Resource Allocation in the Public Sector

Values, Priorities and Markets in the Management of Public Services

Colin Fisher

• Publisher: Routledge
• Year: 2002
• ISBN:
  9781134683093
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

In the public sector at the moment resources are scarce - or at the very least finite and limited - how they are allocated is therefore of crucial importance.
This book analyses this process and examines the competing values that underlie the public service ethic, including the role of markets and quasi-markets, in the delivery of public services.
Topics discussed include:
* whether people should be denied the public services they need because public bodies are short of money
* what balance we should strike between markets and public organisations to provide public services
* whether the use of markets has gone too far and whether we need to return to a public service ethic

1
THE PROBLEMATICS OF
PUBLIC SECTOR RESOURCE
ALLOCATION

One important thing people working in the public services have to do is decide how scarce resources should be allocated between competing demands. They decide who should receive which services and how they should be provided. Resource allocation is at the heart of the matter of public services and it has long been a difficult and contentious issue. It can be found in the annual process of public expenditure management in Whitehall, it can be seen in the decisions of GPs when deciding whether to refer patients to hospitals, in the decisions of the regulators of utility companies about the controls they wish to place on the companies they oversee, in contract negotiations between care managers in social services and the providers of care and in the decision of a library assistant in the public library who chooses to spend ten minutes shelving returned books rather than updating membership records on the computer.

Public service problems and priorities

The arguments about resource allocation and priority setting have become more complex with the expansion in the types of structures used to deliver public services. Before the 1980s the organisations that delivered public services were relatively uniform; there were local and health authorities, the nationalised industries and central government departments. The main source of diversity and complexity concerning resource allocation was not organisational but professional, emerging from the different values and criteria that the various groups within these organisations argued should be used to make resource allocation decisions.

Since the mid-1980s the range of organisational forms used for delivering public services has increased. To give a few examples, there are now:

• healthcare trusts;
• direct grant schools;
• fundholding medical general practices;
• higher education corporations;
• private companies providing public services on a contractual basis;
• the Training and Enterprise Councils (TEC) which are private companies but which are 90 per cent funded by the state (Committee on Standards in Public Life 1995b);
• central government agencies such as the driving standards agency which conducts the driving tests;
• privatised utility companies.

In many ways this diversity parallels the plethora of public boards and public authorities that characterised the structure of the public services in Victorian times (Jackson 1969:36–7).

In the period which saw the burgeoning of structural diversity the ideological range of the debate about public services diminished. It can seem to an observer as if the values of the market have become the new consensus. The increase in the number of organisational forms has been paralleled by an apparent reduction in the number of arguments, principles and philosophies that compete in the public and organisational debates about the nature and allocation of public services. In secondary education, to give a particular illustration of this reversal, the traditional position was one which gave headteachers very little discretion in how they organised and managed their schools. Most changes a head might make in these areas needed the permission of the local education authority, but the traditional system also gave teachers great freedom to define their curriculum and to choose the teaching methods they would use. This pattern of structural and managerial uniformity combined with diversity of curriculum and teaching methods has been reversed. There is now structural diversity and managerial discretion, on the one hand, and the standardisation of curriculum and teaching methods, on the other.

In practice, however, the ideological differences about the allocation of public services have not gone away. The public debate may seem to have been won by the supporters of markets and competition but the proponents of public services are still working in the new organisations. The people who held sway in the old-style public sector organisations are often still there and are much involved in the delivery of services. The staff in housing associations with whom I have worked, for example, often work in a very entrepreneurial way and have the skills to cost and negotiate a contract, but they also reveal, not deep below the surface, values about public service that were acquired in housing and social services departments in the 1970s and 1980s.

Even in services where there has been a substantial move towards the use of market mechanisms, many decisions still have to be made on the old bureaucratic basis. Social service care may be provided through a market mechanism (Department of Social Security 1989a and b), but the purchaser (or commissioner) still has to decide who shall receive which services. The providers, who have to assure their survival by providing the services the commissioners want to buy, may still harbour dark thoughts concerning proper and professional values about the delivery of social services. The world of the public services has acquired extra levels of complexity. Onto the professional and philosophical arguments about resource allocation has been piled the mass of argument about the institutional and structural form of public service delivery.

It is inevitable, given the level of complexity just discussed, that there are many arguments about how public services should be allocated and about the values and mechanisms considered appropriate to the task. Some hint of the extent of these disputes can be gauged from the following glimpses of argument about resource allocation that I have collected from the media, from conferences and other sources over ten years.

• ‘We spend our housing budget on repair and improvement grants rather than building council houses because that way you can touch politically a large number of voters with a small amount of money.’
  A housing department official in the early 1980s.
• ‘The purpose of the NHS is to allow highly specialised professional staff to develop their specialised professional skills.’
  A management consultant at a NHS training conference.
• ‘Questions of need should not be confused by prejudice against violence.’ A cleric in a synod debate in the late 1980s talking about aid to Third World liberation movements.
• ‘In reality, utility often wins out over individual rights. The French do not cut down the trees lining their roads even though a number of innocent people die in road accidents because of them.’
  James Griffin quoted in Waldron (1985).
• The publicly owned and managed Newcastle metro system used to be an integrated one in which buses arrived to meet, and exchange passengers with, the metro trains. Since bus deregulation the buses and the metro have been in competition and not in collaboration.’
  A report on Radio Four’s Today programme on 30 April 1996. The Passenger Transport Executive, responsible for the Newcastle area, no longer wished to provide a public subsidy for the metro. The private sector companies claimed that they could run the metro more efficiently and profitably than the public sector ever could.
• ‘The handling of the SWEB Gas affair by OFGAS [the industry regulator] was a glaring illustration of the low priority given to the protection of the interests of consumers’ (Gibbs 1996).
  A quote from the chair of Devon County Council’s public protection committee. From April 1996 gas consumers in the south west of England can buy their gas from competing suppliers. One of the new
  suppliers, a subsidiary of South Western Electricity, was accused of sharp practices in the way it sold its services.
• ‘This is a clear case of the left hand not knowing what the left is doing.’
  Labour MP Derek Fatchett on the alleged bureaucratic incompetence involved in the building of the new £79.7m NHS headquarters, Quarry House, in Leeds. The building has a swimming pool, sauna and squash courts. It was reported that it was too small to accommodate all the staff, some of whom were squashed into emergency offices in the roof space, and others were working in rented accommodation in Leeds. (Brown 1996; Comptroller and Auditor General 1996).
• ‘Where the question is whether the life of a ten year-old child might be saved, by however slim a chance, the responsible authority must, in my judgement, do more than toll the bell of tight resources.’
  Mr Justice Laws in his High Court judgment (subsequently overturned by the Appeal Court) on the case of ‘child B’ who was denied treatment for leukaemia by Cambridge and Huntingdonshire Health Commission. The commission denied their refusal was based on cost grounds. They claimed it was a clinical decision not to put the patient through much suffering when there was only a 10 per cent chance of success (Victor and Penman 1995). A full account of the case is given in Klein et al. (1996:77–81).
• ‘It is disgraceful that the proceeds of that investment [by the European Union] can be used to bolster the profits of a private train operating company… This money was intended to improve our railways—not to buy tickets for the get-rich-quick gravy train.’
  Clare Short, the Opposition Labour spokesperson on transport. The east coast main railway line between London and Edinburgh had been modernised using, in part, a grant from the European Commission. The running of the line was franchised to a private company, Sea Containers, in 1996 (Hetherington 1996).
• ‘The government believes that the principal responsibility for making that provision [for social and nursing care for the elderly] rests with the individual… We shall continue to provide a safety net…we shall reward the thrifty for their responsibility.’
  The Secretary of State for Health on proposals to protect the assets of those elderly people who need social care and who have taken out insurance against the risk (Thomas 1996).

These examples are neither exhaustive nor representative, but they do suggest the breadth of views that may exist on the question of public service resource allocation. They represent some of the problematics of resource allocation. Problematic is normally an adjective and it makes a clumsy noun which, in this form, means an area of difficulty in a field of study. It is used for two reasons. First, it rhymes well with the key words in the titles of the other chapters. Second, and more importantly, it expresses the notion that the ideas people use about resource allocation are the subject of great scrutiny and argument. Such terms as need, equity, cost effectiveness, markets and competition are not straightforward and it is largely the purpose of this book to review and debate the range of definitions and arguments that surround them. The aim is not simply to dissect the problematics and lay them out for inspection. It is also to identify how people cope with the difficulties caused by the problematics in the day-to-day business of allocating and delivering public services.

One problematic that needs to be considered is the nature of public services. A broad definition will be taken in this book. The economists’ definition of public goods is too restrictive. It focuses only on those services, such as public health measures, from the enjoyment of which people cannot be excluded but for which they cannot be required to pay, except indirectly through taxation. It therefore excludes many services, such as public housing, which has long been a public service. Neither can public services be defined as those that are provided by a public body. Many are provided by private companies or voluntary organisations and by mechanisms of allocation which involve hierarchies, free markets, quasi-markets and combinations of all three. Public services are those considered by the state to be necessary to the well being of its citizens to a sufficient degree to justify the state providing the service, or paying for the service, or using the tax system to subsidise services (e.g. tax relief on mortgages on homes) or regulating the service. There will always be debate of course about services on the margin of the category. Some, and mortgage tax relief is a case in point, will be increasingly seen as outdated and an unnecessary public provision whereas others, public access to the Internet and the information superhighway, for example, will come to be seen as something which it is proper to provide, in certain circumstances, as a public service. The definition of public services is a relative and not an absolute one, the services included within the classification will vary with the circumstances and economic wealth of a country.

The idea that links all varieties of public service is that they provide an infrastructure (Seedhouse (1994) uses the term platform) on which people can build autonomous and worthwhile lives. Stretton and Orchard (1994:71–9) provide illustrations of four categories of services necessary for this purpose. The first category contains those services needed to develop, inform and protect individuals. It includes a multitude of services such as sewerage, air traffic control, policing, monitoring pollution levels, health education, and so on. In the second category are the services which support and encourage the private sector of the economy. These services help create the wealth which funds, amongst other things, people’s growth and achievements. This category includes public funding of applied research, transport systems, company and consumer law, support by foreign office diplomats of exporters and innumerable other services. The third category of public services includes those that provide and encourage a cultural infrastructure. It includes services ranging from public service broadcasting to running street festivals. Such services can deepen an individual’s experiences but may also contribute to the development of wider and more encompassing social and cultural norms. The final category of public services concerns the redistribution of wealth. This has become one of the most contentious areas because of worries that the provision of financial benefits to the poor diminishes their incentive to find and remain in work. Nevertheless, it remains true that those with no job, with poor housing and little training have less opportunity than others to achieve full and satisfying lives and therefore deserve the support of public services. The infrastructure theory of public services does not enable categorical decisions to be made about what services, in any particular place and time, provide an adequate platform. It does, however, provide a framework within which the debates can be conducted.

If the idea of an infrastructure, which supports the autonomy and achievement of individuals within an economy and society, is crucial to the justification of public services, then the role of resource allocation in the management of public services is highlighted. The issues raised by this theory question which services are a legitimate part of any infrastructure. They concern who should have priority in receiving services and how it is ensured that the right people obtain the right services. These are difficult questions to answer because judging the success or failure of infrastructures is difficult. A private company can easily calculate if a division is making profits but there are no easy ways to decide whether, say, an embassy is achieving policy objectives, even assuming that the objectives are known (Tullock 1996:64).

A summary of the chapters

It will be helpful to give a brief account of the contents of the chapters. This first chapter will clarify the subject matter of the book and lay down some concepts and definitions (such as the idea of values) as a foundation for the rest of the book. The main theme of the book is identified in chapter 2 which is about the heuristics of resource allocation in the public services. The starting point for this discussion is the question: how do public sector managers and officials make resource allocation decisions? The initial conclusion is that they do not apply formal and scientific decision analysis techniques. Instead, it is argued, public officials acquire or develop values, beliefs or schemata about the things which should be taken into account when making allocation decisions. These values are used heuristically, that is to say they perform the task of making complex issues more simple. A heuristic is a cognitive rule of thumb which helps a person decide which information is relevant and which is not. It also ...