Public services in the United Kingdom have been transformed over the past 25 years with the introduction of market-oriented solutions into their provision. This has been characterized by a shift away from state provision to independent providers, and by the introduction of competition and choice. This shift was partly ideologically motivated and partly driven by budget-cutting considerations following the global financial crisis. As such, it has been lacking a comprehensive economic justification or method of analysis. It is now commonly accepted that the language of economic markets is essential to frame arguments about how effectively public services are achieving their intended outcomes. Using market language and concepts may not always be comfortable for those from a traditional policymaking background. It can nevertheless be very useful when designing investigations into the effectiveness and value for money in the mechanisms of delivery of such services, whenever these services entail a degree of user choice as is currently the case in large parts of health care, social care and education (referred to as competition in the market). This article aims to provide a conceptual basis on the way of thinking in these terms. We provide a description of the current state and then comment on the desirability of this quasi-market approach. Uniquely in the literature, we analyse the expected and desired developments by distinguishing between choice and compulsory merit goods. In choice merit goods markets many users are unable to choose effectively because of the existence of a number of demand-side or supply-side market failures. Moreover, conflicts may exist between how service users actually make choices, and policy objectives such as universality or equity, which may not be achieved simply by "leaving it to the market". The users of compulsory merit goods are typically a minority and unable to internalize the full social benefits of their actions; hence, it may be welfare-enhancing for society to coerce them to "consume" these services. As choice cannot be an objective, the commissioning (competition for the market) or direct provision by the state of such goods may meet public policy objectives more effectively than the market mechanism alone. Building on these foundations, this article discusses when public service markets (PSMs) are likely to be an effective method of achieving public policy objectives, and when they may not be. We analyse the implications for the institutional and legal framework, funding oversight and regulation of PSMs as a result of their transformation into quasi-markets. We conclude with some suggestions for those charged with overseeing PSMs in practice based on this analysis.
This paper has three aims.Firstly, it aims to show that the language of markets can help to frame arguments about how effectively public services are achieving their intended outcomes. Using 'market' language and concepts may not always be comfortable for those from a traditional policy-making background. This paper suggests that thinking in these terms can nevertheless be very useful when designing investigations of the effectiveness of public services, whenever those services entail a degree of personalisation or user choice -as is currently the case, for example, in large parts of health, social care and education in England.Secondly, the paper aims to show that public service markets (public services that involve choice on the part of service users) differ quite fundamentally from private markets. Hence the conditions for the success, or failure, of public service markets to achieve public policy intentions may be different from the conditions that are necessary to foster successful (well-functioning) markets in the private sector. Although there are analogies between private and public markets, some of which are discussed, the introduction of 'market mechanisms' into public service provision does not necessarily mean that the public service markets thus created will behave like private markets, or that policy intentions will be achieved simply by 'leaving it to the market'. This, of course, has implications for how public service markets are overseen, managed, and regulated.In particular, the nature of the 'goods' that are 'traded' in public service markets is often very different from those in many private markets. This paper argues that not only are public services typically merit goods (characterised by positive externalities in their consumption), but that there is an important distinction between 'choice' merit goods, such as education or social care, and 'compulsory' merit goods, such as probation services or welfare-to-work programmes. Choice merit goods could in principle be provided through vouchers or direct payments to users, although doing so would not necessarily achieve other policy objectives such as universality or equity, even if all conditions were in place for the public market to operate efficiently (in practice, this latter requirement is also unlikely to be met). There may also be conflicts between how service users actually make choices, and how the state would 'like' them to (for example, hospital patients may value proximity of the hospital to their home more highly than its results on clinical performance measures).The 'users' of compulsory merit goods, on the other hand, may not wish to consume them, but it may be welfare-enhancing for society to coerce them to do so. The commissioning or direct provision by the state of such goods may meet public policy objectives more effectively than the market mechanism alone, as users are not able to internalise the full social benefits of their actions.Finally, building on these foundations, the paper discusses when public service ma...
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