By 1830 the East India Company had grown in size and influence to be a government in all but name. It had control over a population that was at the time ten times greater than that covered by the British Crown and amounted in economic terms to over one third of the then British economy. The power of the company was such that it has led to a deep seated suspicion of the profit motive in the private sector and individuals that has remained in national and local government ever since – whichever political party has been in control.
By the end of the first decade of the twenty first century concern over public expenditure and a fear that ‘our’ money is not being spent with our interests at heart remains. The thousands of FOI requests now received by governmental organisations from both individuals and organised groups such as the Taxpayers’ Alliance may seem like an unreasonable challenge to the primacy of those who are our elected representatives and their agents. Yet, as seemingly no stone is being unturned in the search to lift the UK economy from recession, the question remains: what is reasonable profit to make from public sector activity?
The government is increasingly convinced that contracting with commercial and voluntary providers with payment by results (PBR) is a mechanism to ensure that positive social outcomes are achieved through stimulating the motivation to succeed. This has now extended to the Probation Service where providers will increase their revenue through meeting or exceeding performance targets. While it is clear the new innovative approaches such as this needs to be tried, what is unclear in this process is the means by which we decide whether the targets have been achieved or not, who has the power to decide, and what access to information they have.
The nature of contracts between governments and commercial providers can be said to be at best murky and if history is a good teacher then we should remain sceptical of the means by which performance is judged. To evidence this we have to look at the alternative method – that is where there are penalties within contracts that limit profitability to a commercial provider. For any regular rail traveller this game is all too readily apparent. Careful management of standing time at stations – often for what are termed operational reasons – can be seen as a means of ensuring that there is conformity with published performance expectations. However, for one regular journey I take, if the train were to leave a station at its published time it would have covered the distance from its last stop in a time that would mean speeds far in excess of that permitted for the line. Such quirks in the timetable exist to ensure that this train is never late at its destination and thus distorting the annually published performance report.
So if creative methods are employed to circumvent disincentives that detract from profitability, should we be equally sceptical of achieving positive results with a profit incentive that will always work in the public interest? In the same way that disincentives could have issues within power imbalances and transparency in contracting, so might profit maximisation incentives. No matter how robust a contact is, it will always bring into conflict differing interests and have certain power imbalances built in. Undoubtedly what the East India Company achieved was as much in the interests of the British Government of the time as it was in the interests of those who invested in it, but if we are to offer increased potential profitability to commercial interests through PBR mechanisms we have to be ready to have robust and open debate as to how those payments are justified.
For the Probation Service, social outcomes are at the very centre of its purpose – reducing recidivism is crucial to society but performance contracting is complex. We should perhaps remember the experience of the East India Company, becoming such a monster power at the same time that nearly all Transportation to the Colonies was undertaken on behalf of Government by private contractors. Those very contractors were well rewarded but once out of sight of land they behaved in a fashion that was more about maximising their income than meeting the contractual need established by Government. This was exemplified by the selling off of unused victuals for the journey to increase income – for them the answer was easy – starve the convicts!
So – to what extent is it reasonable to profit from the public purse? And are we putting in place a robust enough mechanism to ensure the interests of civil society are maintained?
Ian Briggs is a Senior Fellow at the Institute of Local Government Studies. He has research interests in the development and assessment of leadership, performance coaching, organisational development and change, and the establishment of shared service provision.