The real welfare scroungers

I have posted elsewhere on this blog (e.g. The New Barons and Impoverished by outsourcing) about the consequences of public sector outsourcing, picking up on some brief comments in the book (e.g. p. 86-7 and 124-5), but I want to return to it with a particularly egregious example that has just been reported, relating to the sub-contracting of the UK Probation Service:


“Taxpayers will face a £300m-£400m penalty if controversial probation privatisation contracts are cancelled after next May's general election under an ‘unprecedented’ clause that guarantees bidders their expected profits over the 10-year life of the contract.”


The neo-liberal theory behind outsourcing public services, which grows out of the general assumption that markets are efficient, is three-fold. First, that the private provider bears the risk and profit is the reward and incentive for this. Second, that providers who do not deliver will lose their contracts. And third that private providers will deliver at lower cost.


The probation case is the latest and perhaps most flagrant demonstration that the first is simply not true. It is not true in a general way – because, in the end, if a private provider fails then the State will ultimately have to step in, as happened when G4S failed to provide adequate security for the London Olympics, for example. But it is true in a more specific way, as well. For the providers of these probation services will get their profits come what may. For a long time now, research has shown how risk transference in this context is a myth – best documented in the case of Private Finance Initiatives (PFI) as, for example, in this study by Ball, Heafey & King (2003).


This in itself blunts the second rationale, because there is no downside to losing a contract if the provision fails. And in case it might be thought that a firm which keeps failing to deliver will no longer be awarded new contracts, then that too is false. Even whilst under investigation for fraud in relation to previous contracts, the same firms are in the running for new contracts (see also p.87 of book for older examples).


As for lower costs, these are achieved in two ways. One is simply by reducing the number of staff and their wages, which saves money on one government budget but increases the costs on other budgets, such as unemployment and tax credits. Beyond that – and the probation service is again an example – all the difficult, complex and expensive cases are left as in the rump of the public service provision.


There are simply too many examples of public outsourcing failure for it to be remotely credible any more in the terms that it is justified. On some internet discussion forums I have seen, apparently in all seriousness, a last ditch attempt to do so through the argument that these failures are the consequence of public sector incompetence in drawing up contracts. It is a breathtakingly circular and unfalsifiable argument: outsourcing must work because private is better than public and if it doesn’t work then it proves that private is better than public. One might admire the audacity of such market ideologues but, really, this no longer has any discernible roots in market ideology. It is better understood through another meme of the neo-liberal right: welfare-scrounging. It is the welfare-scrounging of the super-rich, living voraciously and vicariously off the hollowed-out shadow state.