Impoverished by outsourcing

Under the cover of the budget deficits which are mainly the result of the financial crisis, the welfare state in many European countries is being rolled back. In the UK, the latest manifestation of this is today’s announcement that much of the work of the probation service is to be outsourced to private providers. These will, it is said, be ‘paid by results’ implying that they will only be paid if re-offending does not occur. This move combines two now familiar claims made by neo-liberal policymakers but is also indicative of the way that neo-liberalism is now transforming into something quite different.

The familiar claims are, first, that private provision is more effective then public provision, with competition driving standards up and prices down and thus offering taxpayers better value for money. The other is something well-known in management theory, namely that motivation comes from economic reward in the way famously envisaged by Taylor.

It’s not hard to predict what the results will be, because it is exactly the same policy that has been applied to workfare to work programmes. Here, the private provider is to be paid according to how many unemployed people are placed in jobs. In fact, the evidence shows that the leading provider in this area, A4E, is less successful at placing people than would be the case if no such scheme existed. Yet they continue to be paid. Moreover, the payment by results system, which is presented as simple common sense, has precisely the kinds of dysfunctions that are well-known in management theory. It incentivises the providers to focus on the easiest cases and to write off those with more complex needs.

The deficiencies of such schemes do not end there. Typically, such outsourcing involves recruiting staff who used to work for the public sector to work for the private contractor but on worse terms and conditions, whilst the contractors themselves are normally global companies who do all they can to reduce their UK tax liability.

However, the idea that what is happening here represents anything like the competitive free market envisaged by neo-liberal theory is quite laughable. What we have is a handful of companies to whom contract after contract is awarded by the UK and other governments despite a track record of persistent failure. Examples include the well-documented case of Capita (discussed on p.87 of the book but see also here) or the high-profile case of G4S which failed to provide the necessary security for the 2012 Olympics and had to be bailed out by the oh-so-incompetent public sector.

What is emerging, then, is not neo-liberalism as normally understood but what might be called neo-mercantilism. Under mercantilism, an economic doctrine of the 15th-17th centuries, companies were licensed by the State to trade, thus stifling competition and encouraging corruption. Ironically, it was Adam Smith, the unwitting poster boy of neo-liberals, who was one of its sternest critics. Now, we see something similar emerging, with the global outsourcing firms being handed licences to milk what were hitherto public monopolies, with guaranteed revenue streams from the taxpayer. We also see something of the corruption, too, with politicians and senior civil servants who bestow these contracts moving seamlessly on retirement onto the boards of the companies who benefit. The overall effect is quintuply impoverishing: poorer public services, higher costs, diminished employment conditions, an erosion of the tax base, and a corruption of politics.