The perils of outsourcing (privatisation) – a repost

Jan 7, 2021

In Pearls and Irritations last year we  posted articles about the serious erosion in the quality of care and services in many fields  – disability care, vocational education and training, child care and particularly aged care, where more than 650 older people have died in private, for-profit “homes”. All too often service quality has been sacrificed for profit. Political ideology has become more important than quality services for the public.

I have summarised the problems in articles below.

AGED CARE by Kathy Eagar

Outsourcing the government’s duty of care for older Australians has been at the core of structural failings in aged care for the past two decades. Covid-19 is just the latest in a long string of failures. See links below:

Part 1.

Part 2.


But perhaps it’s more accurate to say that it is our misplaced faith in market forces that is failing people with disability. See link below:


TAFE has been drained of funds in favour or poorly performing and/or dodgy private providers. What a difference there is between the public vocational education and training provider, TAFE, and private for-profit training providers. See link below:

CHILD CARE by Lisa Bryant

It is extraordinary that about 70% of our long-day care services are now run by for-profit operators when we know that the for-profit sector generally delivers lower quality education care. See link below:

Laura Tingle in the Financial Review (3.10.2020) about Job Network, formerly the Commonwealth  Employment Service

Aged care is not the only broken system that government needs to acknowledge is incapable of doing what it is supposed to do.

More than 20 years ago, the Howard government outsourced the work of finding jobs for the unemployed from the Commonwealth Employment Service.

Not-for-profit as well as profit-based agencies won contracts to deliver these services. It was originally called the Job Network but is now known as jobactive.

Two years ago an expert panel commissioned by the government reviewed the system and found, among other things, that very few employers actually use the system, and that among the long-term unemployed, ‘‘one in five job seekers have been in the system for more than five years’’.

Neither of these things will come as a shock to anyone who has watched this process over its life. The idea was that the agencies would earn their income from turning over the easy-to-place transitory workforce, and concentrate their resources, with the incentive of better remuneration, on helping the long-term unemployed obtain the basic skills and assistance they needed to get into the workforce.

Most of the audits into the system have concentrated on how the department that oversees it has gone about awarding contracts, not whether the system works.

And  what does this system that employers don’t use, and which doesn’t help 20% of the long-term unemployed find work for as  long as five years, cost taxpayers?

It costs $1.4 billion a year. The system has essentially become a protected industry that the government created, and now apparently feels a responsibility to protect.

And now this system is at the centre of the greatest unemployment crisis in a century.

Between December 31 last year and August 31, the caseload of unemployed in the system doubled from about 613,000 to almost 1.4 million. And that’s with JobKeeper still in place.

The government has said it is developing a new model to be rolled out in the middle of 2022, and last month announced a local jobs program. But there seems little sense of urgency about it in all of the verbiage from the government of the past few weeks.

Ross Gittins in the Sydney Morning Herald (30.09.2020)

 I don’t find it hard to believe that no one in particular made the decision to outsource the running of hotel quarantine to private contractors (in Melbourne). It really was a decision that, in Scott Morrison’s memorable phrase, ‘‘made itself’’.

It was taken without much discussion because ‘‘that’s what we always do’’. Outsourcing the provision of public services has become so ubiquitous no one thought of doing it any other way.

You may think that outsourcing the delivery of public services to for-profit providers – a form of privatisation – must be the bright idea of some naive economist, and you’d be right. Actually, half right.

An economist who’s put much thought into government ‘‘contracting out’’, Oliver Hart, of Harvard, demonstrated it was a good idea if your goal is to cut costs, but a bad idea if you care about quality.

This is because of a problem economists call ‘‘incomplete contracts’’. It’s humanly impossible to write a contract that covers every problem that could arise and every way the contractor could game the contract at your expense. When you deliver the service yourself, you retain control over quality. Hart was awarded the Nobel prize for his sagacity.

Outsourcing is hugely fashionable in business as well as government. In my experience, it’s always about saving money in the fond hope any loss of quality won’t be noticed. Often, the saving comes from ending the good wages and conditions of workers by sacking them and sending them down the road to work for some contractor on lower pay and worse conditions. It’s a way of side-stepping successful unions.

In the public sector, however, another attraction of outsourcing is that it blurs lines of responsibility. ‘‘The contractors are giving you a hard time? Blame them, not me.’’ ‘‘You’d like to see the contract I’ve made with the supplier? Sorry, commercial in confidence.’’ Truth is, governments at both levels and of both colours have gone for years saving money by contracting out wherever possible and imposing annual ‘‘efficiency dividends’’ (an Orwellian term for public service redundancies).

They’ve given us government on the cheap because they believed we’d prefer a tax cut to decent service. They could have striven to give us better government – including government that was big on accountability and where lines of responsibility were clear – but they settled for cheaper government.

They’ve spent decades cutting corners, hoping we wouldn’t notice (or do no more than grumble about) the slow decline in quality. Now the pandemic has caught them out. Pity so many lives were lost in getting the message through.

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