That the LSE is the school of economics does not mean the economics offered by all who teach at the LSE is correct. So it is with this interesting little claim here, that Stalinist central planning is in fact more efficient than market based processes. The big error here being that the comparison itself isn’t in fact made. Merely the assumption that as market provision of certain goods and services is neither perfect nor efficient, that the alternative must be more so. That isn’t the way that reality works.
Why public sector outsourcing is less efficient than Soviet central planning
That’s a difficult assertion to support, the really bad part being that she doesn’t even try:
Since the 1990s, public sector outsourcing has evolved through competitive tendering, partnership working (particularly via Public Finance Initiatives), strategic-commissioning and prime-contracting. Each of these iterations has promised better public goods and services for less cost. Their practice, however, has frequently been marked by rising costs and lower service quality. Abby Innes explains why.
We seem to be providing many more rail journeys at lower cost. The increased marketisation of the NHS has led to improved productivity since 2010. We do seem to be getting somewhere at least.
However, there’s either an error or a question begging there. For public good has a very specific meaning. It’s something that is non-rivalrous and non-excludable. Most of what government provides being neither of course. Eton will quite happily exclude someone who doesn’t pay, you’ll not sit two boys in the same seat – although the place has a reputation for two in a bed – so education is both rivalrous and excludable. The same is true of health care – trying getting cancer treatment out of a US hospital without a form of payment or insurance. And on and on.
Sure, there are real public goods, the herd immunity from vaccines say, the defence of the country, but that’s not what is being talked about here.
And to the question begging. Public goods are so defined precisely because we agree that pure free markets unadorned don’t provide them all that well. That’s the very justification for government action concerning them. So, if you do use the definition properly here, the statement is actually, well, things markets don’t provide well markets don’t provide well. Which is somewhere between petitio principii and fatuous tautology. Neither of which are regarded as great academic insights.
But onto the details of the claim:
Such ‘incomplete’ contracts create unanticipated and destined to be high costs for the management and supervision of the ‘non–contractible’ elements relating to service delivery. Frequent contractual failures require repeated (and given a poor bargaining position) expensive renegotiation. Complexity, shifting needs and interdependency are conditions endemic within public service goods and services.
The economics of Soviet central planning tells us that the resulting asymmetries in information and leverage between state and producer are just the start of bargaining games that the state cannot win. Given public funding the state remains both the only partner in the market relationship however numerous the ‘end users’ or rhetorical ‘customers’ may be, but also the continuous bearer of the contractual obligations and financial, legal and political liabilities and costs of a failed supplier: a position unique to the state.
Incomplete contracts are indeed a problem. But she’s still not proven her contention:
The current UK government nevertheless continues to drive outsourcing into the state’s most complex and socially essential service domains.
She’s against outsourcing. So, she must compare outsourcing to not outsourcing, to direct state provision of these goods and services. Something she doesn’t even attempt to do. And she most certainly doesn’t go into the implications of similarly incomplete contracts in a system without even the threat of bankruptcy to market providers.
After all, Carillion wasn’t all that good and it did go bust. How many direct state organisations have ever had anything other than increased budgets for not being very good?