The starting point must be an acknowledgement on the part of government that, when it comes to complex public services at least, it is a producer rather than just a buyer of services. The Crown Commercial Service has acknowledged that 'suppliers are an extension of government's business' - although in recent years, this way of thinking about government's suppliers has not been paramount.
The use of the term 'market' to describe the systems through which external providers are engaged has not been without its difficulties. When they hear this word, most people (including economists) think of the markets for commodities where quality is regulated by brand and price is set through exchange. Few public service systems, even when they include a significant element of contestability, are like that.
If government is overwhelmingly a producer rather than just a buyer of public services, then it must have a very different relationship with its supply chain. This distinction - between buying and commissioning, between markets and supply chains - was well-made in a report published by RUSI in 2015 about the 'Whole Force' approach adopted by the UK Ministry of Defence.
Within much of the business literature there is a clear distinction between commercial entities which are buyers of goods or services - therefore meeting a need, or selling-on into the marketplace - and those which are manufacturing entities that blend raw materials, technologies, production know-how and specific components to generate and, thereafter, support a particular product or service. . .
When the individual consumer opts to buy a television or even selects a builder for a home extension, he or she does not normally worry about the impact of the choice on supply chains or even how the television manufacturer selects its suppliers. The focus is on the price, performance and reliability of the final product and the consumer holds the brand manufacturer responsible for all the features of the product, regardless of where they came from: should the Toyota-owner ever press the door opener on the key fob and find the car stayed locked, he or she would not observe that Toyota must have chosen a poor lock supplier. Indeed, some officials and political figures associated with defence view the MoD as essentially a purchaser of goods and services from the private sector for deployment to meet defence and security ambitions. . .
A contrasting view underlines that the MoD is responsible for 'producing' things and not just 'using' things. The MoD's own reporting and performance-measurement systems show that it is responsible for the generation of outputs (force elements able to act at varying degrees of notice) and outcomes (deterrence and success on operations). The MoD's central task is to produce UK defence policy and then to direct the generation of military capabilities that support the delivery of that policy. . .
Under this approach, the MoD, and the armed forces and agencies within it, are significantly analogous to manufacturing organisations, bringing together all the diverse elements required for usable and sustainable defence capability. Some of those elements they generate within the governmental defence sector while (many) others are sourced from outside.101
In fact, governments draw upon a wide range of competitive and contestable systems for their goods and services. Most commodities - computers, office furniture, paperclips - can simply be bought or leased in the market. Category management is ideally suited in such cases.
Increasingly, governments around the world are offering choice in public services through the use of individual budgets and other voucher-style arrangements. Service beneficiaries are funded, in whole or in part, by government, but they are able to choose from a variety of approved public, private or nor-for-profit providers in a system that bears many of the characteristics of a market. However, since these are public services, designed to improve social outcomes and financed by the taxpayer, government has an essential role in certifying suppliers and managing the conditions under which transactions take place.
In some cases (such as criminal justice and defence), governments commission goods and services for which there is no legitimate private market and would not otherwise be produced. These arrangements are more like a corporate supply chain, and government must actively develop capability amongst its suppliers. It will also want to ensure that there are several different sources of supply so that it is not held to ransom through private sector monopolies.
Government contracts with private firms for the supply of back-office services - ICT and other business processes, hard and soft facilities management - in much the same way that private corporations do. These relationships are complex and ongoing, and they depend for their success on thoughtful selection and careful management.
Governments have also designed clearing-houses for matching students and school places, medical students and hospital internships, and the donors and recipients of kidneys - these systems employ some of the characteristics of markets, but not price.
And they commission frontline public services from public, private and not-for-profit suppliers - in these cases, providers are dealing directly with the public, and government will usually select its suppliers through competitive tendering and exercise a great deal of control over their ongoing management.
The difficulty in using the word 'market' is that many economists think that governments should apply the principles of competition economics, which have been developed for the regulation of commodity markets. Insufficient attention has been paid to the variety of delivery systems, or to the very different needs of different beneficiaries of public services.
And, having discovered that government relies on competitive tendering to select its buyers, procurement experts draw on auction theory for the design and management of tendering processes. Not enough thought has been given to the differences between the kind of procurement systems that will be suitable for allocating spectrum licences and purchasing copy paper, and those that will be appropriate in selecting the providers of social services to vulnerable individuals.
It is fundamental to the establishment of a more sustainable market for complex public services that both sides agree that they are significantly different from the commodity markets with which politicians, policymakers and the public-at-large are more familiar.