Contracted-Out

Background

In the context of public service delivery, the term “contracted-out” refers to the practice whereby services originally managed and delivered by a public entity, such as a local authority, are handed over to an external supplier. This involves a formal contractual agreement between the public authority and the private entity to deliver specific services.

Historical Context

Contracting out public services has roots in the neoliberal economic reforms that began in the late 20th century. These initiatives aimed to increase efficiency, reduce public expenditure, and harness private sector expertise. Policies advocating for privatization and outsourcing gained prominence during the political tenures of leaders such as Ronald Reagan in the USA and Margaret Thatcher in the UK.

Definitions and Concepts

• Contracted-out services: Services for which a public body pays an external supplier to perform functions that could be internally managed by the public body itself.
• Direct labour: Services provided by employees who are directly hired and managed by the public authority.

Major Analytical Frameworks

Classical Economics

Classical economic theorists did not extensively engage in discussions of contracted-out services, as the concept primarily gained relevance in later economic thought.

Neoclassical Economics

Neoclassical economics emphasizes efficiency and cost-effectiveness, often supporting the idea of contracting out by arguing that market competition can lead to more efficient service delivery.

Keynesian Economics

Keynesian thought tends to focus on government intervention and public spending to manage economic cycles and might be more skeptical about extensive outsourcing, cautioning that it can sometimes undermine public sector stability and job quality.

Marxian Economics

Marxian economists would approach the issue of contracting out as a means for capital to exploit labor by reducing job security and weakening unions within the public sector.

Institutional Economics

Institutional economists examine the role of societal, legal, and historical contexts that influence economic practices, critically analyzing the broader implications of outsourcing on social welfare and institutional integrity.

Behavioral Economics

Behavioral economists would be interested in how contracted-out services impact the incentives and behavior of both the contractors and the public agency, potentially yielding insights into efficiency and employee morale.

Post-Keynesian Economics

Post-Keynesian economists would delve into the economic and social ramifications of outsourcing, emphasizing issues such as inequality, labor rights, and the long-term sustainability of outsourced services.

Austrian Economics

Austrian economists might advocate for contracting out, arguing that it utilizes decentralized knowledge and entrepreneurial innovation, making service delivery more dynamic and responsive.

Development Economics

Within development economics, contracted-out services can be explored in terms of their efficacy in improving outcomes in developing regions, balancing private efficiency with public accountability.

Monetarism

Monetarists would likely support contracting out for its potential to reduce government expenditure and align closer with theories advocating for limited government intervention in economic activities.

Comparative Analysis

Comparing contracted-out services with those provided through direct labour can reveal divergent implications in cost, quality, accountability, and worker conditions. The relative benefits and disadvantages vary across different sectors and local contexts.

Case Studies

Analyzing case studies such as refuse collection, office cleaning, and school meal provisions can offer empirical insights into the success and challenges associated with contracting out these services.

Suggested Books for Further Studies

1. Contracting for Public Services by Carsten Greve
2. The Contracting Organization by Simon Domberger
3. Market-Based Governance: Supply Side, Demand Side, Upside, and Downside by John D. Donahue and Joseph S. Nye Jr.
4. Outsourcing State and Local Government Services: Decision-Making Strategies and Management Methods by John A. O’Looney

Related Terms with Definitions

• Outsourcing: The practice of obtaining goods or services from an outside or foreign supplier rather than an internal source.
• Privatization: The transfer of ownership and management of public sector services or assets to the private sector.
• Public-Private Partnerships (PPP): Collaborative agreements between government entities and private sector companies designed to finance, build, and operate projects.