One - Outsourcing Public Services

Summary

Primary objectives

Where the state decides that the market cannot provide certain goods or services in sufficient quantities or quality, or in a sufficiently just distribution, it considers whether to take political responsibility for their provision as a public service. This includes, most obviously, security, education and healthcare, but also potentially other essentials like transport, water, energy and electronic and postal communications. In deciding whether to assume any particular responsibility, it determines the public need and the opportunity costs of meeting this need as a public service, balanced against other priorities and the quantity, quality and distribution of the same goods or services by the market. Whether and to what extent it should intervene is a political choice for which it must be accountable politically.

The extent of these political choices varies. In healthcare, for example, the US model historically encourages markets in health insurance and healthcare services, while European states tend to take political responsibility for health as a public service as part of a state-funded system. How these choices evolve is not always linear or predictable. A change in political leadership or an external trigger like a global crisis can bring about sudden shifts. For example, COVID-19 caused many governments to take on unprecedented levels of responsibility for the provision of healthcare equipment and services. Conversely, the global financial crisis in 2008 led many states to shed responsibilities to rein in spending.

Just because the state assumes responsibility for a service does not mean that it must become the provider. It also decides whether to deliver the service directly (in-house) or to contract for its delivery by private actors (outsourcing), usually through some form of competitive tendering process (public procurement). We can understand this decision through the lens of discretion and agency. Many of these services are highly complex. They necessitate discretion in delivery that cannot be efficiently assumed centrally and is, then, necessarily delegated to agents. By selecting either a public or private delivery model, the state determines who should exercise that discretion and what form of governance regime to impose on them.