On the cusp of something very special (part two).

So Bill English thinks that welfare is like crack cocaine and the successful National Government has announced its intention to cut the welfare bill significantly. He revealed in June that if re-elected National will bring about the biggest changes to public services that NZ has seen in 50 years.  How will it do this? Here is some of the evidence about what is in store. Would this have been popular with voters? Probably not. Little has been revealed in the National Party manifesto and what has been made public by its politicians lacks any detail.  However a number of initiatives already underway would appear to allow wide scale changes to public sector services to be put in train very simply. Here are the elements of the plan:

Cutting public sector spending

We know that the National Party is committed to reducing the proportion of government spending to GDP to 26% over 6 years. David Parker mentioned this in the Finance Minister’s debate on TV the other weekend and was not contradicted by Bill English. It was reported in a press release from the National Party’s southern regional conference held just prior to the budget and this view is endorsed by the recent BERL research for the Green Party.

An article about what the impacts of this might mean a few months ago concluded that a continuation of current cuts could be expected.

International comparison

First of all the falling public spending in NZ puts us on the same downward trajectory as the UK which is facing ‘extreme austerity’ and extreme cuts to public spending. However NZ public spending has been about 6% of GDP below that of the UK since the mid 2000’s and is heading into the same zone as a number of developing African countries whose public spending generally is rising.

Existing policy direction

• The NZ government has already reduced the social cost of benefits by taking thousands of people off benefits and the Domestic Purposes Benefit through methods that look at top-line results but not actual lived experience. Although some beneficiaries may have moved into work we do not know whether others are now reliant on their extended families, working two or three minimum wage jobs, living on the streets or in ½ way homes, or reliant on relationships that may not be supportive or healthy.

Better Public Services

• The cost cutting would likely include a much greater level of outsourcing. National’s existing policies allow for this. A number of the background documents (and here and here) to the “Better Public Services” programme make it quite clear that best sourcing i.e. privatisation and contracting should always be actively considered in delivering public services.

Public Sector reform

• The Trade In Services Agreement (TISA) is under negotiation by the government in secret and Public Services International argue it would create a sinking lid on public services and prevent even failing private services from being put back into public ownership. An OIA has revealed that even the sectors covered by TISA have not been announced.

The WTO government procurement agreement

• We do know that the government is signing up to the World Trade Organisation Government Procurement agreement. It’s in the economic development part of the manifesto released this week. It’s promoted as a benefit to exporters but it would assist in opening up NZ to an international trade in public services. Bill Rosenberg (CTU Economist) has written about the signing up which seems to be in the final stages according to a document from the European Union recently. The CTU article looks at

…the WTO government procurement agreement whose fundamental aim is to “mutually open government procurement markets among its parties. As a result of several rounds of negotiations, the GPA parties have opened procurement activities worth an estimated US$ 1.7 trillion annually to international competition (i.e. to suppliers from GPA parties offering goods, services or construction services).”

Social Impact Bonds

• The Ministry of Health is pursuing a pilot implementation of Social Impact bonds.   These would be tendered through the Government Electronic Tendering System (GETS).
• Social impact bonds allow private investors to provide working capital to social programmes in return for lowering the level of a social ill and they profit from the savings when the government reduces its social costs. This is a very worrying . It is a rather neat and bloodless way of ensuring that the rules of the market overwhelm our social infrastructure and services. The bonds appear to be potentially very profitable: The NSW government has just reported profits to investors on its first Social Impact Bond of 7.5% over a year.
• However recent articles from the UK (here and here) is that these Bonds are hard to develop, could represent a colossal waste of money and where they fail the taxpayer still has to pay the cost. Even the keenest overseas advocates are far from convinced after three years of experimentation and the ethical issues involved in seeking market solutions to social problems would be repugnant to many of us.
• This approach to social welfare would not be out of place in a Dickens novel. Social impact bonds need to be structured to be attractive enough for investors to win a profit irrespective of the collateral damage to lives. (There is a decent article about these schemes on Wikipedia)
• Bernard Hickey’s article from June shows how clearly a model similar to this is already in the thinking about future funding of public services. The Finance Minister is proposing a kind of Dragon’s Den to tender for providers to reduce the incidence of social ills. As well as his comments denigrating beneficiaries this proposed approach to competitive tendering adds further credence to the belief that public services are going to be outsourced increasingly to private actors.

Productivity Commission

• A recent Productivity Commission investigation which looked at the provision of services wasn’t able to cover all public services although it did cover services like aged care and social care provided through companies and NGOS as well as privately owned services in education, medical treatment, water, electricity, waste and gas. It was not able to look at the non-market provided parts of the education, training, health care and social assistance “industries [sic]”. A new project launched in April 2014 is to inquire into public services.

In summary would a successful National Party outsource our public sector to multinational corporate interests?  The combination of initiatives on the government’s agenda with respect to public services are sufficient to cause great concern that this is precisely what will happen. Will we be seeing ‘evidence’ in due course from the Productivity Commission that what education, training, health care and social assistance “industries” need is for the government to mainstream market based initiatives like Social Impact Bonds?