Cuts & innovation in public services

Matthew Taylor says the impending need for cuts in government spending require the public sector to “adapt, innovate and engage the public in new ways.”
There is, though, a big problem here - people lack the incentives to do this. He says:

We need to be exploring the scope for major productivity gains, not just cutting back office staff, but re-engineering services to achieve substantial cuts in costs…[For example] if local authorities moved more boldly on individual budgets, putting in place the technological and community support necessary to do so, they should be able radically to reduce case and middle management costs in adult service departments. 

But it’s not obvious who has an incentive to re-engineer services. It is, though, very obvious who has an incentive to block such re-engineering - the middle managers who’s jobs are at stake.

We need to be encouraging an intensified process of innovation in public services, designed to find ways of doing the same, or more, for less.

But what’s the mechanism for generating innovation? In the private sector it’s simple - competition. Where’s the analogue to this in the public sector?
What’s more, common sense tells us that innovation should be more likely when budgets are loose, not when they are tight. When bosses are looking for cuts, they’ll not want to undertake experiments. People who fear for their jobs won’t want to take risks. And cuts would jeopardize the goodwill of staff which is a massive source of what efficiency there is in public services.

Local residents may complain about moving to fortnightly refuse collection but they might feel differently if they understood this was one of the measures that enabled the council to protect other services.

Not necessarily. They might not use other services, such as education or care of the elderly. The median voter theorem tells us that universal services will be harder to cut than more particular ones.
What I’m saying here is that there are reasons why public services aren’t efficient or innovative - they lack the structures and incentives to be so. Without such changes, the coming spending cuts will be as “demoralizing and divisive” as Matthew fears.

Comments

[Bruce Davis]

I agree wholeheartedly that turkeys don't generally get together and innovate a festival called christmas. I don't think it is just a public sector problem but a cultural problem that can be found in many parts of the private sector too (despite it seems the presence of "competition").
People innovate when there is something in it for them personally - money, love, fame, reward, fun etc - which prompts them to leave their comfort zone and change how they look at the world (even if that isn't always a pleasant experience).

[thelocalgovernmentofficer]

"if local authorities moved more boldly on individual budgets, putting in place the technological and community support necessary to do so, they should be able radically to reduce case and middle management costs in adult service departments."

That's an awfully big cart his horse is pushing. The evidence on whether individual budgets are less expensive is patchy and contradictory at best. If he means direct payments then there is a case to be made that this reduces management costs, but also comes at a price.

The argument for individual budgets and direct payments has never really been that you spend less money, it's been that people make better choices about their own care than a bureaucrat.

But if the taxpayer is funding it, you still need the bureaucrat to decide the amount, check that it's getting to the right person, and not being spent fraudulently. You also need to train the person who may be becoming an employer, with legal and tax duties, or else provide that support for them centrally, again a new cost. After that, it's social outcomes and public choice.

If a group of older people choose to use their share of funding to go to each other's homes to play scrabble that's fine, and may help keep them mentally active and socialising - but does it reduce the running costs of the community day centre for those who wish to keep going there by an equivalent amount? I'd argue that it almost certainly doesn't, unless you decide the centre is no longer viable and close it completely.

[CharlieMcMenamin]

The local government officer speaks sense.

Perhaps I'm old fashioned here but I can't see what is so good about direct payments/individual budgets: it's just a return to benefits except that now you don't get the money as of right any more but are dependent on a council officer charged with 'managing' demand saying you can have it. Is this likely to motivate that stubborn mass of state employees with an old fashioned public service ethos to do their best on the innovation front? I don't think so.....

[thelocalgovernmentofficer]

Thanks Charlie, I'll quote you on that. I could go on about this for hours. In theory with direct payments you will spend the same total amount - assess what you think they need under the old system (so you still have to do that bit) then tell them they can have what you think they need, or the equivalent amount of cash to make their own arrangements. That's a gross simplification but not a million miles from the truth.

Now, I see no reason why that can't work in some circumstances, although I also don't see why it couldn't be done without the added bureaucracy. Council have a Government imposed target (may now be an opt-in one in Local Area Agreements, should check) for the percentage of people using individual budgets or direct payment.

As ever, this target imposes a 'what gets measured gets done' incentive rather than doing what is right for each service user. I was in a meeting a little while ago when a Council was berated for having too few clients on direct payments in the 'mental health' category. No, really? You think? People with mental health problems or dementia are less willing to take on employees and fill in tax returns to get help from the state, and would rather leave it to the local authority? What a shock.

I shouldn't give the impression I'm opposed to people choosing and tailoring their care, I'm absolutely not, and a good example is given of someone whose career has given them an odd sleeping pattern who wants to buy meals at set times different from most customer. But in reality, most people want their breakfast before 9, their lunch between 12 and 2, and their tea between 6 and 8 - given a limited number of meals on wheels staff, someone is going to be the last breakfast, or the first supper.

There is a public relations disaster in the making here too. I know of people using Direct Payment to fund cruises (help with arthritis apparently), Sky Sports (for a man who has low mobility to keep him entertained so his wife gets a break, and for homeopathy (Christ knows what for). Individually, maybe there's a case to be made, but the Daily Mail must be saving them up.

[Iain Coleman]

I'm unconvinced by this account of incentives. People who do have incentives to find innovative ways to provide services more cheaply include the councillors who hold the portfolios in question, and the relevant directors and heads of service in the council. Councillors want to save money so they can spend it instead on their political priorities. Senior officers are appraised partly on the percentage efficiency increases they are able to realise.

[Alex]

Also, the reputation and any financial benefits of innovation redound to people further away from the customer-face, while the costs of innovation usually land on the direct public servant.

However, it is also the people nearest the public who have the shortest feedback loop to actually innovate with, but the least control.

[Peter]

There is another dimension to this. What does productivity really mean in the public sector? It is rarely innovation.

A rise in productivity usually means a poorer service. It means larger class sizes, doctors having less time to spend with patients, social workers with bigger case loads, etc. Improved quality frequently means lower productivity.

It might sound good, but try being on the other end of a high productivity workforce, doing more with less, when you need attention.

[Andrew Duffin]

You're certainly right that currently there is no incentive for public sector managers to improve things.

I would take it further and suggest that it's impossible to create any suitable incentive for genuine process and service improvement in the public sector - and therefore the public sector should not be doing these things.

The public sector should be cut back to doing those things which only it can do - which means basically defence, enforcement of criminal law and civil law (especially contract law), relations with foreign powers. And pretty much nothing else.

The only way to get effective provision of services is to have them delivered by competing private entities in a fairly level playing field, with no monopolies.

It may not be possible - companies, particularly big ones, will always try to get into bed with the civil power in order to raise barriers and generally make life easier for themselves; but it's the ideal to aim at.

We certainly shouldn't have the State trying to run schools, or railways, or manufacturing industry, or taking away the rubbish. Sixty years' experience says they're hopeless at things like that.

[guthrie]

I cry Poe on Andrew Duffin.

[Phillip Huggan]

Can't they just have an outside audit come in and do a middle management Kaizen assay on the government organization, if indeed middle management is where the fat is?

[Glenn]

Hmm I work in the public sector - a few things get in the way of productivity...

- annualised budgets
- efficiency savings that focus on admin functions - means middle managers with degrees do their own stamp licking (not the most productive division of labour)
- perverse targets
- the targets, policies, initiatives change every year
- centralised govt spending decisions - large capital projects, transport, infrastructure....

some things help productivity:
- very strict competitive procurement rules (honest, these are very strictly monitored and audited)- means good value for money
- sense of professional pride and public service - some folks in the public sector do it cos they want to, and put the effort in

Most local authorities are sh*t hot at catching up with you if you miss a council tax payment. This shows they can be efficient, and pretty ruthless too if needs be.

[reason]

Crooked Timber just pointed out that the US still uses paper cheques and the imperial system of measurements. Competition doesn't necessarily encourage innovation. I remember being very taken by a particular episode of "the inventors" in Australia. An inventor invented a better mousetrap - well no actually a better razor blade. It cut closer, safer and lasted longer. The marketing expert said no manufacturer would touch it, they make their money from selling replacement razor blades. He was right. The problem is clearly that incentives even in a competitive envirnoment don't always match the public interest.

How you would get incentives in line are through excess demand for labour. People who are working flat out, will look for ways to reduce the load, rather than being threatened by such changes.

And some people are by nature and profession automatically in the business of change (scientists and engineers). They should be given more say in how society is run (rather than the financiers who just alienate everybody else by seeing them just as a cost).