Markets for good? A response to Reform

For various reasons I’ve been thinking a lot about commissioning as a process lately.  Of course, you could say that’s my job, as a commissioner of substance misuse services, but actually the day-to-day work is precisely that – focusing on day-to-day issues, rather than the sorts of principles and models beloved of policy advisers and think tankers.

One of the reasons I’ve been mulling over these principles and models is a report published back in November by Reform, written by Andrew Haldenby, Richard Harries (no, not that one) and Jonty Olliff-Cooper.  The key message is that performance of ‘human’ public services isn’t great, and in a period of freefalling budgets reform is the only solution.  The reform proposed is, in broad brush terms, to stop either state provision or contracts won through tendering.  Instead, ‘licences’ to deliver services would be granted to any qualified provider.  Then, you’d get competition for services and a range of options so that each individual access an approach that suits them.

(As an aside, I should say that anyone interested in substance misuse services specifically should check out Russell Webster’s series of blogs on this report – though we differ in our views.)

I don’t want to go into a great deal of detail about the report (though I probably will anyway).  I’d take issue with a few specific points – particularly those criticising the field of substance misuse, given that this is miles ahead of most commissioning I’ve seen in local authorities or CCGs – but this is mostly defensive vanity.

As usual, there’s a few straw men in there, as when there’s a claim that people are seriously suggesting ‘salami slicing’ public services in the face of huge cuts (p.13).  It’s also odd for the authors to suggest that drug treatment should be opened up to ‘non-state providers’ (p.9) when this has been the case for decades.  I’d also suggest that this is true more widely in terms of ‘licensing’: there’s plenty of private provision of health and social care (think of residential rehabs for substance misuse, or BUPA for mainstream healthcare).  The issue could only be with the demand side, and ensuring that people have access to the range of providers.

I’m also not convinced that such a licensing system could work in an area like Dorset for the services being discussed.  You only just get competition in food suppliers (most towns don’t have a choice of genuine supermarket), and everyone buys food.  About 5 in every thousand people in Dorset use opiates.  I can’t see how villages and towns could realistically offer choice in drug treatment, or that you’d get a range of providers competing to provide services.  People can’t travel because there aren’t any decent transport services – and in any case, why should someone from Blandford have to travel to Weymouth to get choice in their healthcare?  But that’s all an argument for another day.

What I want to focus on in this post is a more fundamental point about the general conception of markets.  The report itself is called ‘Markets for Good’.  Apart from the fact that this sounds suspiciously like the title of an Ed Miliband speech, it concerns me that the potential clarity of ‘market’ as a concept, as an analogy or metaphor, has been lost.

The reason ‘markets’ are attractive as an idea is that we think we’re familiar with them – we buy our food and other groceries through them, and even if we don’t actually use a market in its traditional sense, we think of going to Tesco as participating in ‘the market’.  We talk about ‘the market’ for particular consumer products.

What Reform are describing, though, isn’t like those ‘markets’.  There’s elements of competition, but that in itself doesn’t make a ‘market’.  Most importantly, what’s described is an actively created structure in which companies might operate, that isn’t a replica of the ‘market’ for food or white goods, or any of those things we’re familiar with.  If we’re actively creating a particular environment to in some ways mimic a market, it’s important to work out why we consider ‘markets’ to be efficient and fair modes of allocating resources and fostering innovation, as it’s those bits we’d want to build into the pseudo-market being proposed.  One I don’t discuss here, but is worth thinking about, is that by virtue of the fact that ‘strong markets are characterised by vigorous competition’ (p.18), they’re also characterised by failure of providers.  Is this acceptable and manageable in public services?

However, back to the fundamentals.  The reason we get efficient services from providers like Tesco is that there’s widespread demand for food and clothes, and there are economies of scale in providing single products for people.  You might get some choice within a supermarket, but we don’t get ‘personalised’ services (p.11).  Most people buy their clothes ‘off the peg’, not tailored to them personally.

Moreover, the report talks about how providers should “address the ‘whole person’ by working on multiple outcomes with the same individual” (p.11).  This sort of knitting together of services is indeed crucial, as we know that recovery from substance misuse, for example, doesn’t depend on dealing with substance use in isolation from other factors such as housing, employment, relationships.

However, think again about whether markets we know as working efficiently actually provide this.  Even in a world of supermarkets, we tend not to find the needs for our ‘whole person’ from the same provider.  Even if we just think about food, the aim isn’t for a single shop to provide us with a hamper of all we need; it’s about making sure the consumer has access to all the best shops for those particular products.  Take the example of my lunch at work (and don’t judge my choices).  It could well feature a pork pie and an apple from Waitrose, but crisps and a sandwich from M&S.  (And this example tells you already the options available to me in Dorchester town centre: no Tesco, Sainsbury’s, Greggs, Morrison’s etc.)

(Weirdly, the report concludes by suggesting that it favours a model whereby a consumer has a different provider for each key ‘outcome’ (p.70).)

The whole report seems to be based on an odd, superficial reading of markets, seeing them as comprised simply of individuals and individual transactions.  We can’t really understand the purchase of green beans as a transaction between me and Tesco; there’s all sorts of other levels of transaction involved with providers, transporters, governments and so forth.  (Incidentally, the document piously claims that ‘aiming to pay no more than the raw unit cost of a service will kill the market’ (p.57).  Tell that to supermarket suppliers.)

You might think I’m being unfair by comparing providers of ‘human’ public services with supermarkets and food – but that’s precisely the analogy employed by the authors themselves (p.28).  I just can’t see that it’s helpful.  The whole principle of grocery shopping is that you can buy the products again tomorrow, and switch to an alternative provider without any serious long-term consequences.  That just not true of social care.  Moreover, the report actually rules out switching providers, as it would be ‘too complex to administer’ (p.69).

There’s also a strange view of providers as being uncooperative or unthinking, where ‘incentives’ (p.21) have to be actively created to make providers behave the way we’d expect them to.  By contrast, all the providers I’ve ever dealt with have been keen to make a difference.  Who works in the field of substance misuse unless they’re passionate about the cause?  Providers are constantly squeezing activity out of limited resources and finding new sources of funding within the community.  In fact, the providers are obliged to take this approach, and not just be motivated by financial incentives attached to contracts, because they tend to be charitable foundations, often founded by parents concerned about their loved ones’ substance use.

Crucially, the proposed structures don’t resemble the markets we’re familiar with either.  The report of course talks about ‘outcomes’ based commissioning.  I’m not opposed to this (though it’s much more complicated than a lot of people seem to think, as soon as the ‘outcome’ is anything more complex than the delivery of a vaccination).  However, the model proposed bears no relation to how markets actually work.

The classic example of an ‘outcome’ relates to a birthday cake.  You could buy ingredients, or a ready-made cake, but that’s only the ‘output’; the actual outcome is the smile on your child’s face and their full belly.  The Reform authors complain about ‘paying for process, not outcomes’, but that’s precisely how the markets we know of work.  We don’t walk out of a supermarket and say: “I’ll pay you if, and only if, my little boy is smiling once he’s eaten this cake”.  You might not buy next year’s birthday cake from Sainsbury’s if he didn’t like it, but in reality hardly anyone goes back to the supermarket saying they weren’t ‘completely satisfied’ with the product.  And in any case, there’s too many personal factors involved to blame the supermarket if your son isn’t smiling – but that’s the outcome you were looking for when you entered into the transaction.  It’s hard to see how ‘allow[ing] customers to pay by satisfaction’ (p.48) would be workable in practice, particularly in a field like substance misuse where the outcome is complex and long-term, as relapse is common.

More fundamentally, the report worries that prices can be set ‘too high or too low’(p.31) – but the key to a market providing efficient outcomes is the price mechanism.  What the report ends up describing is the sort of arrangement that would infuriate Hayek: central planners must very carefully set the price of a service at just the right level.  In fact, the level of bureaucracy (or perhaps technocracy) is striking: each individual consumer will have a ‘price’ attached to them for a successful outcome, based on their individual characteristics (p.39).

Shockingly, for a paper that’s supposedly singing the praises of markets, it’s suggested that ‘providers should not be permitted to compete on price, only on quality’ (p.54).  I can’t think how a purchasing process without price competition can helpfully be considered a market.

I worry that underneath some of this there’s a misunderstanding of the nature of choice and ‘price’.  When suggesting (quite reasonably) that customers should be able to ‘choose any licensed provider’, the comparison given is university choice (p.66).  But this is to be blind to the fact that the currency in the university ‘market’ for students is exam grades.  Those with ABB+ are much more attractive to universities (based on the funding structure created by the Coalition government); it’s naïve to suggest that students can ‘choose’ whatever ‘provider’ they want.  In fact, it’s unlikely this constraint would apply in a ‘market’ for public services, but not being able to see that the university analogy is inappropriate signals a wider problem with understanding the nature of the proposed system.

Crucially, much of the discussion at this point has nothing to do with commissioning structures or practices, but the quality of these: the system doesn’t mean that ‘providers are all too often chosen for being the cheapest, not the best’ (p.34); that’s just poor practice that can happen in any system where providers or prices are chosen by central planners.

And much of the suggestions are perfectly possible within the current system.  When the authors complain about ‘blink and you miss it’ starts to contracts, this isn’t a problem (p.43).  Dynamic purchasing systems (DPS) already exist perfectly happily within current regulations – but they suit particular types of services (like short one-off placements where there can be economies of scale).  And they’re not that new – here’s some guidance from 2008 that’s the top result on Google.  In fact, spot-purchasing systems have been in place for as long as I can think – residential rehabs don’t just survive on block contracts?

This is a secondary point, but it does link into my feeling on reading the paper that probably commissioners on the ground actually know more about this and how to do it than the authors.  The friends and family test, mentioned on p.50 as being used in A&E is already in widespread use across all sorts of services, and although this is my defensive vanity again, it’s galling to see this, like DPS or spot purchasing or mystery shopping, being promoted as something new and worth shouting about.

Fundamentally, there’s lots of ideas I value in the report, and (despite the tone of this blog post) plenty of food for thought and helpful challenge to the way I think about commissioning.  There are services where licensing would apply and could be helpful, and it’s not fair to criticise the principle on the basis that it wouldn’t work perfectly for everything.

However, my theoretical or conceptual concern is genuine.  Much sociological ink has been spilt on the issue of whether markets retain their hegemony in political discourse after the financial crisis, but this report shows that the term is perceived to have some value.  And how could it not, when we happily supply so many of our wants and needs through structures we understand as ‘markets’?  But I do think it’s important we understand what the merits of these ‘markets’ are.

I’d respond to Reform’s proposals, then, in exactly the same way they criticise current commissioning arrangements: ‘they are scarcely markets at all’ (p.8).  On my reading, the whole report is based on a faith in something different from markets specifically: competition.  It’s competition, not markets with the key feature of a price mechanism, which is understood to drive performance.

In that respect, I agree strongly with the thrust of the paper, but the fact that what is proposed is not a ‘market’ in any real sense highlights that there are myriad structures within which competition and a drive for excellence can be fostered.  I would suggest that it’s the job of commissioners to do this, and the market metaphor may close down the options we see.  Here’s hoping when I’m back at work on Monday morning I’m able to live up to this claim.