VoxEU Column Welfare state and social Europe

The other invisible hand: delivering public services through choice and competition

Properly designed public services whose delivery includes elements of choice and competition deliver higher quality and more efficient services, and are both more equitable and more responsive

Ask people what they want from the public money that is spent on health care and education, and the answer will be simple: a good service. Sometimes they will add that they would like this service on their doorstep: a good, local service. A high quality local school; a caring, responsive, family doctor; a top-class district hospital.

How these aims can best be attained? Fundamentally, there are four ‘models’ for doing so:

  • trust, where the professionals, managers and others who work in public services are trusted to deliver a good service;
  • command-and-control, where those workers are instructed or in other ways directed to deliver a good service by higher authority;
  • voice, where users of services communicate their views about the quality of the service directly to service providers; and
  • choice and competition, where users choose the service they want from those offered by competing providers.

Each of these models has its merits and demerits. Not surprisingly, professionals and others who work in public services like the trust model. It contributes to morale, and since no monitoring is required, is relatively low cost. But it has a major weakness: it assumes that providers are solely motivated by the desire to provide exactly the services that patients need, and that they have no self-interested concerns. In terms of a metaphor I used in an earlier book (Motivation, Agency and Public Policy, Oxford University Press 2006), they are assumed to be ‘knights’ not ‘knaves’ - that is, public spirited altruists not self-interested egoists. Of course, like everyone else, professionals and managers who work in health systems are a mixture of knight and knave; and inevitably therefore the service concerned is at times likely to be organised more in their own interests than those of the user. Moreover, even when providers do behave in a knightly fashion, they are more likely to provide what they think users need, rather than what users may actually want. Altruism in public services is difficult to separate from paternalism.

Command and control

The chief merit of command and control is that it can work – in the short term. For instance, the English National Health service has adopted a version of command and control, setting performance targets coupled with heavy performance management; and in consequence some key aspects of service delivery (notably patient waiting times) have sharply improved. For instance, in 2002 the target was set that 98% of accident and emergency attendees should be treated, discharged or admitted to hospital within four hours of their arrival (at that time it was less than 20%.) By 2005 this target had been achieved – and this despite an increase of over a quarter in the number of people attending accident and emergency admissions in that period.

However well they work in the short run, in the long run targets and performance management suffer from all the standard problems associated with command and control. Of these perhaps the most significant is the demoralisation and demotivation of those on the front line of service delivery – especially if they are professionals who are not used to receiving orders and have been trained to believe that they will have substantial autonomy and independence in their work. Other problems include the distortion of priorities, and the incentive for ‘gaming’ behaviour of various kinds, ranging from straightforward fiddling of the figures to more subtle ways of meeting the target by changing behaviour in undesirable ways.


‘Voice’ is shorthand for all the ways in which users can express their dissatisfaction (or indeed their satisfaction) by direct communication with providers. This could be through informally talking to them face to face – patients talking to their doctor or parents talking to their child’s teachers. Or it could be more indirect, invoking a complaints procedure, complaining to elected representatives, and so on. And it could be collective, though the process of voting for those representatives.

A model that relies upon voice has its advantages as a means of public service delivery. Obviously it takes direct account of users’ wants, at least as they perceive them. Moreover, it can be rich in useful information. However, it also has its difficulties. For instance, in a no-choice world of publicly funded health care, patients who are dissatisfied with the quality of the treatment, or the responsiveness of the medical professionals or managers with whom they are dealing, have a limited range of options open to them. If there is a private health care sector running in parallel to the public one, they can use that – or, at least, the wealthier among them can do so. Others can only complain, either directly to the professional or manager concerned or to their superiors. In each case, the individual has to depend for a response on the goodwill, or indeed the knightliness, of the person to whom they are complaining. As well as being demanding to undertake, this is a fragile mechanism for improving quality. It offers little or no direct incentives for improvement to the knavish or self-interested professional or manager; and even knightly, more altruistic, ones do not respond well to being challenged by pushy users.

Moreover, in so far as complaining works at all, it favours the self-confident and articulate middle classes, thus tending to steer services in their direction at the expense of those for the less well off. The middle class thus have a double advantage over the less well off. They are better placed to persuade the key decision-makers in the public service to meet their needs. And, if that fails, they can use the private sector. In neither case are equity and efficiency being served.

Choice and competition

Finally the choice and competition model. This has some clear advantages. Unlike the trust model, it channels both self-interest and altruism to serve the public good. If the money follows the choices of parents or schools, then the hospital or school that provides better service will gain resources; that which provides inferior service will lose. Whether the unsatisfactory providers are knights or knaves, they will wish to continue in business; the knaves because it is in their self-interest to do so, the knights because they want to continue to provide a good service to needy patients. But, to continue in business, they will have to improve the quality and responsiveness of the service they provide in order to attract patients or pupils, as well as the efficiency with which the service is delivered.

Unlike the command and control model, it gives freedom and autonomy to professionals and managers, encouraging them to engage in innovation and creativity, and with no outside authority continuously telling them what to do. Unlike voice, in a world where choice and provider competition is the norm, users dissatisfied with the general quality of the service they can get from one provider have the opportunity to go to another who can provide them with a better service. This gives considerable leverage to anyone who does want to voice their dissatisfaction. If the listeners to a complaint know that in the complainant can go elsewhere, they are much more likely to respond positively. Choice gives power to voice. Moreover, the facts that now both poor and rich can exit if necessary, and that the less well off are no longer dependent on their ability to persuade professionals to get the service they want, can improve the equity of service delivery.

Of course, the model has its problems. It may not always be possible to have competing providers, especially in rural areas. Unscrupulous providers can exploit ill-informed users. And there is always the danger of cream-skimming: providers choosing users who are cheaper or easier to serve.

My recent book (The Other Invisible Hand: Delivering Public Services through Choice and Competition, Princeton University Press) does not argue for one of these models being used exclusively; each model has its place in the public services provision. The book point to the disadvantages of each system and pulls together evidence and theory to argue that, in most situations, services whose delivery systems incorporate substantial elements of choice and competition work best. Properly designed, such systems will deliver services that are of higher quality, more responsive and more efficient than ones that rely primarily upon trust, command-and-control, or voice. Moreover – contrary to much popular and academic belief – they will also be more equitable or socially just.1

1 The book is partly based on work that I did when working as a senior policy adviser to Prime Minister Tony Blair in No 10 Downing St, where I was privileged to be seconded for two years. My appointment to No 10 meant that I was having to put my money where my mouth was. The Government was putting into place public sector reforms of a kind that I had long advocated. So I was now in a position of having actually to defend these ideas in a political and policy arena. I also had to help put them into practice, and to confront the technical and political difficulties involved in policy implementation. I could no longer hide behind a veneer of academic detachment; I could not pass the difficult questions on to others to deal with; if a technical or political problem arose, I could not simply ignore it, but had to think of a way of dealing with it. And it is that experience that has dictated both the content and the structure of this book.



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