Suppose a government institution regularly orders its office stationery from a company which caters specifically to public sector clients. Suppose inquisitive journalists find out that this company is often not fulfilling its deliveries, but sending oversized bills anyway. Tight personal links between the company, renowned for its lavish expense culture, and some of its public sector clients are also uncovered.

We would surely consider it a good thing that these dodgy practices had been brought to light. If some of those responsible were forced to resign, all the better. But would anybody seriously draw the conclusion that this incident demonstrated the evils of privatisation and free market ideology?

Clearly the incident would have nothing to do with the debate about market provision vs. state provision. It would simply be an example of in-house provision vs. contracting out. The controversies surrounding the employment service provider A4e should be seen in the same light.

The criticism of A4e has gone beyond the recent scandal, leading to assertions that the ‘marketisation’ of public services has been taken too far altogether. However, with A4e, the opponents of markets have chosen a very poor example to make their case. In its welfare-to-work role, A4e receives commissions from the government, works towards outcomes specified by the government, and gets paid by the government according to a government-determined formula. Yes, A4e is a private company, but, in this role at least, it is not a market actor.

From a liberal perspective, privatisation has never been an end in itself. It is a necessary, but insufficient condition to meet two aims:

1.      De-politicising the provision of a good or service, so that market actors cater to their consumers rather than politicians, bureaucrats and lobbyists.

2.      Allowing completely different approaches to providing the good or service to coexist, e.g. different contractual relationships between those involved, different degrees of vertical and horizontal integration, different internal structures and different ownership structures.

The Private Public Partnerships (PPPs) which characterise the delivery of welfare-to-work schemes meet neither of these criteria. From a free-market perspective, it is thus fairly irrelevant whether the government provides job placement services itself or whether it outsources bits to a private sector contractor. Yes, the government is a poor entrepreneur. But devising complex service contracts, getting the incentive variables right, and monitoring them effectively are also entrepreneurial activities.

Unfortunately, there are no obvious ways to remove the government from the welfare-to-work sphere entirely. But a localisation of both the commissioning and the funding would probably go a long way towards meeting the two aims described above.

Dr Kristian Niemietz joined the IEA in 2008 as Poverty Research Fellow, becoming its Senior Research Fellow in 2013 and Head of Health and Welfare in 2015. Kristian is also a Fellow of the Age Endeavour Fellowship. He studied Economics at the Humboldt Universität zu Berlin and the Universidad de Salamanca, graduating in 2007 as Diplom-Volkswirt (≈MSc in Economics). During his studies, he interned at the Central Bank of Bolivia (2004), the National Statistics Office of Paraguay (2005), and at the IEA (2006). In 2013, he completed a PhD in Political Economy at King’s College London. Kristian previously worked as a Research Fellow at the Berlin-based Institute for Free Enterprise (IUF), and at King's College London, where he taught Economics throughout his postgraduate studies. He is a regular contributor to various journals in the UK, Germany and Switzerland.

7 thoughts on “Welfare-to-work providers – private companies, not market actors”

  1. Posted 14/03/2012 at 23:14 | Permalink

    “But would anybody seriously draw the conclusion that this incident demonstrated the evils of privatisation and free market ideology?”

    Kristian, this is exactly the sort of claim that is made in The Guardian and by the public sector unions every day.

    In fact, according to many of the arguments seen in The Guardian (and in its comments section) this is all that privatisation and free market ideology consists of.

  2. Posted 17/03/2012 at 10:28 | Permalink

    £67.50 is a basic human right to live on each week, this amount should not come with conditions ie the humiliating work programme, or the degrading practice of “signing on” at a jobcenter once a fortnight.

  3. Posted 17/03/2012 at 18:43 | Permalink

    If minimum wage laws were repealed, unskilled people would be able to get jobs and would not need welfare. Search for the short YouTube video “Edgar the Exploiter.”

  4. Posted 19/03/2012 at 15:59 | Permalink

    Everyone should be paid a basic wage, cut all this waste to the tax payer. it’s all grease palming corruption under an “Who you know” system,there are not enough job available, so stop the smoke and mirrors already.

  5. Posted 20/03/2012 at 12:12 | Permalink

    Anonymous, it isn’t just the £67.50. There’s Housing Benefit, Child Tax Credit and a myriad of other benefit depending on the circumstances, plus benefits in kind like social housing. We’re not talking about trivial amounts here.
    But that’s not even my main point. Your attitude is the classical approach of the poverty lobby: Stop expecting anything of people, just give them lots of money and leave them alone. It hasn’t worked out that greatly, has it?

  6. Posted 20/03/2012 at 12:30 | Permalink

    Kris – it depends.

    If you have worked all your life, paid taxes, and become unemployed and qualify for 6 months of contributions-based JSA, then it is a pretty poor show to have to travel (often some distance) to sign on every fortnight. It’s not as if the Jobcentre can give any decent advice or help to well educated and experienced people looking for jobs. Most people in this category will not be receiving other benefits.

    The situation for those whose benefits bear no relation to contributions they have made and who have been receiving them for years is somewhat is different. However, even these people only have to sign on every fortnight for JSA – not for the other benefits you mention.

  7. Posted 20/03/2012 at 18:09 | Permalink

    HJ, yes, agreed. That’s why I think it makes sense to have a distinction between unemployment insurance and welfare, with the former being based on the contributory principle rather than ‘need’. The current contributory JSA is an empty shell, I suppose precisely because of the erosion of the contributory principle.

Comments are closed.