Service for sale: Why privatising public services doesn’t work

What do the recent Optus 000-incidents, childcare centre abuse allegations, and the Northern Beaches Hospital deaths have in common?  

Each of these incidents plausibly resulted from the privatisation of public services, in which the government has systematically disinvested funds and withdrawn oversight. 

On the 18th of September, Optus’ 000 service went down for the second time in two years. This time, the outage affected people in Western Australia, and as a result of not being able to get through to the 000 service, it appears that three people have died.  

This highlights a more general issue that we see in Australia across a range of public services, including emergency, hospital, and childcare services. The government has sought to privatise important parts of the care economy that are badly suited to generating private profits, leading to moral and practical problems. 

Privatisation of public services 

Governments in Australia follow economic strategies that can be described as neoliberal. This means that they prefer limited government intervention and favour market solutions to match the value that people are willing to pay with the value that people want to charge for goods and services.  

As a result, public goods and services like healthcare, energy, and telecommunications have been gradually sold off in Australia to private companies. This is because, firstly, it’s not considered within the government’s remit to provide them, and secondly, policy makers think the market will provide more efficient solutions for consumers than the government can.  

We see then, for example, a proliferation of energy suppliers popping up, offering the most competitive rates they can for consumers against the real cost of energy production. And we see telecommunications companies, like Telstra and Optus, emerging to compete for consumers in the market of cellular and internet services. 

So far, so good. In principle, these systems of competition should drive companies to provide the best possible services for the lowest competitive rates, which would mean real advantages for consumers. Indeed, many have argued that governments can’t provide similar advantages for consumers, given that they end up with no competition and no drive for technical improvements.  

However, the picture in reality is not so rosy.  

Public services: Some things just can’t be privatised  

There’s a term in economics called ‘market failure’. This describes a situation where, for a few different possible reasons, the market fails to efficiently respond to supply and demand flows, affecting the nature of public goods and services.  

A classic public good has two features: it is non-rival, and non-excludable. A non-rival good is one where one person’s use doesn’t deplete how much of that good is left for others – so we are not rivals because there is enough for everyone. A non-excludable good is one where my use of it doesn’t prevent anyone else from using it either. So, I can’t claim this good because I’m using it right now; it remains open to others to use.  

Consider a jumper. This is a rival and excludable good. If I purchase a jumper out of a stock of jumpers, there are fewer jumpers for you and everyone else who wants one. The jumper is a rival good. When I buy the jumper and wear it, no one else can buy it or wear it; it is an excludable good.  

Now, consider the 000 service. In theory, if you and I are both facing an emergency, we can both call 000 and get through to an operator. The 000 service is a non-rival, non-excludable good. It is not the sort of thing that anyone can deplete the stock of, nor can anyone exclude anyone else from using it.  

Such goods and services present a problem for the market. Private companies have little reason to provide public goods or services, like roads, street lights, 000 services, clean air, or public health care. That’s because these sorts of goods don’t return them much of a profit. There is little or no reason that anyone would pay to use these services when they can’t be excluded from their use and their stock won’t be depleted. Of course, that has not stopped governments from trying to privatise these things anyway, as we see from toll roads, 000, and private care.  

Public goods, private incentives 

The primary moral problem that arises in the privatisation of public goods and services is two-fold. First, it puts the provision of important goods and services in the hands of companies whose interests directly oppose the nature of the goods to be provided. Second, people are made vulnerable to an unreliable system of private provision of public goods and services.  

A private company’s main objective is to make the most possible profit for shareholders. Given that public goods will not make much of a profit, there is little incentive for a private company to give them attention. This means that essential goods and services, like the 000 service, are deprioritised in favour of those other services that will make the company more of a profit.

Further, people become vulnerable to unreliable service providers, as proper oversight and governance undercuts the profit of private companies. Any time a company has to pay for staff re-training, for revision of protocols, or firing and replacing an employee, they make their profits smaller. So, private companies have incentives to cut corners where they can, and oversight, governance, and quality control seem to be the most frequent things to go. 

Most of the time, these cut corners go unnoticed. Until, that is, something goes wrong with the service and people get hurt, or worse. 

So why does this system continue? 

Successive governments have made the decision to privatise goods and services, making their public expenditures smaller and therefore also making it look like they are being more ‘responsible’ with tax revenues. It’s an attractive look for the neoliberal government, which emphasises how small and non-interventionist it is. But is it working for Australians? 

It seems like the government’s quest for a smaller bottom line is at odds with the needs of Australian people. The stable provision of a 000 service, safe hospitals with appropriate oversight, and reliable childcare services with proper governance are all essential goods that Australians want, and which private companies consistently seem unable to provide.   

It’s a moral – if not economic – imperative that Australian governments reverse course and begin to provide essential goods and services again. The 000 service, the childcare system, and hospitals provide only a few examples of where the government’s involvement in providing public services is very obviously missing. People are getting hurt, and people are dying, for the sake of private profits.