Rethinking the Welfare State: The prospects for ... - e-Library

Rethinking the selfare state 200
training activities. Having said that, we are anxious not to overstate the case for voucher
programs: experiments with market contestability in the training sector have tended to
produce mixed results. One consistent outcome, however, has been that “the existence of
private providers tends to put pressure on the PES [Public Employment Service] to adopt
methods and practices which have proved successful in the private sector.” 93 Therefore,
even if private providers do not themselves necessarily deliver higher-quality training,
they appear to have the positive effect of introducing the competitive incentives required
for public providers to improve the quality of their services.
The theoretical basis for this claim is simple and well supported. PES monopolies, like
other monopolies, tend towards inefficiency and quality homogeneity. Administrative
inefficiency is a case in point: Martin finds that “in 1996, the average OECD country
devoted 21 per cent of active spending to PES administration.” 94 In order to improve the
efficiency with which training and placement agencies are run, he suggests that policymakers,
“explore ways of making the PES more effective by giving greater play to the
role of market signals.” 95 The OECD echoed this recommendation in their 1994 Jobs
Strategy report. 96
US analysts have also questioned the efficacy of state-run programs. According to
Hattiangadi,
numerous studies find that many of the 163 federal employment and
training programs are redundant, costly, and produce very limited results.
With a $20 billion price tag to taxpayers, these results are quite
discouraging. 97
Alternatively, “evidence suggests that privately provided services yield significantly
higher rates of return on human capital investments.” 98 Market competition offers
benefits such as “a greater range of approaches being tested, leading to innovation, a
higher rate of improvement in service quality and cost effectiveness, and a greater
responsiveness to client needs.” 99
A voucher system, then, has the capacity to increase the range of choices available to
unemployed individuals in terms of job-finding strategies (e.g. search strategies, training
options, exposure to new approaches and ideas, etc.). It also has the capacity to foster
competition on the supply-side so that job search and training services are continuously
improved. If the potential of a voucher scheme is even partially realized in these
dimensions, it is very likely that reliance on social assistance will decrease
dramatically—perhaps leading to an overall reduction of expenditures by the state on
unemployment reduction initiatives. The key is careful design. The OECD emphasizes
four essential elements of a privatized training market:
a sufficient number of private and public suppliers; free market access for
new suppliers at any time; a purchasing (or fee-setting) agency which is
independent from the public supplier; and random assignment of clients to
the suppliers or free and informed choice of the clients. 100
At base, the OECD is identifying the hallmarks of a contestable market system capable of
producing strong competitive incentives. In the following section we outline our own