Public Sector Outsourcing after the Recession

To read Part 1 of this article, click here

In some ways it could be said that, rather than changing the public-sector playing field altogether, the crisis, downturn and tentative recovery have all contributed to an acceleration of a process that was already underway within much of the Anglophone world prior to the events of late 2008. The major English-speaking economies all - to varying degrees - began introducing transformation programs focusing on efficiencies and savings long before the current stormclouds appeared on the global horizon: shared services and other centralization-type models have become increasingly common as the costs and complexities of obtaining and maintaining the hardware and peoplepower required to provide services at an acceptable level have grown, and the concurrent growth and success of private-sector outsourcing made it more or less inevitable that at some point public organizations would have to follow suit - driven onwards by demands for ever-lower taxes (and, it should be acknowledged, a degree of media scrutiny on government waste which might be seen to reflect as much media organizations’ distaste for "big government" as that of their readers, viewers and listeners).

As well as in the cases of the US and UK discussed in Part 1, citizens of Canada and Australia in particular have seen an increased focus on outsourcing coming to compliment increasingly effective and innovative state-run shared services organizations over recent years - a development which should of course be viewed alongside the increased fluidity of professional movement at a managerial level between public and private sectors which has characterized the past couple of decades, and which has understandably resulted in a greater inter-sector exchange of ideas, and consequently the growing adoption of private-sector methodologies and mentalities by members of civil services which previously might have been rather resistant to such change.

If these trends could be said to have run, generally speaking, throughout the major English-speaking economies since long before the crisis, it should not be assumed that developments in these economies should continue to trend in the same direction in the years to come. First and foremost, the economic outlooks for each country vary as significantly as do their political spectra - and as a result the options open to their respective governments also differ. As discussed in Part 1, in the UK - judged by the IMF the major economy likely to be hit hardest by the recession - the state coffers are looking threadbare at best and it’s now pretty much a given that the proportion of government spending going on outsourcing projects will increase as that spending decreases (especially given both major political parties’ commitment to maintain frontline spending on the country’s National Health Service - the single biggest slice of the state budget). Frankly, the British government doesn’t really have too many more strings to its bow if it wishes to avoid savage tax hikes to go alongside its already unpopular asset-sale proposals.

Likewise, while the US is able to draw on its position as the owner of the world’s leading economy and primary reserve currency, the staggering size of its budget deficit and the increasing discontent rumbling across the country (fuelled by a resurgent Republican Party that considers almost every type of public spending to be anathema) mean that although the government has somewhat more room to manoeuver than its British equivalent we’re almost certain to see a boost in outsourcing of back-office services from public to private sector at both state and federal level - with, presumably, the caveat that jobs will remain on US soil.

The point here is that in both countries what began out of a combination of ideology and opportunity is now likely to continue out of necessity. But what of economies where this is not the case? With a healthy state surplus, Australia, for example, enjoys public finances immeasurably more rosy than those in either the UK or US; furthermore, despite having seen its financial sector hit very hard by the downturn, the country’s economy performed comparatively very well last year thanks to its commodities-heavy composition and a coherent and robust stimulus package. Clearly, this suggests that any increased focus on outsourcing during the first part of the recovery will be more a matter of volition on the part of the government, rather than coercion by either economic reality or political pressure from the people; while very few Australians would maintain that there is no waste whatsoever within their government, it’s to be assumed that few too would aggressively demand their government hand over services en masse to external providers at a time when state finances are so (comparatively) stellar.

The position enjoyed by the Australian government is doubly healthy when one considers the value of the Keynesian safety net formed by a balanced budget or budget surplus: should the national economy take a nosedive in the near future (as indeed some analysts are predicting despite last year’s growth) the state has retained the ability to plough capital back into development projects to kickstart growth at the grass roots, whereas in certain other economies this option has now been exhausted.

This is indeed a huge benefit both to the government and to the Australian outsourcing industry: while what happens when Keynesian economics crashes into the outsourcing model has yet to be tested in practice, it’s unlikely to result in a pretty picture since in many ways the two concepts are quite opposite - the focus on efficiencies and savings (and headcount-reduction) which so characterizes outsourcing is hardly compatible with the Keynesian idea of injecting capital (even capital a government doesn’t have) into an economy effectively to boost "headcount" in the form of national employment. Creating a stimulus by handing money to private firms which will cut jobs from public services probably isn’t the smartest option on the table, regardless of the long-term benefits of such a step.

Of course, the global economy was pulled back from the brink by state-intervention stimulus packages which to many represented a return to fashion of Keynesian thinking; what impact this resurgence, if it continues, will have on public-sector outsourcing over the next few years is sure to be one of the critical issues affecting the space in that time, and the answer will be very different in economies like Australia from what it will be in more budgetarily straitened nations like the UK.

(To be continued…)