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July 25, 2018

Competition: it’s all about the consumer

Robert Fitzgerald AM, Commissioner with the Productivity Commission and SVA Board member, talks with Stuart Lloyd-Hurwitz, SVA Consulting’s Executive Director about competition and contestability in the social sector and how it’s all about providing more consumer choice.

Access specific sections of the audio by topic:  Podcast: Competition: it’s all about the consumer.

Robert Fitzgerald AM has served as a Commissioner with the Productivity Commission since 2004. Most recently he has been a Commissioner on the Royal Commission into Institutional Responses to Child Sex Abuse. A commercial lawyer for more than 20 years, including with top-tier firm Clayton Utz, he has also held a number of policy-related roles including as a member of the National Competition Council.Prior to joining the Productivity Commission, Fitzgerald was Community and Disability Services Commissioner and Deputy Ombudsman in New South Wales. His considerable experience with the not-for-profit sector includes serving as Chair of the Australian Charities and Not-For Profits Commission Advisory Board, President of the Australian Council of Social Services, and over 30 years of volunteering with numerous community services.

Competition and contestability are on the rise in the social sector. The aged care and childcare sectors and most recently the disability market have been redesigned to provide consumers with more choice, and to drive competition, or contestability between providers.

This conversation was in part prompted by the March 2018 release of the Productivity Commission report, Introducing Competition and Informed User Choice into Human Services: Reforms to Human Services. The report recommends how to apply increased competition, contestability, and informed user choice into human services (that were identified in the first stage study report) to improve outcomes for users and the community as a whole.

SVA works closely with human services organisations striving to adapt to these changing markets. We hope this conversation will help others understand the changes and how government departments and service providers can best serve people who engage with these services.

Purpose of competition

Robert Fitzgerald AM
Robert Fitzgerald AM

So why is competition important in the social sector and why is government promoting it so strongly?

“The social sector first started opening up to more competition in the 1990s when competition policy became a dominant economic theme within Australia,” recalls Fitzgerald. “However in the social sector, competition has never been an end in itself.”

“Competition is simply a means to an end, and we lose sight of that. What changed was a desire to give consumers of social services greater choice in the services that they were given: the ability to move from one service to another.

“If you want to give consumers greater choice, you have to have a service delivery system that enables that choice to be exercised. Competition is the consequence.

“Many people think it’s the reverse, and some government policy has suggested that. The government has said, ‘We’ve got to have competition.’ As if competition was the end.

“But the truth of the matter is, if you look at our disability service sector, if you look at child care, it started with a simple notion: consumers, or clients, need greater choice, greater mobility, and from that, competition flows.”

He also recognises that governments’ have a desire to operate less directly, and outsource activities both through for-profits and not-for-profits, which has fed into the growth of competitive markets.

Role of government in a more competitive market

Clearly, the government is driving this growing emphasis on competition. But what is the government’s role in these new competitive markets?

First off, Fitzgerald emphasises that the social services markets are designed and controlled by governments.

“They are not free markets in any way, shape, or form. When government ministers say, ‘We’ve created a free market’. It’s not true.

Governments have a very important role in trying to ensure the market operates in an ethical and fair manner.

“These are highly designed and regulated markets, and they need to be. Because they’re about the public good. They’re delivering services that are vital for the functioning of a society and a community, and in many senses, it is the responsibility of government to act as the stewards of those markets, and for the delivery of those services.”

But what he calls out above all is that while governments have a role as market designers, price fixers and funders (albeit indirectly through clients), above all they have the responsibility to oversee these markets.

“Governments have a very important role in trying to ensure the market operates in an ethical and fair manner.

“Because the ultimate losers in these marketplaces are very vulnerable people, whether they’re students, or whether they’re people with disability, or whether they’re people that have ill health.

“So in this marketplace, the government has an absolute obligation to ensure the market operates effectively and fairly.”

Future trends in competition

Stuart Lloyd-Hurwitz
Stuart Lloyd-Hurwitz, SVA Consulting Executive Director

How will this quasi-government market evolve?

Fitzgerald believes that all nine governments (state, territory and federal) are committed to enhancing consumers’ ability to exercise choice, and for control of that choice to be with consumers, not government or the providers.

“If that holds, then we’ll see a continued view that competition is the best way to deliver that.”

One of the changes he expects is the need to learn from past mistakes – that a competitive market-based model doesn’t apply in all services, and all parts of those service systems.

“There are areas where a different more direct approach, for example block funding by government, is still appropriate.”

… the trend in Australia is absolutely to see greater contestability between providers.

Secondly, he understands that even when consumers have choice, only about 10 to 15% of them will actively use that choice. So where many providers think that there’s going to be a lot of client movement, he suspects not.

“In nearly all markets in Australia, only a small percentage of the total market, having made the initial choice, actually switches providers.

“That will also be true in the social sector. That doesn’t mean the markets are ineffective. It means that those 10 to 15% of people that are actively trying to find better services provide benefits to everyone in that market.”

Thirdly, he expects different forms of capital investment in social issues and human services – attracted by the more rigorous marketplace.

He recognises that competition will cause enormous disruption within particular areas. “It is not a panacea. It has as many problems as government controlled operations, but they’re different problems.”

“At the moment however, the trend in Australia is absolutely to see greater contestability between providers, be they not-for-proifts or for-profit operators. But I would hope, it is based on the consumer or the customer being at the center of that.”

Choice and vulnerable users

To what extent is choice an illusion for a majority of disadvantaged or vulnerable people, especially those seeking emergency or crisis services? Is choice really something that’s important to them?

… people that are in vulnerable circumstances… want reliability of service, and a service that meets their needs.

Fitzgerald acknowledges that for many service users, particularly those more vulnerable, choice is not the main issue at all.

“Overwhelmingly, people that are in vulnerable circumstances and that is the vast majority accessing family and community services, want reliability of service, and a service that meets their needs.”

“But they also want the ability to move if those services aren’t being delivered. But for them, it’s a quite different profile.

Competition is not always the answer

So where would we not want to see competition or choice?

“There are many aspects of social services which will not lend themselves to a pure competitive model,” he says. “And that’s not a failure. It’s simply a recognition that’s not the main way to address their particular needs.”

One condition that he calls out where the competition model doesn’t work is thin markets. These are where, either because of geography – a remote or sparsely populated region – or where the nature of the condition means people aren’t mobile or because of the specificity of the need, the market is not big enough for more than one or two players.

As he says: With very thin markets, we have to recognize that one size does not fit all, and instead try to develop a service delivery system that is appropriate to those communities or that particular cohort.

We can’t keep trying to force models in areas where it’s not appropriate.

“That can be direct government funding or variations on that theme. So, for example, in aged care for homeless men and women, the market model is not an appropriate model.

“With some conditions when people aren’t mobile and require intensive care, that’s likely to be most cost effectively delivered through a single provider.

“We can’t keep trying to force models in areas where it’s not appropriate. We spend a lot of effort doing that, for very little gain.And in the end all you do is cause disruption in people’s lives.”

“Australia is not a nation in which you can apply the same principles everywhere, and in every area, and you don’t need to. The fact that you capture 80, 85, 90% is sufficient. We’ve got to be more honest about that.”

He calls out the need for governments to acknowledge in the design phase when competition is appropriate and when it’s not – as those issues become apparent.

“The difficulty is, the proponents of the schemes think that is a failure. And my view is it isn’t.

“It’s actually designing the markets (given they are totally designed, not free markets), in a way that most effectively delivers for the consumers in that particular environment.”

Competition and early intervention and prevention

One concern many have is that dialling up competition will reduce the sector’s ability to focus on prevention and early intervention because that’s much harder to get a measure for, and therefore compete on. How do we ensure that the tremendous value of early prevention is not diminished in the future?

What we’re struggling with is to get enough investment by governments and others into that space.

Fitzgerald is clear that whatever model you apply, it needs to be built around what’s needed.

“My view, again is the way we do it is only the means to the ends. Competition neither enhances nor destroys our ability to deal with prevention and early intervention. The struggle there is actually recognizing just how important that is, and funding it.

“Whether you fund it directly by government, or whether you fund it through the consumers is actually a second order issue. What we’re struggling with is to get enough investment by governments and others into that space.

“The secondary part is who delivers it, and I don’t actually think competition, in and of itself, makes that huge difference.”

Competition vs collaboration

A number of submissions to the Productivity Commission’s recent report claimed that competition will impact negatively on collaboration in the sector. Is it likely to?

Fitzgerald challenges the notion that the not-for-profit sector has been overly collaborative in the past.

“On the ground, organisations have always been pretty competitive,” he says.

Although he recognises that peak bodies and advocacy groups have been consistently good at working together to campaign on common problems and develop policy together.

Competition is not contradictory to collaborative approaches.

However, as the competitive model has been introduced, he’s seen people in government saying to not-for-profit operators, ‘You can’t collaborate. You’ll be breaching the competition laws if you do.’

“That is complete nonsense. It’s not true legally, and it’s not true in any other way that I understand.

“You can be competitive in terms of pricing, or trying to attract different clients, but you can be collaborative in trying to work out what is best practice, and how you actually raise the quality of services.

“Competition is not contradictory to collaborative approaches. There are many areas in which collaboration is the only way you’re going to achieve long term, sustainable outcomes for people, particularly where there are wicked problems.”

Collaboration in competitive markets

What needs to happen – from a government point of view, and from providers themselves – to help better navigate the tension between collaboration and competition?

Firstly, Fitzgerald sees that governments have to embrace the idea of co-design of policy, and of market development.

“Government is not the only holder of wisdom on these issues. We need to have much greater collaboration in the design phase between providers that represent clients or consumers, and the governments themselves.

“And there has to be a much greater understanding of how markets operate, both in terms of their strengths and their weaknesses, and governments’ role as a market steward.

“These are not free markets, and absolutely can’t be left to the vagaries of the marketplace. And so, governments have a very important role to understand markets not only in their design, but also how they’re going to maintain the quality and integrity of those markets and providers.”

Collaboration has to be centred in the best interests of those they are seeking to serve or work with.

The second aspect relates to providers. He believes service providers need to start to look at how they can collaborate more effectively, while maintaining their own individual pursuits and goals.

“The collaboration has to be centred in the best interests of those they are seeking to serve or work with.”

He advocates a ‘best interest’ model. “If we’re in the best interests of students, the best interests of people with disability, or the best interests of people that are suffering long term mental health conditions, it focuses our attention and shows us how we can and need to collaborate.”

He believes that then collaboration will, in fact, drive innovation.

The third area is the consumers themselves who, he maintains, are going to have to become stronger in their own advocacy.

“Governments don’t like advocates very much, and there’s a general drive by governments to suppress advocacy, but my view is that consumers will need to become stronger, both individually and collectively, and I think we will actually start to see the re-emergence of consumer advocacy going forward.

“Whether that’s a response to market failures, or a response to the loss of trust in institutions, including service providers – which we see – I’m not sure. But I think we will see a more powerful consumer base emerge over time in these social service issues.”

For more information about SVA Consulting’s work in this area, contact Stuart on slloyd-hurwitz@socialventures.com.au


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