November 28, 2017

CEO Update November 2017

Can Market Forces Stimulate Social Change?

On the weekend, I was at my nephew’s 4-year-old birthday party. My sister bought and made his favourite foods and my family had made choices about the presents we bought him (according to my little nephew, apparently some of these were “what I’ve always needed” – you’ve got to love a 4-year-old who knows what he’s been missing all his life). We live in a free-market society that enables most of us to regularly exercise choice in how we live, what products and services we buy and use, and how we use them. Free markets rely on supply and demand – that is, people who want to use/ purchase goods and services are free to choose what they purchase and from where and the supply side responds to meet those needs. This seems to work well for kids’ birthday parties. But do market forces work when applied to goods and services for social good?

One of my other nephews at the party has cerebral palsy. He’s recently become part of the NDIS, which means he’s one of the many people who have moved from an older model of government funding services to making choices about what he needs, when he needs it and who provides it. The NDIS aims to turn the disability service system into a market that potentially offers more choice. The shift to a person-centred system is long overdue and individualised funding significantly changes the service landscape. All of a sudden, as Soldatic et al. said, ‘people with disabilities are active bearers of rights rather than passive recipients of welfare’.

But what are the risks we need to look out for in a context when government’s role is partly about providing support when markets fail? I recently wrote about the shift to market forces in human services with a colleague in the Third Sector Review, which asked, ‘Can market forces stimulate social change?’. If we heed the lessons from overseas and nationally where we’ve seen the marketization of health, aged care and child care, there are some lessons we need to consider.

 

Using market forces make sense when supply is abundant, high quality and standards and regulation for quality are in place, information is available to consumers, and consumers can make informed choices. In these cases, market forces can increase competition between suppliers and in turn, increase innovation, decrease costs and increase quality.

But we also know that markets can fail: they can fail to address needs, to serve minorities, to provide adequate information for informed choice, and to stop anti-competitive practices. History has shown that the need to generate profit can also result in poorer quality services. And, of course, in places where markets are thin – there are few suppliers and minimal demand – market forces do not meet people’s needs. Take for example a person living with a complex disability in a rural or remote location where there are very few or no service providers and the workforce is limited. In my nephew’s case, luckily, he lives in an area where the ‘market’ of service providers is fairly plentiful, but there are still significant restrictions on choice in seeking out the aides he needs to be as independent as possible. Everyday living is affected. For example, the specialised cutlery and plates he needs to help him eat, can only be sourced from one location in another state and at an incredibly high cost. Take this example and scale it up for a family who are trying to get support services for a child with a severe disability and extremely challenging behavior who are living in an isolated community.

If the market fails in providing social goods and services to people who need them, people’s lives and wellbeing are at risk. The stakes are high. The marketization of the social services sector needs regulation; it needs to be responsive to different people’s needs, interests, demographics and geography; and it needs to take into account people’s relationships, values, sentiments, and habits.

At a time when market forces are increasingly coming to the fore in social services and we await the release of the Productivity Commission’s Final Report on the Human Services Inquiry, it’s important to be aware of the advantages and the risks. Market forces are great for kid’s birthdays and many of the other pleasures we enjoy in life and they are one tool to help enable the self-determination of people. But market forces are no panacea. There will always be ‘thin-markets’ and places where supply does not meet the demands of some people whose needs still must be met. And when markets fail to provide, stop gaps and safety nets must be in place. Government will need to continue to play a crucial role in stewardship and regulation, in supporting a growing sector, and filling gaps where the market fails.

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