Productivity Commission Report on Improving Social Services

Gareth MorganTax and Welfare

The Productivity Commission has drafted a report on how to improve the efficiency of our social services.

One of the most significant recommendations, at least the one the Government and media leapt upon, relates to the ‘empowerment’ of clients – which in English means giving people more choice over the government services they receive. The Commission proposes that this empowerment could be achieved by handing over budgets for people to spend on choosing their own education, healthcare and social services. One way this can work in practice is through the allocation of vouchers to clients to spend with approved providers.

It all sounds pretty reasonable, after all who could argue with more choice? As we have pointed out, greater devolution of services to communities could be one way to honour the Treaty without dividing the nation. However, as the report itself acknowledges this isn’t simple to do. The way government contracts for social services needs to fundamentally change for this idea to work, which raises the question of whether government will make the investment necessary for this to happen.

Internationally there are plenty of precedents for this approach

In the Netherlands parents have an enormous amount of choice over the services their children receive. They recognise that it is the state’s role to provide what families need to bring their children up well (e.g. early childhood education, after school care, sufficient income, employment assistance) but the families role to choose what services best suit them (from a set of approved providers).

Sweden has a voucher system for education, so that parents can pull their child out of a state funded school and pack them off to a private school, taking their taxpayer subsidy with them.

In Australia unemployed people are assessed for their needs by the government and then if they qualify for assistance in finding a job, they can choose who provides that service.

But is this really the best way to help those in need?

If we are serious about empowering those in our communities that need financial and social assistance, and if we believe people have the ability to choose their own providers and services, then why not just follow through to the logical conclusion and give them a Universal Basic Income? In other words, extend that article of faith to believing the recipients know how to allocate their budgets generally, they just don’t have large enough budgets to live in dignity.

Alternatively, if we don’t trust people to make these sorts of decisions or manage their own money, why do we think greater choice would help? To be fair, the Productivity Commission wasn’t allowed this kind of wide brief, but if the Government really wants to empower people, and rethink social services, this would be the place to start. As David Brooks pointed out in a recent blog, given the amount of money the United States has spent on the war on poverty, they would have achieved more if they had just given the money to poor people.

Choice isn’t always ‘efficient’

The Commission’s own research suggests we shouldn’t leap to a devolved system of providers, as there are many potential downsides. The main one is that it would lead to a duplication of providers, and a loss of economies of scale that a centralized provider has. All this costs tax payers more unless we can be sure that a sector of competing providers is more efficient or effective at their job. But we know from experience – when the government tried its competitive Crown Health Enterprise (CHE) model in the health sector – that such certainty doesn’t naturally arise. Particularly we shouldn’t just sign up to an ideological article of faith as we did then, and learn we’re wrong after the fact.

There are significant problems with a multiple provider system aside from the fragmentation and duplication that arises with a bevy of small provider shops, and that is the increase in monitoring and compliance that needs to occur to ensure providers are doing what they should be doing. This means a lot more contract managers in central government writing and managing contracts. These issues of economies of scale versus benefits of competition are really important in determining which is the best way to go. Those that get behind this recommendation despite the caveats from the Productivity Commission appear to be from the school of blind ideological belief that reigned in the 1980s and 1990s in New Zealand that has long been abandoned. The evidence base for this approach is far from established, and needs to be looked at on a case by case basis.

Is our public service equipped to deliver?

The Netherlands model we mentioned above is entirely driven by evidence. That is, providers can only provide services driven by clear evidence and with outcomes that are informed fully by the existing high quality research. For that to work in the real world you firstly need to know what you are contracting for – in other words you need outcomes for clients that are clearly articulated, measured and reported on, in a valid and meaningful way.

Achieving such research-driven contracting is contingent on three things

  1. Contract managers within government know and understand the evidence in the area they are contracting enough to recognise what a high quality service proposal looks like,
  2. Contract managers know what outcomes need to be achieved and they can recognise high quality data collection and reporting, and ensure the right outcomes are written into the contracts they manage and,
  3. These contract managers have the skills and ability to ensure providers adhere to the terms in the contract and incentivise them accordingly.

Sadly investment in the research and management skills and abilities of those doing the grunt work of our public service has not been a priority for some time – a fact that the Commission’s research again acknowledges. While evidence and research is used as a buzz word when talking high-level policy (and when it serves a politician’s purposes), the commitment to adhering to evidence-driven policy is shaky at best. The recognition of the need to invest in upskilling the public service in evidence-based frameworks (a group of committed and driven people who are consistently under the cloud of expensive restructuring and politician slag-offs) – is non-existent.

Before the Government leaps in and takes up the Productivity Commission’s recommendations on contracting out more social services, we need to make sure that we are making a proper fist of the existing contracting we are doing. In other words, try tidying our house before we look at redecorating.



Productivity Commission Report on Improving Social Services was last modified: December 15th, 2015 by Gareth Morgan
About the Author

Gareth Morgan

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Gareth Morgan is a New Zealand economist and commentator on public policy who in previous lives has been in business as an economic consultant, funds manager, and professional company director. He is also a motorcycle adventurer and philanthropist. Gareth and his wife Joanne have a charitable foundation, the Morgan Foundation, which has three main stands of philanthropic endeavour – public interest research, conservation and social investment.