Mythbusters: “The private sector is more efficient than the public sector”

April 25, 2013 // By: Stephen Reid

The myth

“The private sector is efficient and dynamic; public sector is costly and slow. The more we can get the private sector to run things the better.”

In the wild

"Public services should be open to a range of providers competing to offer a better service… Of course, there are some areas, like national security services or the judiciary, where this wouldn't make sense. But everywhere else should be open to real diversity... This is a transformation: it ends the state's monopoly over public services… Instead of having to justify why it makes sense to introduce competition in individual public services – as we are now doing with schools and in the NHS – the state will have to justify why it should ever operate a monopoly."

— David CameronFeb 2011

“We have nationalised education, nationalised health, and nationalised welfare: run by inflexible, centralised monopolies. It adds up to the nationalisation of our whole lives.”

— Nick CleggJan 2008

“I am not going to hide hard choices from the British people or bury them in the small print of the Budget documents. You’re going to hear them straight from me, here in this speech. [Our policy is] an economy where the state does not take almost half of all our national income, crowding out private endeavour.”

— George OsborneJune 2010

The reality

The railways

The railways remained state-owned and state-managed from 1948 until 1996 when John Major’s government divided British Rail into more than 100 different businesses and sold them off. One result, according to the Financial Times (FT), was that it “introduced hard-nosed commercial tensions into relationships that often needed to be co-operative,” and “broke traditional bonds and practices of passing on skills and experience”.

The complexity of contracts, targets and blurred lines of responsibility introduced numerous inefficiencies. For example, the FT noted that, post-privatisation, the industry employed hundreds of people just to fight over who is to blame for every minute of delay to trains. Figure 1 illustrates how government support of the rail industry has increased dramatically since privatisation.

 

Healthcare

As Figure 2 shows, in 2008, the United States, with predominantly private health care, spent around $7,000 per person on health. The NHS spent around half that sum per person, yet judging by outcomes such as life expectancy at birth, the NHS did just as well. The same study that revealed these figures indicated that one reason was the higher cost of private specialist doctors in the US, who were able to charge much more for procedures.

 

The impact on the delivery of NHS services of outsourcing to private providers has now been analysed quite broadly. A review of 33 studies looking at the provision of a wide range of NHS services found negative impacts in 18 cases but positive impacts in just 4 cases. The study concluded that “much of the evidence demonstrates either the negative aspects of introducing competition into the provision of health care services or inconclusive results,” and, with some understatment, that, “overall, there is a lack of evidence to show that outsourcing leads to improved quality of patient care”. 

Prisons

By 2007 private companies in the US were providing for 1 in every 11 eleven prisoners. “Prisons for profit have a different mission than public prisons: they must earn revenue,” commented the American Civil Liberties Union, “this means they have an inherent interest in ensuring prisons stay filled”.

A study in Ohio showed that states with higher proportions of private prisons had higher rates of re-offending and that private prisons offered fewer rehabilitation and training courses than publicly owned equivalents. An internal review by the State of Arizona, a leader in adopting private prisons, found that minimum security prisons were no cheaper when run by the private sector, while privately run medium-security prisons were actually more expensive.

In summary

Private sector dynamism versus public sector inefficiency has been the dominant political narrative of the last few decades. It has supplied the excuse for repeated, one-directional upheaval in many of the services that we rely on, and which are essential to our quality of life. At best, evidence of private sector superiority is lacking. At worst, such lazy assumptions can cost lives as well as money.

Download the full Mythbuster article by Andrew Simms (PDF)

Issues

Public Service Reform, Transport & Infrastructure

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