong. There are many examples of the private provision of these services which produce excellent client outcomes and little or no cost to government.


 

Tony Makin

Strongly disagree

8

The question could have been clearer. Under what circumstances, and by how much, does private sector provision of health and education - if substituting for government provided services - lead to higher costs to government? Isn't it the opposite? The correct answer has to be based on evidence not ideology.


 

Douglas McTaggart

Disagree

8

There seems to be a view in some quarters that profit driven incentive structures are bad and government, including NFP, driven incentives, whatever they may be, are good. In my experience, this is simply not the case.It is certainly true, that poorly designed incentive structures around for-profit driven service delivery will lead to poor outcomes. But poor outcomes, in terms of true cost and acceptable quality, often plague government and NFP delivery. The challenge is to appropriately define the service or product to be delivered, and canvas the alternative delivery mechanisms, identifying an appropriate reward structure. I think it is fair to say, this exercise has often been poorly done with respect private sector delivery, but has not been done at all with respect to public service delivery.


 

Flavio Menezes

Disagree

7

This statement is too strong to be generally true. It is possible that under well-designed regulatory and institutional arrangements, for-profit health and education provision may lead to good outcomes.


 

James Morley

Uncertain (neither agree nor disagree)

10

Sometimes yes, sometimes no.


 

Margaret Nowak

Agree

8

First, it is difficult with many of these services to specify service level to the degree required. Second, many of the consumers of these services lack consumer power because they lack information and information needs are complex and difficult to judge or because they are effectively clients of government rather than the provider or because they are really unable to have informed decisions on services for the very reason they need them. Government appointed advocates are sometimes the answer but can be captured by the provider. The philosophical overriding of emphasis put on the profit motive by commercial providers therefore is not consistent with achieving the best results for the service recipients. Cost to government is increased by the need for regulation of providers, rectification when things go wrong, while the profit which is the commercial providers motive has to be part of the cost equation which does not flow to the provision of service.


 

John Piggott

Uncertain (neither agree nor disagree)

6


 

John Quiggin

Strongly agree

10

The VET FEE-HELP disaster, which even for-profit advocates admit, is not an aberration but part of a consistent pattern, replicated in the US and elsewhere. Theory predicts, and experience shows, that for-profit providers will benefit more from gaming the system than from efficient service provision.


 

Rana Roy

Agree

7

I agree with this statement or better still a slightly less emphatic version of it: for-profit provision of human services like health and education can often lead to sub-optimal client outcomes and costs to government. But I do not agree with what is often misread as its corollary: that non-for-profit public provision is necessarily superior. I agree with the statement for the simple reason that information asymmetries alone make it impossible for these sectors to mimic textbook-style competitive markets where rival producers are obliged to take consumer preferences as data and to seek profit solely by means of product improvements and cost-reducing innovations: neither the patient nor the pupil is well-placed to impose “consumer sovereignty”. Moreover, when this is combined with extensive government subsidies prompted by equity considerations, for-profit provision makes it all-too-possible for private providers to profit at the expense of both clients and taxpayers. In contrast, not-for-profit public provision is, in principle, better-placed to pursue and achieve welfare-maximising outcomes. And there is an abundance of examples to demonstrate the point: from the pioneering days of Britain’s National Health Service to the recent record of Finland’s education system. However, for all manner of reasons, from producer/managerial capture of the public provider to the interaction between public procurement and the for-profit supply chain, we also have examples aplenty of public provision delivering outcomes that are far from welfare-maximising. Consider the recent saga of Tasmania’s TAFE system (cf. sundry press article on the subject) or the egregiously sub-optimal results of US Government expenditure on health care (cf. Sir Angus Deaton’s essay in The Economist, July 15th-21st). I conclude therefore that those of us who wish to see a more welfare-positive provision of human services like health and education are best-advised to focus more on the requisite reform of public provision than on the spectre of privatisation.


 

Jeffrey Sheen

Disagree

9

The optimal provision of such public and private services in terms of outcomes and costs to government is almost surely a mixture.


 

Julie Toth

Strongly disagree

9

Australia has a long history of health, welfare and education services being provided by non-government entities, including for-profit businesses and non-profit organisations (e.g. religious groups). Australia generally scores very well in international comparisons of health, welfare and education outcomes (e.g. OECD ranking tables). I am not convinced that for-profit service providers would/should/could perform any worse than non-profit providers or direct government providers of these services, particularly in light of the many serious revelations and allegations arising from various royal commissions and inquiries into these services. The design, delivery and oversight of service delivery arrangements are more important than the identity of the provider.


 

Joaquin Vespignani

Disagree

7


 

Beth Webster

Disagree

8

It depends on the oversight from independent regulatory bodies and the culture of the professions working in the organisations. As we have seen from the unprofessional behaviour in the training sector, if ethical standards are poor, considerable harm can be done to students. This can be a problem in both the for-profit and not for-profit sectors.