contestability (idea)

An industry can be described as contestable when anybody is free to enter a market to provide services and compete on an equal footing for business. Traditionally government had stepped in to run public utilities for various reasons – they were natural monopolies, usually with high entry costs, which could not be profitably run (at least in the short term) by private companies for the benefit of all citizens. Governments for political reasons have regulated industries to keep out competition, to safeguard the profits of owners and the jobs of employees. However may not be in the best interests of citizens who are the customers of the services provided by public administration.

Contestibility in public administration aims to encourage private companies to contend for business in the provision of public goods. It is a function of a neo-liberalist approach that applies market discipline with public choice theory : the idea that people will make decisions for themselves (and any public office they are charged with) according to what will lead them to the greatest material gain. Through the market, the consumer will ultimately benefit when rival providers - whose shareholders are motivated to win lucrative contracts - compete on quality and cost. A practical extension of this involves government in a limited capacity allocating contracts to the most competitive business, and ensuring that minimum agreed standards are met. Through competition and removing regulations that impede business, services will be delivered more productively, creating a reform dividend. This can be seen through the cost reductions that have been achieved in deregulated and contested industries such as postal services, coal and rail freight. A progressive-minded government could then tax and redistribute this reform dividend, ideally targetting communities adversely affected by microeconomic reform. Remaining in government hands, public choice theory suggests that public services would be sub-standard, as there is little motivation for a public servant on a fixed salary to provide value for money. Indeed, Niskanen (1991) reminds us that it is in a public servant’s best interests to maximise their budget allocation from the government.

There are some problems with this approach. It ignores the fact that many public servants perform exceptionally, motivated by the desire to shape policy and/or serve the community (or even just socialised by a comfortable work culture) rather than the pecuniary rewards their talents could attract in the private sector. A business is focussed on maximising and securing profit rather than excelling in service, even at the expense of government. For example, IT contractors routinely seek to lock government agencies into expensive and inflexible contracts. Within these companies, public choice theory would suggest these workers would not be motivated to waste time and risk resources on innovation, but rather earn kudos from management by meeting minimum benchmarks as economically as possible. Furthermore public servants can plan according to a longer timeline and can shift the scope of projects and allocation of resources more readily as circumstances change. Private deliverers instead are generally only focussed in completing projects at hand to previously negotiated benchmarks, and can be expensive and intransigent if their duties need to be changed or terminated. There is also the risk that the contestability process to allocate and enforce contracts could be incompetently - or corruptly - carried out by public servants or their masters, to the detriment of the public. Finally it is generally a political necessity that governments advise and obtain the consent of the community before tendering out services. People can be particularly suspicious of reform if it results in businesses engaging in monopolistic conduct or sacking workers - a long and expensive consultative process might be required. This is not without cause when people believe community service obligations will be ignored or inadequate to cover all the negative externalities associated with unemployment.

An alternative policy instrument is communitarianism - using informal, independent and intrinsic networks formed at the grassroots to deliver services on the government’s behalf. Such as a social welfare department working with several charities such as the Salvation Army to match the unemployed with work. These groups comprise of people motivated by altrusim, and having worked directly with the needy are highly aware of the issues and practicalities of providing support. This closeness with the community breeds trust, making it easier to enact policies involving mutual obligation in an atmosphere of cooperation rather than competition. As these groups have an ongoing commitment to their communities, it is also easier to initiate and purpetuate long-term strategies than ad hoc projects.

Unfortunately, communitarianism cannot fix problems with accountability at the local level, which by definition in this relationship the government cannot interfere with. However if communities can suitably manage themselves, trust can be useful in encouraging prosperity, stability and democratic rights (Fukuyama 1995).

Sources

Fukuyama, F (1995) Trust: The Social Values and the Creation of Prosperity, Hamish Hamilton, London.
Niskanen, W. A. (1971) Bureaucracy and Representative Government, Aldine, Chicago.