Gittins: Marketisation of public services has failed

By Leith van Onselen

Fairfax’s Ross Gittins has penned an excellent article today lamenting the neoliberal obsession with transferring the provision of public services to private providers:

A key part of the era of what we used to call “micro-economic reform” has been to take services formerly provided by governments – and sometimes charities – and pay profit-making businesses to provide them.

Among the first of these “outsourcing” schemes was the Howard government’s decision to abolish the Commonwealth Employment Service and contract a network of charitable and for-profit firms to help the jobless find work.

Then came the expansion of childcare to for-profit providers, the move by successive federal and state governments to make technical and further education “contestable” by private providers, and the decision to open the provision of aged care to for-profit providers.

Plus the decision to turn five state electricity monopolies into a single, competitive national electricity market.

The reformers were sure these changes would lead to big improvements. As everyone knows, the public sector is lazy and wasteful, whereas competition and the profit motive make the private sector very efficient…

It hasn’t worked out the way the reformers hoped… ABC Learning, which had been allowed to acquire about half the nation’s childcare centres, went belly up… making vocational education and training “contestable” was a costly disaster… turning electricity from government monopolies to a national market has seen the retail cost of power double in a decade…. And now it’s aged care…

Aged care is just the latest instance of the failure of contestability and “marketisation” to deliver government services satisfactorily – a great embarrassment to econocrats and governments of both colours.

Gittins could have added the maketisation of disability services through the NDIS into the mix, the policy shift towards private health insurance, or the privatisation of public transport services. But otherwise he makes the point well.

The sad reality is that the enormous pot of money on offer under these schemes inevitably spawns a whole range of middle-men and providers seeking to cash in, leading to significant waste, or worse fraud. We witnessed this first hand with the rorting of the private VET sector and childcare, and we are starting to see it again with the NDIS.

Accordingly, despite decades of privatisation and marketisation of public services and assets, there is no evidence of user charges falling, or government spending abating. This is what you’d expect were the privatisers to deliver the promised efficiency gains.

This raises important policy questions about whether our governments are leaving an expensive legacy that future Australians will one day have to fix.

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Leith van Onselen
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  1. Add to that list of failed privatisations:
    – Forced private health insurance trying to push patients from a decent public system to costly private hospitals
    – TransUrban’s monopoly on toll roads
    – The privatisation of the Port of Melbourne and Sydney
    – The privatisation of the land registers.

    These have failed the Australian public but have been great for politicians, monopolists and their lobbyists.

    What makes capitalism tolerable is competition and free markets. Turning a state monopoly into a private monopoly is good only for the few.

      • Jumping jack flash

        The main problem is competition is broken.
        No sooner do we get competition in a market, than they work out quite quickly that they can just gouge like everyone else already in the market.

        The only exception would be Aldi, who has somehow resisted the urge to gouge everyone simply because they can, but I still wouldn’t say they are remarkably good value – you get what you pay for. And I suppose they still need to pay their handful of employees wages that are high enough so they can afford the repayments on stupidly expensive debt-inflated houses.

  2. On top of above and above add the outsourcing of the public service and over reliance on consultants. Privatise pofits and socialise losses.

    When the loss is financial or moneytary, it’s tolelrable, but when loss manifests itself in human suffering as we have in the aged care sector, it’s intolerable! A revolution is needed and a return to authentic demos kratos.

  3. reusachtigeMEMBER

    Not true. It’s the continual government interference, via regulations etc, that is the problem with privatised services!

  4. That’s right – It hasn’t worked.

    And the Australian media has failed to report that the ‘purchaser-provider’ model of public sector advice instituted by the Thatcher government in the UK has been quietly overturned. It failed too and a similar policy was key to the decay of public policy in Australia.

    We still have the horrific neoliberal model of public science and public service that failed the UK. You don’t hear much about this about turn, as a Conservative government in the UK has had to put a Thatcher holy cow to the knife. The ALP in Australia would have the same problem – as Hawke and Keating were the ones that kicked off the neoliberal “reforms” in Australia. In fact, Whitlam’s “night of the long knives” began the use of the public service as a political football. The ALP has a hard time dealing with this. History is a bitch.

      • No, they wouldn’t… Look at nearly all labor parties around the world – invariably they’ve all been fifth-columned and turned into another neoliberal-flavour drink

      • ino is correct.

        Unless the political parties are funded adequately by the AEC, they eventually get corrupted by the corporates. Probably should also ban politicians from working in the private sector within 5 years of losing an election.

    • The Australian media has waged a relentless campaign to discredit any government run organisation for decades.
      Is it any wonder they want out?

      • “Night of the Long Knives” (NLK) is borrowed from the Nazi purges of 1934.

        I think it is a Welsh term originally – I may be wrong about that.

        In Australia (as far as I know) it was first applied to the Whitlam government’s removal of permanent PS secretaries given they had served a liberal government back to back for some 3 decades. This was unprecedented. Other governments since (including Howard) have removed heads of departments in their own NLKs. In the Westminster system this should not be needed because public servants are supposed to be impartial. Since Whitlam both state and federal governments have done this and in doing so have ‘politicised’ the public sector. The assumption now is that you need your political mandarin to kick heads. This has damaged the PS and in my view was the beginning of the rot that saw the public sector become an arm of party politics and a ‘political servant’ rather than a ‘public servant’.

  5. About childcare rorts:

    In the 1990s, mothers were allowed to look after the kids of strangers. Now, that is probably banned and there is a hard cap on how many kids there can be per staff member in a childcare centre – resulting in soaring prices.

    The “unis” are not “demand driven” but scam driven:

    What is the point of putting 50% of 18 year olds into “uni” while giving the jobs to 457 visa staff?

    Either stop the “uni” funding or stop the work visas.

  6. matthew hoodMEMBER

    Ino, if Whitlam had of followed Chiefly advice and not been in such a hurry he might not have broken the labor movement leaving it open to be destroyed from with in.

    • One wonders whether he once drank the Kool Aid as well and is now fighting the dyspepsia?

      I notice that on the last Q&A Andrew Neil decided that ‘neoliberalism’ = ‘market economy’. Whilst certainly true in one sense this ignores the giant religion of ‘economic rationalism’ that swept Australia and sought to marketise services and even advice provided by the public sector. Those who lived through these 3 decades can now see the car accident that this has been. It was a deeply ideological, but simple vision – government bad, private good; government inefficient, private efficient. Only people like Innes McWilllox are stupid enough to believe it still. It will take time to flush our institutions of the people who marched to the drum of neoliberal wank. Foot soldiers for neoliberalism still exist in the LNP/ALP, media and public sector – it’s just hard for them to freely admit it post banking RC and energy fiasco.

  7. Privatisation of natural monopoly assets is a bad idea. Australia has many such assets. It is a country that needs to be highly intelligent and selective about privatisation. Vested interests and/or the ideologues they help put in power need to be kept well away from the honey pot. Without a strong public sector priding itself on frank and fearless advice what hope is there?

    It is also interesting to watch the transition of management in former charities providing aged and health care into ‘profit for purpose’ vehicles under the NDIS. Many former second tier banking management types moving in. I wonder what happens next?