Abstract
By the 1990s a consensus emerged that traditional bureaucratic forms of service delivery were incapable of increasing efficiency and quality. Government reformers turned instead to a variety of new organizational innovations, quasi-markets central among them. Quasi-markets raise a range of theoretical and empirical problems including agency dilemmas, information costs, shifting incentives and motivations, partial implementation, unequal access, insufficient accountability, and policing and enforcement. Introducing market mechanisms in the delivery of social services is an institution-intensive reform best accompanied by complementary policies to enhance the collection and dissemination of information, to permit personnel flexibility, and to manage the entry and exit of private providers. Nonetheless, quasi-markets often have side effects in narrowing employee incentives, aggravating social inequality, and providing additional incentives for opportunism, for which reforming governments have sought further compensatory measures. Politically, quasi-markets strengthen the short route of accountability (from consumers to providers), but can weaken the already tenuous long route (from consumers to politicians to providers). Examples and illustrations are drawn from recent reform experiences in Latin America.
We are grateful to the Tinker Foundation for financial support and to Javier Corrales, Tulia Falleti, Jane Gingrich, Karin Gottschall, Luiza Niemeyer and Luisa Azevedo for comments on previous versions. Schneider thanks the Hanse-Wissenschaftskolleg for additional fellowship support.
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Notes
- 1.
See, for example, Fiszbein (2005, 29): ‘In the limited areas in which it has been implemented, giving individuals choice over which organization they get services from has generated powerful pressures for results on front-line providers.’
- 2.
See World Bank (2004) and the introductory chapter by Perry and Angelescu for an elaboration of the differences between the short route of accountability (from consumers to providers) and the long route (from consumers to politicians to providers).
- 3.
Among developing countries, Latin American countries have ‘median’ experiences along many dimensions. Most of the region consists of middle-income countries, with democratic regimes that embarked on market reforms in infrastructure. Also, while countries in the region have weaker economic and political institutions than typical OECD countries, they are stronger than those in many other developing countries (Kaufmann et al. 2007).
- 4.
Most of our empirical examples come from basic services in health and education, by far the most costly areas of social service provision. In some countries, quasi-markets have been extended to other services. In Brazil, for example, private concessions have recently been granted to operate prisons (see World Bank 2012; Rombach et al. 2014).
- 5.
- 6.
These three areas can be further disaggregated. Patrinos (2006), for example, identifies six types of contracts between governments and private subcontractors. All contract types though promote competition among providers for contracts, rather than for students or among employees. Gingrich (2011, 11–18) also identifies six different types of markets in social services. Her typology revolves around only the first two of our three types of competitive (for consumers and for contracts) but excludes employee competition in NPM, and the six outcomes depend more on which actors—governments, consumers, or providers—end up with more control and whether public funding remains universal or not. Another means to introduce this kind of incentives is through reputational competition, using public rankings, as is common in education. These can be combined with voice mechanisms to strengthen the importance of client feedback.
- 7.
See Barr (2012, 260–261) for a discussion of why introducing competition in service delivery results in quasi-markets. The term quasi-market seems to have the most currency in Britain, where NPM also had the strongest run (Gottschall et al. 2015). Decentralization is intended to improve service delivery in the short run by allowing local implementation to conform to local constraints and preferences, to shorten the long route of accountability (see the chapters by Sánchez & Pachón and by Jaramillo & Alcázar). In Colombia’s decentralized system, local capacity for taxation was particularly important in improving service outcomes. Over the longer term, in principle, decentralization creates a weak quasi-market in that local jurisdictions compete with one another for mobile workers and businesses.
- 8.
Across the social services, there seems to be greater consensus among experts in healthcare that payment should follow patients (Nelson 1999, 22). In education, voucher systems, where payment follows pupils, are less common and more controversial. See Vaillant et al. in this volume on vouchers in Chile.
- 9.
Many university reforms combine various types of quasi-markets, including competition among universities for government funding, among units within universities for resources, among professors for salary increases, and across universities for students. For a review on Europe, see Enders et al. (2015).
- 10.
This may also be a problem with some utility services (e.g., water and sanitation), in which it is hard to bring in competition, and thus they tend to be more heavily regulated—or supplied directly by the state—than, for instance, telecom services. On water, see the Jaramillo & Alcázar chapter.
- 11.
See, for instance, the discussion in Iriart and Waitzkin (2006) about the reforms in Argentina’s health sector. A central demand of the many student demonstrations in Chile since 2011 is to make all education public and eliminate private provision which accounts for a majority of enrollments at all levels (Vaillant et al. this volume).
- 12.
The chapter by Perry and Angelescu provides an extensive discussion of information and overall accountability in service provision. Our focus here is on the narrower issue of information in quasi-markets.
- 13.
In Brazil health sector, the great operational autonomy enjoyed by the social organizations contracted to run the public hospitals was a key factor explaining the success of such schemes. See Matzuda et al. (2008).
- 14.
Vaillant et al. (this volume) find positive effects of school autonomy and personnel management in Chile, but this is largely capturing greater autonomy and flexibility in fully private schools (rather than the private and municipal schools supported by vouchers).
- 15.
In other kinds of markets open to private providers, where barriers to entry are low, the opposite problem of excessive entry has sometimes occurred. When the entry response is excessive, funds often ends up in wasteful advertising and administrative costs, as well as inefficiencies in terms of economies of scale (private insurers and pension funds in Chile).
- 16.
Reforms in European higher education have also moved to introduce more quasi-market types of competition. For a review, see Teixeira and Dill (2011).
- 17.
See ‘Fies e Prouni já respondem por 31% de matrículas de universidades privadas,’ Valor Econômico, 11/03/2014.
- 18.
Quasi-markets in contracting for services or construction, in contrast, do not suffer from multiple, conflicting, or displaced incentives, because they are usually engaged from the start with profit-seeking firms. In cases where the contracting parties are non-profit, charitable, or religious organizations (as in schools and hospitals), then quasi-markets may have similar effects of privileging the bottom line over other organizational goals and motivations.
- 19.
In utility regulation, this is a well-known problem with price cap mechanisms, which are highly potent regarding productivity growth but often at the expense of service quality. As such it is often preferable to retain direct public provision when the measurement of quality is extremely difficult, or when the trade-off between profitability and quality is significant.
- 20.
Bonus pay for teachers is becoming increasingly common in Brazil in part because it has less long-term fiscal and pension impacts than increasing regular salaries (Bruns and Luque 2015).
- 21.
The World Bank (2004) reports that in Uganda faith-based healthcare providers were found to work for ‘28% less than government or private for-profit staff and yet provide a significantly higher quality of care.’
- 22.
In some cases, quasi-market reforms may target poorer populations directly. For example, a public school concession program began in Bogota in 2000. Fully funded by the state, it aimed to deliver quality education to socio-economic disadvantaged children and teenagers. In order to expand the provision of educational services, the state built new schools in marginalized areas and communities. Afterward, it contracted out to reputed non-profit private institutions to manage each of them by tender. Capacity and quality were monitored through previously established indicators. Admission was based on household proximity to school, as in all public education, and costs could surpass average spending per student in the public system. However, institutions were given autonomy over the distribution of funds and hiring teachers. In 2013, almost 50 concession schools were in operation (World Economic Forum 2014). Bonilla-Angel (2011) provides robust evidence that students in these schools performed better than students in regular schools in math and verbal tests.
- 23.
See Elizondo (2011) on the extreme political power of the teachers union in Mexico.
- 24.
See Gingrich (2011) for a systematic analysis of how various types of market reform strengthen, alternatively, providers, consumers, or the state, and why left and right parties therefore use different quasi-markets to build or bolster their support coalitions.
- 25.
Savedoff (1998b) notes that the idea of quasi-markets is similar to the management reforms undertaken by General Motors, where they created independent divisions and subjected each to market pressures and evaluations.
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Pinheiro, A.C., Schneider, B.R. (2017). Markets and Hierarchies in Public Services: Incentives, Institutions, and Politics. In: Perry, G., Angelescu Naqvi, R. (eds) Improving Access and Quality of Public Services in Latin America. Latin American Political Economy. Palgrave Macmillan, New York. https://doi.org/10.1057/978-1-137-59344-3_2
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