Submission to the Independent Review of the Australian Public Service
Have your say: Bolster the role of the APS as stewards
Associate Professor Gemma Carey, Centre for Social Impact, UNSW Sydney
Professor Helen Dickinson, Public Service Research Group, School of Business, UNSW Canberra
Dr Sue Olney, Public Service Research Group, School of Business, UNSW Canberra
Ms Eleanor Malbon, Centre for Social Impact, UNSW Sydney
The Public Service Research Group at UNSW Canberra and the Centre for Social Impact at UNSW Sydney have strong track records of research into public services in Australia and overseas, covering various aspects of public sector management, delivery of public services, the implementation of public policy, and processes to understand and address complex social problems using systems thinking. Associate Professor Carey has published 60 peer-reviewed articles on different aspects of public administration and public health and contributes to emerging debates regarding the social determinants of health. Much of her research investigates the processes of ‘joining up’ within government and between government and non-government organisations and her books include ‘Grassroots to Government: Joining-up in Australia’ (Melbourne University Press), ‘Designing and Implementing Public Policy: Cross-sectoral Debates’ (Routledge), and ‘Managing and leading in interagency settings. Better Partnerships Working Book Series’ (Policy Press, with Professor Dickinson). In addition to her academic research, she founded Power to Persuade, an annual symposium and blog which helps to build relationships between policymakers, academics and the community sector. Professor Dickinson has published widely on governance, leadership, commissioning and priority setting and decision-making in public services, is co-editor of the Journal of Health, Organization and Management and the Australian Journal of Public Administration and a Victorian Fellow of the Institute of Public Administration Australia, and has worked with all levels of government, community organisations and private organisations in Australia, UK, New Zealand and Europe on research and consultancy programmes. Dr Olney’s research examines the impact of marketisation of public services on citizens with complex needs, and practical challenges in implementing public policy. She has been involved in numerous cross-government and cross-sector initiatives, committees and working groups to promote access and equity in employment, education, training and disability services in Australia and has experience on both sides of the process of contracting-out public services, in government and in the not-for-profit sector. Ms Malbon is an expert in complex systems approaches to policy implementation and policy reform and is the project manager for an ARC Linkage grant on Thin market stewardship for the NDIS, in partnership with the Department of Social Services and National Disability Services.
We welcome the opportunity to contribute to the APS review on the theme of United in a collective endeavour: Bolster the role of the APS as stewards. This submission is underpinned by a recent review of evidence on stewardship actions for the public service for guiding social service markets, particularly in the context of personalised care such as the NDIS. It draws on a systematic review by Carey et al. (forthcoming) to address the following questions posed on the review website:
What does public sector stewardship mean to you?
Public service markets are being embraced by governments of diverse political persuasions for a range of reasons, including reducing costs, improving efficiency, empowering citizens, and catering for diversity. Yet there are lingering questions about the role and responsibility of governments in managing and regulating these markets, particularly in relation to ensuring that citizens benefit from market models while being protected from market failures or market‐produced inequities. For nearly three decades, stewardship of public service markets in Australia has been guided by neoclassical economic theory. Evidence suggests that theories which conceptualise markets as complex adaptive systems offer a more nuanced toolkit for the public sector. These theories emphasise the limitations and negative consequences of central planning in markets, highlighting the ways in which market patterns emerge from the activities of local actors and the adaptive capacity of systems. We argue that central government needs to take up the role of system steward, where policy workers oversee the ways in which policies are being adapted and attempt to steer the system towards particular outcomes.
What does public sector stewardship mean to you?
Australian governments are increasingly outsourcing delivery of public services to non-government organisations through various mechanisms including contracting, commissioning and/or tendering (Blatchford and Gash, 2012; Dickinson, 2014; Osborne and Gaebler, 1992) or ‘personalised’ approaches, where funding is allocated to individuals to purchase services directly from providers under certain conditions (Dickinson and Glasby, 2010). These arrangements are not markets in the sense of neoclassical economic theory, but ‘quasi-markets’, where prices are determined between the government agency and providers, entry to the market is restricted or managed by government (LeGrand and Bartlett 1993) and the consumer of the services and the purchaser are separate entities, reducing the drive to economise upon which market efficiencies depend (Slater and Tonkiss, 2001). Quasi-markets now exist in care and welfare based services such as health care (Exworthy, Powell and Mohan, 1999), childcare (Penn, 2007), education (Adnett and Davies, 2003, 2003; Dow and Braithwaite, 2013), disability (Carey et al., 2017a; Glasby and Littlechild, 2009; Needham, 2010) aged care (Baxter, Rabiee and Glendinning, 2013; Braithwaite, Makkai and Braithwaite, 2007; Glasby and Littlechild, 2009) and employment services (Considine and O’Sullivan, 2015; Olney and Gallet, 2018).
The growth of market has led to interest in ‘market stewardship’ roles for government. At the most basic level, governments are expected to create the conditions upon which public sector markets can work effectively. Attempts to redress quasi-market problems through government intervention have variously been referred to as ‘market shaping’ (Needham et al., 2018), ‘market stewardship’ (Carey et al., 2017a; Gash, 2014; Moon et al., 2017) and ‘market steering’ (Gash, 2014) . Gash (2014) provides a neat overview of market stewardship responsibilities, saying governments must:
engage closely with users, provider organisations and others to understand needs, objectives and enablers of successful delivery
set the ‘rules of the game’ and allowing providers and users to respond to the incentives this creates
constantly monitoring the ways in which the market is developing and how providers are responding to these rules, and the actions of other providers
adjust the rules of the game in an attempt to steer the system (much of which is, by design, beyond their immediate control) to achieve their high-level aims (Gash, 2014, p.6)
While these principles are informative, they tell us little about the actual practice of market stewarding – the specific actions government agencies take to shape quasi-markets. Indeed, despite increased efforts to undertake and support quasi-market stewardship for care and welfare services, there is no systematic knowledge of what approaches have been tried, what problems they have sought to address, and what works.
This submission synthesises what is known about effective market stewarding activities and interventions, and existing gaps in knowledge. Briefly, Carey et al. (forthcoming) searched both the peer-reviewed and grey literature in order to understand what quasi-market stewarding activities have been empirically studied and detect patterns in what is, and is not, effective in care and welfare contexts. While meta-analyses often rely on statistical analysis, they took a thematic approach – synthesizing qualitative insights from empirical case studies - to answer the questions:
What market stewardship efforts for quasi-markets have been shown to be effective in care and welfare contexts?
What different attempts have been made to intervene in thin quasi-markets in care and welfare contexts?
The table below provides an overview of market-stewardship interventions and the associated evidence. For promoting robust markets generally, Carey et al. (forthcoming) found that providing supply and demand information was the most frequently suggested intervention in the theoretical literature and is somewhat supported by empirical evidence (Destler and Page, 2010; Ranerup, 2007). With regard to equity-related interventions, they found evidence for ensuring flexibility in price setting (Allen and Petsoulas, 2016; Schmidt et al., 2016). This is in contrast to the traditional centrally-set prices that many quasi-market schemes favour, particularly in cases of personalisation (Carey et al., 2017a)). Encouraging the use of third party management and brokering for identifying services was also found to be effective for targeting niche market problems with regard to vulnerable groups (Schmidt et al., 2016).
Table 1. Market stewardship interventions
Market issue being targeted
Empirically tested successful Interventions
Empirically tested failed interventions
Unintended consequences of interventions
Poor quality services
Increased regulation (Hotz and Xiao, 2011)
League tables and ratings (Bagley et al., 1996; Dassiou et al., 2015; National Audit Office, 2012)
Boost regulation (Hudson, 2015)
Outcome measurement and evaluation (NACA Equity of Access & Outcomes Internal Working Group, 2017)
Benchmark best practice (NDIA, 2016b)
Addressing asymmetrical information about quality (Bertolin, 2011)
Increased regulation reduced number of providers (Hotz and Xiao, 2011)
Lack of movement between providers by clients
Web-based supports for comparing and selecting providers (Ranerup, 2007)
Create an ‘e-marketplace’ (Institute of Public Care, 2016; NDIA, 2016a; Needham et al., 2018)
Promotion events for providers (Institute of Public Care, 2016)
Remove constraints on what users can purchase (Jaworski et al., 2000)
Provider of last resort/hybrid/block funding (Joint Standing Committee on the NDIS, 2018; NDIA, 2016b)
Micro-commissioning (Joint Standing Committee on the NDIS, 2018; NDIA, 2016b)
Guarantee of demand providers (Joint Standing Committee on the NDIS, 2018; NDIA, 2016b)
Skilled independent brokers (Beresford, 2008)
General thin markets
Publishing supply and demand information (Destler and Page, 2010; Ranerup, 2007)
Using a third party for commissioning (Abbott et al., 2009; Sheaff et al., 2013)
Centrally identified market gap management (gap was incorrect) (Temple, 2006)
Supply and demand information sharing (Bjornstad and Brown, 2004; Department of Health and Social Care, 2018; Feiock, 2002; Hake, 2016; Institute of Public Care, 2016; Needham et al., 2018)
Government has control over mergers (Gash, 2014)
Run services out of the public sector in order to generate a market (Dassiou et al., 2015)
Partner with services to boost supply (Destler and Page, 2010)
Help providers manage start-up and on-going costs in critical cases (Destler and Page, 2010)
Promote risk-pooling across providers (Scotton, 1999)
Remove zoning requirements about where providers can operate (Baxter et al., 2013)
Nurturing and mentoring providers (Girth and et al, 2012)
Providers worked to commissioner needs not client (Sheaff et al., 2013)
Flexible price setting (Allen and Petsoulas, 2016; Schmidt et al., 2016)
Greater funding in areas of more need (Boocock, 2017)
Encouraging third party management (Baxter et al., 2013)
Additional subsidies for brokerage fees (Boocock, 2017; Schmidt et al., 2016)
Supporting development of brokerage organisations Schmidt et al., 2016)
Forced collaboration between providers (Bennett and Ferlie, 1996)
Force providers to take contracts in different areas (Brenna, 2011)
Financial incentives to take on vulnerable/complex cases (Eardley, 2003)
Actively solicit bids from other markets/areas (Brenna, 2011)
Commission stakeholder engagement to determine service needs (Institute of Public Care, 2016)
Minimum agreed data collection and statistical monitoring of vulnerable groups’ access (Jaworski et al., 2000)
Further subsidies for vulnerable groups (Jaworski et al., 2000)
Map needs for vulnerable groups (National Audit Office, 2012)
Some indication that providers developed services which were not fit-for-purpose when funding was injected (Boocock, 2017)
Lack of innovation
Decrease client sharing costs (Iizuka and Uchida, 2017)
Incentives for innovation (Azimi et al., 2017; Destler and Page, 2010)
Incubating and disseminating ideas (Destler and Page, 2010)
Several studies highlighted the limitations of central management of quasi-markets. Temple (2006) provides an important intervention analysis of centralised efforts to direct the education market, highlighting the ways in which limited market knowledge at the ‘top’ can mean that efforts to intervene in markets go awry. Consistent with other empirical studies identified in the review (Destler and Page, 2010; Ranerup, 2007), Temple (2006) argues that a better approach would be to have increased market intelligence and information in order to allow each provider the opportunity to consolidate their own market position. Issues with central management of quasi-markets also emerged in the area of pricing (Allen and Petsoulas, 2016; Gash, 2014). Gash (2014) found that central price setting tends to take place at the wrong levels in the hierarchy of public administration. Rather, given the geographical spread and diversity of needs that quasi-markets are required to service, decentralisation of market monitoring and price-setting is likely to enable markets to be more responsive and effective.
Information sharing has the strongest empirical and theoretical support, and is the most often recommended approach to market stewardship. Here, efforts are made to address information asymmetry in the market, where providers do not know levels of demand, or users cannot identify or weigh up the merits of different service providers. A wide range of interventions were suggested or trialled to address this, from market position statements (Bjornstad and Brown, 2004; Department of Health and Social Care, 2018; Feiock, 2002; Hake, 2016; Institute of Public Care, 2016; Needham et al., 2018), establishment of e-markets (Institute of Public Care, 2016; NDIA, 2016), provider promotion events (Institute of Public Care, 2016) and open accounting within schemes (Needham et al., 2018). McCarthy et al (2015) found that market information is also critical for encouraging new market entrants in non-quasi-market settings. However, careful attention must be paid to the quality of market position statements and the information provided. If it is not robust, it risks being unhelpful to providers and market stewardship efforts will be ineffective (Broadhurst and Landau, 2017). In many care and welfare markets, organisations operate with small profit margins which means they are vulnerable to inaccuracies in market forecasts (Gash, 2014).
The development of web-based platforms to aid in user choice and control, which is arguably another form of information sharing, was also found to be effective (Ranerup, 2007). A number of authors made similar recommendations based on theoretical interpretations, including promotion events for providers and e-market places Institute of Public Care, 2016; NDIA, 2016a; Needham et al., 2018).
The review also identified a range of interventions that were ineffective or damaging. The most notable is Temple (2006), discussed previously, which offers a warning against central management of quasi-markets. Several other studies found that using third parties to boost choice/control and competition was ineffective (though using brokerage was effective to address issues of equity or niche needs) (Abbott, Procter and Iacovou, 2009; Sheaff et al., 2013). Providers were found to sometimes compete for brokers or third parties rather than clients (Sheaff et al. 2013). However, one intervention study (Schmidt et al., 2016) found third party brokers to be effective.
The review also found instances where one intervention complicates other market issues. For example, boosting regulation to deal with quality issues reduces market competition (Hotz and Xiao, 2011). Similarly, when subsidies are offered there is some evidence that providers create services which are not fit-for-purpose (Temple 2006, Boocock 2017). Again, this points to the limits of centrally managed systems. It is difficult for governments to set effective incentives centrally without creating perverse market behaviour or outcomes (Temple 2006, Boocock 2017). Similarly, central price setting boosted service quality (as organisations have to compete on the basis of quality, rather than price), while other studies highlighted the importance of flexible price setting for addressing market gaps. These findings highlight that there is no ‘one size fits all’ approach to market stewardship, or hard and fast rules. With regard to market stewardship efforts as a whole, Destler and Page (2010) surveyed local areas undertaking a range of market ‘shaping’ activities. They found that while overall governments which undertook market shaping activities had some impact statistically, there were no clear patterns regarding types or combinations of interventions and their effectiveness. Deslter and Page’s research is an important reminder that markets are highly interdependent and actions need to be responsive to conditions in their local market contexts.
The review revealed that despite considerable discussion regarding the need to steward or shape public sector markets, at present there is limited evidence to guide practitioners within the public policy/public administration literature. Furthermore, the majority of intervention studies reflect a single theory of markets, drawn from neoclassical economics (Slater and Tonkiss, 2001). As Ostrom (2005) argues, this approach has been highly productive in theorising about markets that are characterised by perfect information and contestability but its applicability to real-world markets in public services is questionable. In the neoclassical tradition, intervention is limited to correcting imperfections and responding in cases of market failure, otherwise leaving markets free to find an efficient price that optimise resource allocation according to the balance of supply and demand. In markets for public services, however, the market is created by government and prices are often centrally determined; in addition, there is a political accountability to intervene where markets do not meet the policy goals for which they were created (Malbon, Carey and Reeders, 2018; Malbon, Carey and Dickinson, 2017). Interventions premised on neoclassical market theory may not be ‘fit-for-purpose’ for assessing where and how market stewardship is needed in public service markets.
In contrast to the hypothetical equilibrium valued by the neoclassical theory of markets, Hayek (1945) emphasized the dynamic and contingent effects of competition and innovation (Slater and Tonkiss, 2001, p.52). From this perspective, market processes are context-dependent and unpredictable; market actors are always acting under conditions of relative uncertainty and no single actor (including the central regulator) has full control of events. This is consistent with the findings of Carey et al.’s (forthcoming) evidence review, where unanticipated outcomes emerged out of intervention efforts (Temple, 2006), and current theories of complexity in public policy (Cairney, 2012). Hayek’s theory of markets as complex systems, which are dynamic and self-organising, and open to outside influences including government intervention and other changes in circumstances (Hayek, 1945) assigns a larger substantive role for government, who are seen as providing ‘the rules of the game’ for market interaction and providing a safety net for citizens whose needs cannot be met via market-based mechanisms. Viewing markets as complex adaptive systems affords a framework for policy analysis and empirical study of real-world markets and market stewardship. Ostrom’s (2005) Institutional Analysis and Design (IAD) framework could be used to develop models, indicators and guidelines for monitoring, intervention and evaluation in public service markets. Consistent with findings from the evidence review, the IAD framework suggests that a polycentric approach to market stewardship is likely to be more effective than a highly centralised approach. This acknowledges that stakeholders on all levels are engaged in seeking to influence the shape and trajectory of markets. Hayek (1945) argued that that enormous effort and time is required to convey ‘knowledge of all the particulars’ to a central agency, which is then faced with the task of integrating vast amounts of information in order to make decisions. Market-based schemes increasingly involve a multiplicity of highly contextual and interdependent submarkets which cut across geographies and citizens’ needs and circumstances. This means that market knowledge is highly localised, and unlikely to be effectively transmitted to central decision makers. Devolving responsibility and decision-making to local levels is more likely to result in effective market-stewardship. However, this will only be effective if local actors have sufficient authority over market ‘levers’ (Needham et al., 2018). It also highlights a need for monitoring and evaluation systems that can capture market data, complaints and disputes, and qualitative feedback on the lived experience of participants.
Overall, we argue that viewing markets for public services through the lens of classical economic theory is not the way to enhance public sector stewardship. Theories that conceptualise markets as complex adaptive systems, and approaches that recognise the dynamic nature of submarkets engaged in delivering public services and shift responsibility and power closer to the point of service delivery, offer more effective tools for public sector managers to balance the benefits of market models with risks of market-produced inequities. Thin markets, and market gaps in vital public services, undermine the legitimacy of outsourced public services and reflect badly on public managers charged with providing those services. Under those circumstances, governments risk not only being politically unpopular, but in breach of their social contract (Malbon, Carey and Reeders, 2018).
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