Allowing a Range of Private Companies to Provide Public Services

(This is an archived extract from the book Patterns of Power: Edition 2)

Public funding can be given to people as transfer payments, or in the form of vouchers,[1] or by government reimbursement of costs, so that they can buy some services from private companies.  Where it is possible to ensure that there is competition, private companies can ensure value for money in publically-funded services.  The beneficial effects of competition were demonstrated when the British government privatised telecommunications[2] and new entrants joined the market.  Quality and reliability improved, whilst prices almost halved.[3]  Competition is an effective form of governance in itself (3.3.2), and is synonymous with offering choice to the consumer, but safeguards are needed:

·      Consumers need transparent and honest information so that they are not misled when making their choice of supplier.  This is a matter of regulation (3.3.1).

·      People may lack sufficient knowledge to choose.  This is the case with health, where specialist advice is needed, though people can use independent doctors to advise them before choosing treatment in a particular hospital or clinic.

Employees of private companies are likely to be profit-orientated, but this might not be to the customer’s disadvantage if a globally competitive market encourages innovation in technologies and service offerings in response to consumer demand.

© PatternsofPower.org, 2014

[1] Edwin G. West wrote a paper entitled Education Vouchers in Principle and Practice: A Survey, which was available in April 2014 at http://heartland.org/sites/all/modules/custom/heartland_migration/files/pdfs/15802.pdf.

[2] BT’s version of its history was available in April 2014 at http://www.btplc.com/Thegroup/BTsHistory/index.htm

[3] This claim in particular, and a summary of the benefits of several British privatisations, were summarised in an article The end of privatisation?, which was published in The Economist, 19 June 1998.  This article was available in April 2014 at http://www.economist.com/node/134789.