Locked-In or Locked-Out? Can a Public Services Market Really Change?

This blog is based on an article in the Journal of Social Policy.  Click here to access the article.

Since the 1990s, the institutions delivering public employment services have radically changed in many OECD countries. Nowhere has this been more apparent than in Australia which, during the Job Network (JN) era (1998 – 2009), became the first OECD country to entirely privatise its public employment services.

Launched in May 1998, JN marked a major international policy experiment in competitive tendering as the Howard Government put all of Australia’s employment services system out to tender. A mix of over 300 private, community and government-owned providers won contracts to deliver a range of job-matching, job-search training, and intensive assistance services, receiving a mix of administrative payments and outcome fees for doing so. The Government’s role in delivering employment services fundamentally shifted from a provider to a purchaser of services, driven by New Public Management principles and the conviction that marketization could produce employment services that were not only cheaper but also more personalised than services delivered by a bureaucratic regime. In other words, the public management of Australia’s welfare state was to shift from bureaucracy to enterprise.

However, Job Network failed to deliver upon these promises. In an earlier study with our colleague Jenny Lewis, we found that JN had evolved into a highly standardized system, as providers adopted increasingly routinized and converging service practices. Over ten years of JN, frontline workers’ flexibility to tailor services substantially diminished while the differences between the servicing approaches of providers working in different sectors largely disappeared.

Creating a diverse market of providers was core to the original vision behind marketization, with the hope that not-for-profit organisations and private businesses would each bring unique perspectives to assisting the unemployed. But our comparative survey research with those delivering services on the ground instead showed that the agencies contracted to deliver JN increasingly imitated each other. Other studies, drawing on different methods, reached similar conclusions: that what emerged was an ‘‘inflexible’ pattern of outsourced services’ in which ‘“personalised service” [was] the exception, rather than the norm.’

This is a problem that successive governments have struggled to resolve, beginning with the introduction of Job Services Australia (JSA) by the Rudd-Gillard Government in 2009 and, more recently, the Abbott Government’s Jobactive reform in 2015. JSA sought to replace JN’s ‘“one size fits all” approach…with greater flexibility for employment services providers to tailor services’, giving providers greater discretion to tailor clients’ job plans and adjusting the payment model to increase the incentives to work with harder-to-help clients.

But on coming to power, the new Abbot Government criticised JSA as offering ‘limited scope for provider-initiated service design.’ It introduced a new Jobactive system that borrowed several design elements from the UK’s Work Programme, including stronger use of payment-by-results, moving to larger contracts with fewer providers to reduce the purchaser’s transaction costs, and adopting a more ‘hands-off’ approach to specifying what services should be delivered in the hope providers would be enabled ‘to deliver flexible solutions tailored to an individual jobseeker’s circumstances.’

In our new paper, we take a big picture look at this second decade of Australian quasi-market reform. Drawing on two further waves of data collection from frontline staff in 2012 and 2016, we revisit our earlier analysis of the impacts of marketization on service flexibility to consider whether the more recent restructures have been able to arrest the trends towards service standardization and provider ‘herding’ that had set in by 2008. Or have such features become indelibly ‘locked-in’ to the Australian welfare market?

Job Network: from a ‘black box’ to a ‘re-bureaucratised’ market

The standardisation observed in our earlier study partly reflected how Australia’s employment services system became ‘re-bureaucratised’ in the early 2000s, after initially operating as a ‘black box’ system (in that monitoring of contracted providers was low, and providers had much leeway to determine over whatservices they provided and when).

However, this changed from 2003 when the Australian Government turned towards a form of ‘hard contracting’ in response to widespread evidence that providers were ‘parking’ harder-to-help clients and focusing their support on the most job-ready clients (‘creaming’) in order to maximise profits. So, the purchaser began to write into contracts and administrative guidelines detailed specifications about what services should be delivered. It also began more intensively monitoring providers for breaches of contractual compliance, assisted by a new mandated IT system that case managers had to use to record work flow processes and which departmental officials could view.

In response, providers became increasingly risk averse, turning towards service standardisation as a way to minimise their exposure to compliance audits. While an understandable response to the contract gaming during the early Job Network, the turn to ‘hard contracting’ came at the expense of system flexibility and increased transaction costs for both the government and contracted providers.

As Bredgaard and Larsen argue, transaction costs ‘are an inescapable by-product of contracting-out.’ When government agencies embark upon tendering processes this creates costs associated with bid preparation, evaluation, the negotiation and signing of contracts and so forth. Then there are the ex-post transaction costs associated with monitoring contracted parties to mitigate risks of gaming behaviours. For a series of reasons to do with information asymmetry problems and issues of bounded rationality, institutional economists predict the transaction costs associated with social services markets to be especially high. By the end of JSA, for example, the annual costs associated with monitoring the Australian employment services market were estimated to be in AUD$259.3 million, or 21% of total programme costs.

High transaction costs make public services markets vulnerable to consolidation around a group of insider-firms. They do so by putting off potential new players from entering the market:  new entrants ‘must expend resources on market participation…without any guarantee that contracts can be secured.’ Payment-by-Results contracts can also increase barriers to entry, particularly for community organisations with limited access to the capital or borrowing needed to finance back-ended payment models. Notably, in Australia, the market share of for-profit agencies has increased over timeas the total number of providers has shrunk from around 300 in the late 1990s to just 44 in 2015.

Locked-in?

The JSA and Jobactive reforms sought to reverse the standardised pattern of service delivery that had developed under JN. This problem of standardisation related both to the administrative, rule-bound approach to case management, as well as the loss of differentiation between providers in different sectors. However, in our new study, we find that the reforms have had little success.

If anything, the use of standardised protocols and IT-systems to guide case managers’ decision making has intensified since JN. Whereas 63% of those surveyed in 2008 ‘agreed’ or ‘strongly agreed’ that they were free to decide for themselves what to do with clients, this fell to below 50% in 2016. Meanwhile, the proportion who indicate that the decisions they make about clients are determined ‘to a great deal’ by standard programme rules has steadily increased from 18% in 2008 to 27% in 2012 to 31% in 2016.

Perhaps our most notable is the level of organisational convergence between the for-profit and not-for-profit providers remaining in the system. On almost 90% of the more than 100 items we surveyed frontline staff about, we could no longer find any significant differences between the response of for-profit and not-for-profit provider staff. By 2016, any lingering differences between agency workers in the different sectors in terms of their perceptions of jobseekers and willingness to apply a standardised ‘work first’ model of activation had entirely disappeared.

In the paper, we examine a series of mechanisms contributing to this institutional isomorphism in Australia’s employment services field, and the factors that have led providers to converge on norms and organisational structures. These include the continuation of the purchaser’s ‘hard contracting’ approach, elements of the Australian ‘Star Ratings’ performance framework, and the structure of purchaser-provider transactions within the Australian quasi-market (e.g. larger contract areas, and stronger Payment-by-Results). While the degree to which the Australian experience can be applied to other countries requires further work, the consistency in our findings over more than 20 years ought to give champions of privatisation as the pathway to more personalised service provision much pause.


About the authors

Mark Considine is Professor of Political Science and Provost of the University of Melbourne. He is one of Australia’s most respected political scientists, with a career spanning both academic research and applied policy work for government and civil society organisations. He has published widely in the area of public employment services reform and the frontline delivery of welfare-to-work, including articles in journals such as Public Administration Review, Social Policy and Administration, Public Management Review, and the Journal of Social Policy. He is also the author of Enterprising states: The public management of welfare-to-work (Cambridge University Press, 2001) and co-author of Getting welfare-to-work: street-level governance in Australia, the UK, and the Netherlands (Oxford University Press, 2015).

Siobhan O’Sullivan is Senior Lecturer in Social Policy and Research at the University of New South Wales (Sydney, Australia). Her research focuses on the delivery of contracted employment services in Australia, the UK, and around the world. She has a broad interest in the welfare state and ‘mission drift’ as well as an ongoing interest in animal welfare policy and environmental ethics. She is co-author ofGetting welfare-to-work: street-level governance in Australia, the UK, and the Netherlands (Oxford University Press, 2015).

Michael McGann is a Research Fellow in the School of Social and Political Sciences at the University of Melbourne. His research addresses the intersection between employment and disadvantage, specialising in the labour market experiences of vulnerable groups such as mature-age workers and the long-term unemployed. His work has been published in journals such as Work, Employment and Society, Administration and Society, Policy Sciences and Social Policy and Society. With Siobhan O’Sullivan and Sophie Danneris, he is also the co-editor of a recent thematic section of Social Policy and Society on ‘Rethinking welfare-to-work for the long-term unemployed.’

Phuc Nguyen is a Lecturer in Management at La Trobe University. Her research interests include the welfare state, employment services delivery, and public services contracting. She also has an interest in supply chain integration and sustainability.

 

 

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