The Nordic Model - Embracing globalization and sharing risks

The demands for objectivity limit what the government can
efficiently outsource. Yet, all sorts of outsourcing services have
been tried by now. It is useful to distinguish between two sub-categories:
(i) Maintenance and administrative services that do not
directly involve consumers, ranging from cleaning and security to
IT administration and other back-office support; (ii) Consumer
services, ranging from garbage collection to complex services such
as health and elderly care. Apart for protests by affected workers,
the maintenance and administrative services raise few controversies,
because they are non-core government activities. Outsourcing
of consumer services faces harder trade-offs, because this is where
private and public interests will conflict.
The collective evidence, which by now is extensive, indicates
that outsourcing leads to significant efficiency gains on average.
The estimates in individual studies vary widely, depending on how
narrow the studies are and also on the biases of those reporting.
The clearest and most significant evidence concerns cost savings.
In a study of over 2000 outsourcing initiatives in the U.S., the
average cost savings were above 30 per cent; UK and Australian
studies show cost savings in the 15–20 per cent range; Sweden’s
highway agency saw procurement costs drop by 25 per cent thanks
to competitive bidding; in Finland outsourcing of the public
transportation system in Helsinki saved around 30 per cent. 15 It is
likely that these estimates overstate the savings, because the studies
rarely include the transition and transactions costs associated
with outsourcing. On the other hand, few if any studies appear
to consider the increased efficiency of government services that
remain in-house but feel the competitive pressures of the private
sector indirectly. Irrespective of the balance between the omitted
benefits and costs, it is clear that the overall cost savings from
outsourcing have been large.
Weakening of quality, which is a potential concern with private
services, has been less of a problem than one might have expected.
The general experience is that the quality of service stays the same
or improves under outsourcing. Nevertheless, there have also been
major problems. In the U.S. sub-standard service at nursing homes
has made headlines. Recently, The New York Times conducted a
major study that showed that when private equity owners merged
The possibilities for
and the potential benefits
of outsourcing
of services differ from
case to case
While challenging,
outsourcing makes it
possible to enhance
efficiency significantly
148 · The Nordic Model