The Nordic Model - Embracing globalization and sharing risks

Quality is a source of
concern but is, on balance,
not undermined
by outsourcing
Competition is key,
specifics of services
are essential, and outsourcing
should be
accompanied by clear
goals and performance
measures
small nursing homes into large chains, profits went up at the expense
of much lower service. On virtually all indicators of service,
the chains performed below the national average and in some cases
were in gross violation of legal standards.
Health care services seem to be less prone to quality shading.
In a large study of British emergency hospitals strong performance
incentives caused dramatic improvements in waiting times
without any noticeable adverse effects on treatment. 16 In Finland,
local governments have rapidly outsourced ambulatory physician
services to private companies. The private firms can take advantage
of economies of scale by servicing large areas covering many
local governments. So far, both cost and quality have improved
at MedOne, the largest of the private suppliers, with throughput
per euro increasing an estimated 20 per cent and patient as well
as worker satisfaction ratings up. 17
What lessons can be drawn from the outsourcing experiences
to date?
The biggest lesson is that competition is the key to improved
performance. It does not necessarily matter whether the bidding
for a service is won by a private firm or a public agency. This was
the finding in a study of outsourced garbage collection, where both
private and public sector vendors got contracts. 18 A vendor that
has a captive client is not going to be efficiently run. A vendor
facing competition will be pressed to lower prices and mostly to
higher quality as well.
In evaluating the evidence on quality, it has to be kept in mind
that the choice of outsourced services is not random. The choices
have been made considering the potential for the net benefits.
Initially, non-core services and the more mundane core services
were outsourced. As the outsourcing movement has gathered pace
and expanded deeper into the core activities of the government
– public security, emergency services, schools, even prisons and
military combat – the experiences have tended to become more
variable.
A second lesson, not illustrated by this quick review, but evident
in the many case accounts, is that every outsourcing case has
unique features requiring great attention to detail. For instance, the
length of the service contract involves trade-offs that need to be
The proper scope of the public sector · 149