How do we build markets when customers don't pay?

Using business to provide public services doesn't have to mean privatisation – in many cases the customers don't pay for what they are receiving. But what sort of moral and practical dilemmas does that present, and are people looking to solve them? David Floyd investigates.


Marketization of public services has been a growing phenomenon in the UK since the 1980s. The market for services that central and local government agencies pay for but (mostly) private companies deliver is now estimated to be worth over £80 billion, including over £4 billion going to just four giant providers. 

Despite its popularity with politicians (or perhaps partly because of it) public service marketization is rarely discussed in a practical useful way. Part of the problem is that the terms privatisation and marketization are often used interchangeably and there’s widespread confusion about what they mean. 

The situation in commercial markets is uncomplicated. British Airways is a company that was once owned by government. In 1987, it was floated on the stock exchange and sold to private shareholders. Now it’s a private company that competes with other private companies to sell air travel to passengers. That’s definitely privatisation. 

Public service markets are more complicated. A year after British Airways was privatised, the Local Government Act 1988 introduced Compulsory Competitive Tendering which meant local councils had to put some services – such as refuse collection – out to tender. The council’s own staff team could bid to deliver the service but private companies also had to have the opportunity to bid. 

Many councils now pay private companies to collect the rubbish but the service is still paid for by the council. A market has been created – different providers compete to sell their services to a public sector buyer – but the end customers (residents) are not directly involved in it. Has this service been privatised or marketized (or both)?

It’s even less clear what opponents of the present government’s health policies, such as shadow health secretary, Andy Burnham, mean when they accuse ministers of following a ‘privatisation agenda’ in the National Health Service.

The National Health Service is funded primarily through taxes and provides health services to patients free at the point of delivery.  In 2012/13 it employed over 1.7 million people and spent £108.9billion. 

In 1990, the government created an ‘internal market’ which meant different organisations within the NHS had to compete with and buy services from each other. Since then, that system has been abolished, reintroduced and ‘reformed’ on regular basis with a growing role for private sector providers but most services are provided by the NHS.

More importantly, the customer relationship hasn’t changed. For better or worse, people still pay their taxes and get some services. 

One prominent opponent of marketization, Harvard professor Michael Sandel, author of What Money Can’t Buy: The Moral Limits of Markets, argues that: “The last three decades have witnessed a quiet revolution, as markets and market-oriented thinking have reached into spheres of life previously governed by non-market values: family life and personal relations; health and education; environmental protection and criminal justice; national security and civic life.” 

The cumulative choices we make as individuals in consumer markets determine the success or failure of companies operating in those markets but we don’t, as individuals, get to decide how those markets operate

For Sandel, the result is that: “Almost without realizing it, we have drifted from having market economies to becoming market societies. The difference is this: a market economy is a tool – a valuable and effective tool – for organizing productive activity. A market society, by contrast, is a place where almost everything is up for sale. It is a way of life in which market values seep into social relations and govern every domain.” 

Sandel’s moral position is that markets are fundamentally good for some things and bad for others. What’s not clear is the basis for deciding which activities fall which side of the moral divide. Is it morally acceptable for the NHS to pay a private company to replace someone’s hip? If not, is it acceptable for the NHS to pay a private company to make the artificial hip it uses to replace someone’s hip? 

The point is not that Michael Sandel and Andy Burnham are necessarily wrong but that the apparently clarity of position masks a situation that is fundamentally contested and messy. 

The cumulative choices we make as individuals in consumer markets determine the success or failure of companies operating in those markets but we don’t, as individuals, get to decide how those markets operate. Governments paying for public services do get to decide whether and how markets come into existence, and that means that when they do so they’re taking a political decision about what those markets are for. What level of social support do people have a right to? Whose needs are most important? What does a good society look like? 

The current government’s latest Open Public Services progress report explains current policies by saying that: “We want public services which respond to individual choices and people’s real life complex needs, whilst relentlessly focusing on improvements in quality and doing all of this more efficiently, to give the tax payer the best possible deal.” 

It’s unlikely that anyone, whatever their political standpoint, would support low quality services that give the tax payer the worst possible deal. For all their bold statements of principle, both opponents and supporters of privatisation and/or marketization generally dodge the much bigger questions about the relationship between public sector markets and what they – and we – want to happen.

Photo credit: Jo Jakeman, flickr.