I'm not a great proposer of royal commissions, but maybe such a
spotlight is the only way to oblige blinkered economic rationalists to
face the many failures of their knee-jerk advocacy of outsourcing,
privatisation and deregulation.
Economists aren't as scientific as
they claim to be, being prone to what psychologists call "confirmation
bias". Whereas the scientific method requires you to seek disproof of
your theory, economists - like the rest of us - note all the occasions
when it seems to work and quickly forget any times when it didn't.
But,
as the troubles of the for-profit trainer Vocation remind us, the
instances of ill-considered micro-economic reforms producing dubious
outcomes just keep piling up.
One class of reform that sounds fine
in theory but often performs badly in practice is the outsourcing of
government services. The theory says that just because some service has
public-goods characteristics - it can't be provided profitably by the
private sector in adequate quantity - and so must be provided at
taxpayer expense, that doesn't mean it has to be delivered by public
servants.
Why not get the best of both worlds by contracting
outsiders to deliver the service on the government's behalf? You can
call tenders and so ensure the government discharges its obligations at
the keenest price. Often it will be charities and community
organisations that are most interested, but why exclude for-profit
businesses if they can offer a better price than the not-for-profits?
There's
little doubt governments - and businesses, for that matter - have made
significant savings by outsourcing particular functions. Sometimes this
is because the contractor has access to economies of scale or scope not
available to the outsourcer.
But I doubt if many savings arise
purely from greater efficiency - especially not when profit margins have
to be accommodated. No, usually the savings arise from side-stepping
existing staffing levels, wage rates and conditions.
Often, the service is now provided using fewer, less-well remunerated workers, maybe with more casuals.
In
which case, the saving may well come at the cost of a loss of quality -
one the advocates of outsourcing aren't anxious to know about. The risk
is greater if the contractor is also making room for his profit.
The
advocates tell you it's all a matter of writing watertight contracts,
but sensible people know that's not possible. They also know motivations
count for more than legalities.
Why can I think of no
thorough-going evaluations of the costs and benefits arising from
outsourcing? It's not hard to call to mind a lot of examples where
outsourcing to the profit sector has come scandalously unstuck.
Consider
all the stuff-ups we've had with public-private partnerships for the
construction and operation of infrastructure. The cases where seemingly
reputable private consultants have grossly overestimated the number of
motorists who'll use a tunnel, bridge or highway.
Even when these
partnerships don't blow up, you often find the government has agreed to
tie its hands on future road and even public transport options to make
the deal attractive to the private partner. A hidden cost.
Consider
the disaster when the authorities who'd recommended that private firms
be allowed to deliver heavily subsidised childcare sat back as the
deluded principal of ABC Learning took over half the nation's childcare
centres before everything collapsed.
Consider the many foreign
students ripped off by shonky trainers permitted by lax regulators to,
in effect, sell the right to become permanent settlers.
Broadening
the focus, remember when the Hawke government handed control of the
wool reserve price scheme over to the industry, which eventually sent it
broke. Remember the trouble when the Kennett government thought it was
smart selling power stations for far more than they were worth.
Remember
the Keating government privatising our monopoly airports and now, we
discover, sweetening the deal by giving the owner of Sydney airport
first refusal should a second, potentially competitive airport ever be
built.
Remember the way some states sold their monopoly
electricity networks, but our price-regulation regime failed utterly to
stop the private owners badly overcharging power users.
Note how
often customers and taxpayers have had to pay to clean up the mess
created by micro-economic reformers who know a lot about theory but far
too little about how the profit motive works in practice.
And
where's the rationalists' learning curve? Where's the evidence they've
learnt from 30 years of cock-ups? When will they learn respect for the
terrible power of profits?
When will they learn that when the
public sector plays poker with the private sector in a
commercial-in-confidence back room, it's almost always the pollies and
econocrats who emerge without their shirts?
