The Quasi-market - Essay Example

 What are the main characteristics of a quasi-market? Compared to the previous structures of direct public sector provision, what impact did quasi-markets have on both supply and demand? The late 1980s witnessed the most intense period of social legislation since the post-1945 social democratic settlement: notably the Education Reform Act 1988, the Housing Act 1988, the Local Government Finance Act 1988, and the NHS and Community Care Act 1990. Furthermore, these legislative changes represent a significant new departure in policy, rather than an incremental continuation of past policies (Glennersteret al., 1998). Taken together, they can be seen as a bold and dramatic attempt to restructure the British Welfare State. A common feature within this legislation has been the attempt to create quasi-markets, mimicking market-like mechanisms but in which service (in general) continues to be free at the point of use. The official line was that public services were to become more business-like, but not a business. It was believed that the introduction of quasi-markets would have a range of beneficial effects. Key criteria (Le Grand 1992) include quality, efficiency, choice, responsiveness, and equity. The Conservative government’s starting assumption for the introduction of market mechanisms into social work was that capitalist enterprise is more economical, efficient and effective than the public sector in providing services. This assumption stemmed from the belief that competition produces efficient services in which prices decrease while quality increases as a result of the market system requiring service providers to compete for contracts. The radical changes in social work were marked indelibly by the encapsulation of this belief in a ‘quasi-market’ arrangement (Le Grand 1992), with cash-limited budgets, purchaser-provider splits, contracting out, the use of independent agencies and more widespread use of charges. The welfare state became primarily a funder, with individual service-user budgets given to or, more commonly, recommendations for expenditure from those budgets made by a social worker (often redesignated a ‘care manager’) and the allocation of those budgets between competing suppliers. Quasi-markets differ from ‘pure’ markets in a number of important respects. On the supply side, there is competition between service suppliers; but, in contrast with pure markets, suppliers are not necessarily privately owned, nor are they necessarily required to make profits. On the demand side, consumer purchasing power resides not in cash but in a budget confined to the purchase of a specific service, and the service user does not exercise the final choice concerning purchasing decisions; these are delegated to the social worker/care manager (Le Grand 1992). Despite such artificiality, the quasi-market is a key concept in the quasi-business discourse. Were social work to think of itself as though it were a business, then having a market with which it had to deal was crucial to the instillation of that thinking. The degree of shift involved is indicated in the powerful political legitimation function the quasi-market performed for the Conservative government. Market outcomes are neither fair nor unfair. They are either the result of the operation of impersonal market forces or they stem from the body responsible for gate keeping access to the market in the case of social work, the local authority. As such, quasi-markets offered the possibility of central government holding at arm’s length the responsibility for the outcomes of its social welfare policy. The introduction of quasi-markets in social work, initially in the sphere of community care but later developing in a range of other services such as foster care and children’s homes, made a significant contribution to establishing the social work business, for a number of reasons. First, marketisation undermined the sense in which social services had represented a counterbalance to market values during the post-war consensus on welfare: Marketisation may be seen as one among many examples of the New Right’s antagonism towards the decommodifying aspects of the welfare state. It is intended to challenge the, albeit limited, extent to which the social services intrude on market values and threaten their reproduction by promoting citizenship rights and needs-based priorities. Second, marketisation was intended to introduce competition among service providers. At first, the Thatcher government concentrated on extending market forces in health, education, pensions and housing (Le Grand and Robinson 1992), with social work coming towards the end of the Conservative administration’s strong commitment to a common policy of market-oriented reform across a range of services (Le Grand 1992). When it turned to social work, the Conservative government instigated market arrangements by stipulating that 85 per cent of the funds transferred to local authorities from central government’s social security system for community care services had to be spent on the independent sector. This was consistent with the concerns of the White Paper Caring for People, preceding the NHS and Community Care Act, which stated that one of the key objectives of the reform of community care was to promote the development of a ‘flourishing independent sector’ and that Social Services Departments should ‘make clear in their community care plans what steps they will be taking to make increased use of non-statutory providers, or where such providers are not currently available, how they propose to stimulate such activity’. This point was reiterated in subsequent policy guidance, with Social Services Departments being expected to make clear how they proposed to stimulate market activity where independent providers were not available. Caring for People set out ways in which Social Services Departments could promote a market by setting clear service specifications, stimulating the independent sector and floating off some of their own units. Promoting such a market was seen by the Conservative government as essential to the development of competitive cost-effective services. Given that Social Services Departments were accorded a central role in promoting quasi-markets, any which were resistant to this role were encouraged to overcome their inhibitions by a government report commissioned from a firm of accounting consultants, while the commercial care industry, predominantly located in the residential sector, was encouraged to diversify. The third contribution made by quasi-markets to establishing the social work business was the introduction of the purchaser-provider split, the theoretical origins of which lie in agency theory (Alford and O’Neill 1994). In the purchaser-provider split, control resides with the ‘principal’ (purchaser) who has the power to make decisions and see them carried through. The ‘agent’ (provider) has to implement the principal’s decisions. This centralizes strategic control while decentralising responsibility for service delivery. The clear separation in the roles of principal and agent, required by the purchaser-provider split, was implemented through the use of service specifications and contracts. These provided a graphic indication of the cultural shift involved in establishing the social work business. Fourth, the purchaser-provider split assumes that the principal and agent have clearly distinct interests and act on the basis of those distinct interests. The introduction of service specifications and contracts reinforced, indeed often generated, these different interests and provided strong incentives for acting in accordance with self-interest. Money began to be exchanged for the delivery of services defined in terms of specific services for individual service users or for specified groups of service users with little shared involvement with potential providers in determining the service specification on which the contracts were based. In other words, contracts assumed that purchaser and provider did not share common interests. This was an intended consequence of establishing the social work business in this way and was seen as essential to the destruction of the cosy, self-serving collaboration which was alleged to characterize social work’s bureau-professional regime in the pre-business era. With the introduction of contracts, the purchaser was to control the agenda in terms of who should receive a (tightly specified) service. The specification of outputs, usually expressed quantitatively, was to result in increased bureaucratic activity for the purchaser and the provider in terms of record keeping in relation to task completion and financial arrangements. Thus the application of the word 'market' in this context may be no more than a misleading analogy. To what extent is a quasi-market really like a private sector market at all? The centre often retains a battery of regulatory powers which ensures that quasi-markets are still very inward facing. Alongside the rhetoric of quasi-markets, we still see confusing forays back into the world of strategic planning or direct intervention. Nevertheless, the quasi-market model is now clearly discernible in a number of different settings and contains a number of key features. Public funding is no longer to be allocated solely through planning or through formula funding, but instead through such devices as competitive bidding, or an earmarked budget which can be given to users, or to agents acting on their behalf. They then allocate the budget between competing providers (Le Grand 1992). This sharpens the incentives for performance at the level of the individual providing organization. At the same time, these quasi-markets can be seen as evolving in a different manner and pace across the public services. What might explain this pattern of variation? Challiset al. (1994) proposes a typology based on variation in market power and market structure. What is crucial is the degree of concentration on both the purchaser and provider sides. Thus the purchasing function may be more concentrated or more diffuse according to the quasi-market under analysis, as may be the providing function. The greater the degree of concentration, the greater the market power. Challiset al. (1994) argues that the balance between contracts and regulatory institutions as control strategies within quasi-markets will reflect the degree of provider and (especially) purchaser concentration. Where both the purchasing and providing function is concentrated (as in health care), the contract will predominate as a means of control. There is here less concern to prevent abuse of monopoly (provider) power and also this is because the transaction costs fall as the number of contracts diminishes. They make the point that these quasi-markets have been deliberately created and managed. Each quasi-market is therefore set in a historical and institutional context which may have affected its evolution. The quasi-market in social care was also created by the 1990 NHS and Community Care Act, as social service departments were expected to move from a traditional provider role to an 'enabling role' which mirrored that of the purchasing authorities on the health care side. New-style care managers can be seen as the social care analogues of the GP fund holders, but with fewer devolved powers. There are thus important differences between the pattern of development observable in health and social care settings. A priori, the pace of development might be expected to have been slower in social care than health care settings. Social care services are organized at a local level (through local authority social services departments), unlike the NHS which has been seen as a national service. There is a tradition of greater local autonomy in the provision of services. Most unusually for a branch of local government, social services departments were given an expanded role in the Act in relation to needs assessment for residential care. However, the social care provisions of the Act were subject to phased implementation between 1991 and 1993, with the new care management system only introduced in April 1993. In fact, the pace of change may well have been faster in social care than in health care as a much more outward-facing market has been created. The new agenda resulted in a more radical restructuring of the old publicly delivered social care services than in health care. This may be due to factors related to market structure (e.g. fewer barriers to entry and exit) or to contextual factors (e.g. the lower political profile of the social care issue; the less powerful professions; a covert political desire to break up the unionized culture of the old social services departments). Relatively loose central exhortations about a mixed economy of care were replaced by more focused requirements to establish and to manage a social care market. This quasi-market was actively developed and managed from the top. Financial incentives were created for social services departments to use more private provision (Glennersteret al., 2003). As Flynn and Hurley (1993) indicate, in 1992 the Government allocated £6m to develop and promote the supply of private and voluntary sector home care. There is also a requirement under the new care management system to spend 85 per cent of transferred Department of Social Security funds in the private and voluntary sectors. In 1993 the Government brought in new directions to make local authorities involve private providers in the formulation of community care plans. The 1990s may well be characterized by the rapid expansion of nonstatutory provision within social care, even if funding largely remains public. Domiciliary and day care can be seen as areas of future service growth, although there may already be overcapacity in the private residential care market. Contrary to a priori assumptions, a freer and more externally facing market may develop more rapidly in social care than in health care. How important has been the shift to the enabling authority in social care? Arguing for continuity rather than change, Lawson (1993) contends that, in general terms, the impact at least by the end of 1992 of the community care reforms was muted. The lack of investment funding together with a refusal to ring fence resources, delays in implementation, and uncertainty about the level of funding to be transferred from the DSS have all contributed to this, together with the continued fiscal squeeze on local authorities through charge-capping. Social services departments did not always possess the high level of analytical capacity and managerial skill needed to progress change of this complexity, and there was a cultural resistance to adopting new forms of management which were seen as grounded in the private sector. The central agenda was not always accepted by key organizations at local level, and was in danger of being reinterpreted out of existence in the localities. In early 1991 only a minority of (usually Conservative-controlled) local authorities were found to have developed plans to build a social care market (Wistowet at, 1994). Where non-statutory forms of provision were emerging, they were often hybrid trust-type organizations spun out of the public sector and with continuing strong informal links. After the tighter needs assessment procedures introduced in 1993, there was if anything excess capacity in the privately provided residential care market and a shake-out was likely. Yet there are also signs of the first steps towards real organizational change in social care. Hoyes and Means (1993) report early case study work from two Shire counties. In these localities, there was evidence of a growth of the independent sector. Within one social services department, a process of managerialization was also evident as cost centres were being developed, budgets devolved, and experiments in care management being launched. There was a widespread desire to find new ways of involving consumers as partners in service planning and delivery. While conventional private sector organizations may continue to find it difficult to enter the social care market, Barr, N (2004) speculate that the social care market may in time come to be dominated by new statutory-voluntary hybrids and new not-for-profit or even for-profit organizations set up by ex-statutory workers. Large and sophisticated voluntary organizations, with their well-developed network of key contacts, may also be well equipped to enter the social care market. A contract and quasi-market-based system may also have implications for those voluntary organizations that have traditionally provided care, and which have often in the past been praised for their flexibility and creativity. Bailey, S. (2002) argues that the formalization of relations through the contracting process may have a perverse effect on organizational behavior, leading to a working to the contract, a loss of nerve, and a retreat from more innovative or challenging forms of service provision. Reference: Alford, J. and O’Neill, D. (eds) (1994) The Contract State: Public Management and the Kennett Government, Melbourne: Deakin University Press. Bailey, S. (2002). Public Sector Economics, 2nd, basingstoke, palgrave Barr, N (2004) the Economics of the Welfare state, 4th ed Oxford: OUP Challis L., Day P., Klein R., and Scrivens E. (1994), "'Managing Quasi Markets: Institutions of Regulation" Flynn N., and Hurley D. (1993), The Market for Care (London: LSE). Glennerster, H. (2003) Understanding the finalce of welfare: what welfare costs and how to pay for it, bristol: the Policy Press. Glennerster, H. and Hills, J. (eds) (1998) The State of Welfare: the economics of social spending, 2nd ed, Oxford: OUP Hoyes L., and Means R. (1993), Quasi Markets and the Reform of Community Care, in J. Le Grand, and W. Bartlett, (eds.), Quasi Markets and Social Policy (London: Macmillan) Lawson R. (1993), "'The New Technology of Management in the Personal Social Services'", in P. Taylor-Gooby and R. Lawson (eds.), Markets and Managers: New Issues in the Delivery of Welfare (Buckingham: Open University Press Le Grand, J., Propper, C and Robinson, R. (1992) the economics of social probles,3rd,Basingstoke: MacMillan. Read More