The 'Market' undermines the public interest

September 23, 2008 18:35 | by Agnes Kant

Agnes Kant is leader of the Socialist Party of the Netherlands

In the discussion of the usefulness of introducing the market into the public sector ideological arguments have long prevailed, especially on the part of its supporters. The neoliberal belief in an unbridled free market, which will, by means of greater efficiency and more competition, make services cheaper, blinds these supporters to the market's social price. They forget, also, to add the market's financial costs to the bill: spending on advertising, tendering, the costs of negotiation, profits to be paid out and the increased costs of monitoring. These form the forgotten 'hole in the pocket' through which the market leaks money.

The question of whether introducing the market into the public sector is advisable should not be the subject of an ideological discussion but should be answered by means of an analysis of the facts and by pragmatic consideration. To what do the market and liberalisation lead? What are the public interests involved and how are they best secured? The public good, that which is of importance to all of us, rests on five pillars: democratic legitimacy, morality, the long term perspective, recognition of the coherence of things, and the general interest. These five pillars are nothing to do with the market, and are therefore not guaranteed by the market. I would go further: they can even be harmed if the market is brought into the public sector.

Look at the results of the introduction of the market, at the experience of this process to date, and you will unfortunately see the examples needed to demonstrate this. Public services have, through the introduction of the market, been put at a distance by the frequent refusal of the state authorities to take responsibility for the public sector on the grounds that they have already withdrawn from their provision. How often have we, during discussions about public transport or homecare, heard from members of the government that "I can't say anything about that". Democratic legitimacy suffers and dies as a result. Responsibility for personnel is, for example, laid squarely at the door of unions and employers. The Dutch Secretary of State for Health, Jet Bussemaker, says that she can do nothing to stop the undermining of working conditions in homecare. Housing associations can no longer be influenced. The government knows nothing about the amount spent on advertising in the energy sector and refuses to admonish the energy corporations for the fact that they have massively increased tariffs whilst at the same time collecting more profits.

The introduction of the market leads to an erosion of morality. Take, for instance, the rapid increase in the highest level of salaries in the public sector - while the executives take home hundreds of thousands, ordinary workers are asked to do the same amount of work for less money. What's disgusting is the announcement in annual reports of homecare organisations of the extent of executive salaries - they are greater than those of the Prime Minister - the 'necessity' being to conform to salaries current at that level of the labour market. If a homecare provider for which the highest-paid executives earn hundreds of thousands annually puts employees under pressure to accept reductions in the already shameful wage of €1100 per month, any idea of moral standards is certainly out the window, especially as at the very bottom of the wage ladder you can see just the opposite effect. Competition on prices in the public sector is fought out on the backs of the workers. Experienced homecare workers are being replaced by cheaper labour, or forced to accept wage cuts; postal workers who in the past were able to support their families must now work for piece-rates, which means that all they have left is a junk-job.

'Financial incentives' and 'market-think' are alien to the public sector. Workers in this sector have a strong intrinsic motivation. They have chosen to do something meaningful for other people. It is disastrous for the job motivation of such people if you then let financial incentives loose on them - if the police officer must achieve his 'target' and prove this with vouchers, or the homecare worker is obliged to clock in and clock out for each contact with a client. For them it isn't a matter of production, but of people.

Making the pursuit of profit and competition over prices the new target for the public sector also puts long-term interests in jeopardy, as has been acknowledged by the Dutch Research Council for Government Policy (WRR). The public sector must serve the general interest and take the broad view. The general interest is not served by having three postal workers delivering to the same address, it is not served by having cleaning firms running homecare, it is not served by energy corporations operating on a Europe-wide scale and it certainly isn't served by a health care sector in which selling is given more importance than curing or caring. The general interest would be, on the other hand, served by a government which ensures that good long-term homecare makes expensive nursing home care unnecessary, that publicly-owned energy corporations encourage sustainable energy, that good quality public transport services are available and the problem of traffic congestion dealt with, by a government which improves the environment and strengthens social bonds. The broad view, in other words.

Apart from the failure of the market to defend those five pillars of the public interest, it is to say the least open to debate whether market organisation has really improved the relation between price and quality in the public sector. The market does after all create its own costs, for example through the creation of new forms of bureaucracy. An example of this in the Netherlands is provided by the system in health care known as Diagnosis Treatment Combination, under which health insurers and health care providers are obliged to negotiate over prices. These negotiations involve costs. The market needs supervision, so that spending on inspection and monitoring has grown markedly. The market demands executive salaries which conform to market rates, company cars conforming to market-determined standards and golden handshakes conforming to market practices and levels. In order to prevent wild west scenarios, the state must therefore spend hundreds of millions of euros in setting up supervisory systems, indicators, promoters, tendering procedures, systems for maintaining quality, and other bureaucracies. These costs are not taken into account when the effects of market practices are assessed.

The same goes for the enormous sums which participants in the liberalised market spend on increasing their market share and their sales returns. In order to compete, they also need money for advertising and PR and to finance the paying of dividends to keep investors happy. This spending, which will eventually have to be coughed up by the 'consumer' and the taxpayer, is also forgotten when government comes to do its calculations. A few examples: profits of energy corporations in the Netherlands have, since the liberalisation of 2000, risen from € 295 million to € 3.7 billion. The total costs of tendering by all Dutch state authorities amounted in 2006 to € 771 million. And while everyone in the country has seen his or her electricity bill increase, energy corporation Nuon last year spent € 76 million on advertising and PR. The costs for tendering of homecare provision are running at over € 40 million per annum.

The Ministry of Economic Affairs has conducted an 'enquiry' into the consequences of market organisation in the public sector. It was immediately subject to the widespread criticism that it was like asking the butcher to inspect his own meat. In fact it isn't worth calling an enquiry: it's nothing more than an inventory, with the market's costs left totally out of the picture.

It is therefore high time for a truly independent parliamentary enquiry into the effects and the costs of market organisation in the public sector, in order that we can learn lessons for the future. In the meantime we shouldn't merely plough on with more market organisation, but instead examine where the market has had negative consequences and put these to rights, or reverse the liberalisation itself. Better to admit your mistakes while something can still be salvaged.

Agnes Kant was elected leader of the Socialist Party of the Netherlands in June, 2008, when long-standing leader Jan Marijnissen stood down. She was previously party spokeswoman on health care. This article first appeared in the Dutch daily newspaper De Volkskrant on 9th September and was translated by Steve McGiffen.