Privatising public business

Issue 

The Contract State: Public Management and the Kennett Government
Edited by John Alford and Deirdre O'Neill
Deakin University Press: 1994
Reviewed by Chris Slee

"Two years after being elected, the Kennett government has already begun to radically transform the public sector. When this transformation is complete, Victorian government will be largely conducted through a series of contracts — between public employers and their employees, between purchasers and providers of services, between government agencies and private contractors, and between customers and firms. Victorians will be living in a Contract State."

This book examines the theory behind this model of government, and looks at how it is being put into practice in Victoria. It deals with employment contracts, casemix funding of hospitals, privatisation of public utilities and compulsory competitive tendering of local government services.

The book is academic in tone and avoids taking a strong stand. Alford and O'Neill say that they "cannot provide a definitive answer" to the question of whether contracting is the best model of public management.

Nevertheless, the book does (in a cautious way) question the validity of the assumptions on which the model is based.

The theoretical rationale for the contract state comes in part from a doctrine known as "public choice theory". Put crudely, this asserts that there is a tendency for government bodies to expand excessively due to pressure from public servants and their clients. Solutions to this alleged problem include separating policy advice from service delivery, contracting out and privatisation.

The authors question whether this "capture" of government decision-making by public servants and their clients has in fact occurred. They say there have been "a lot of assertions" but "little in the way of rigorous analysis".

They also point out that the contract state will not solve the problem of interest groups trying to capture government decision-making. Rather it will "replace one set of interest groups ... with another which has better access through the newly constituted lobbying channels".

Presumably these "interest groups" include companies seeking government contracts and opportunities to acquire public assets.

The authors also question the idea that contracts make possible effective monitoring of "outcomes". Many of the things that citizens want from government are difficult or impossible to measure in quantitative terms. Even where outcomes are in principle measurable, there are often practical difficulties in gaining the information needed to check that contractors have carried out their obligations.

Other problems include the impact of contractualist policies on economic inequality and the accountability of government.

The authors question the theory of human motivation which underlies the ideology of the contract state. This ideology sees people as atomised individuals each pursuing their own economic self-interest without regard for the well-being of other people or society in general.

While the book focuses on the Kennett government, it is also relevant to the federal Labor government. Kennett has been the most aggressive in forcing through the contract state agenda, but Keating has been heading in the same direction. This is reflected in policies such as privatisation, contracting out, performance-based pay and the growth of contractual relationships amongst government bodies.

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