Helsinki (01.03.2004 - Juhani Artto) Privatisation of public services has been a topic of political dispute in Finland for several years. As its Western neighbour Sweden has advanced further in the privatisation process, it is natural that the parties to the Finnish privatisation struggle refer to Swedish experiences as ammunition for and against various models of service provision.
In January 2004 the Finnish Trade Union for the Municipal Sector – KTV published a report* on Swedish experiences in privatising public services. The idea of the report was to list the major findings of several studies conducted in Sweden on the issue. The idea was also to avoid an ideologically coloured interpretation of the wide range of privatization outcomes.
"As the privatisation of services and other sectors remains an important agenda issue for trade unions around the world, we shall participate in the global debate on the pros and cons of privatisation by publishing a summary of the KTV report. This will be of particular interest to union activists in many other European countries, where similar questions are part of daily agenda," believes Jarkko Eloranta, Head of Communications and Public Affairs at KTV.
The first wave in the early 1990s
In Sweden local authorities are responsible for pre-schools, schools, geriatric care and other local resident services. They are also in charge of water, sewerage and energy services. The country's 21 provinces (landsting) are chiefly responsible for health care and nursing.
Together with the local authorities, the provinces attend to public transport and regional development.
Public services have been privatized in two waves: in the early 1990s and around the year 2000. The KTV report focuses on the privatisation of the social and health care sectors because this, in particular, advanced significantly after the early 1990s. Even before this, private enterprises had played an important role in cleaning and food services, and in public transport.
Despite the great attention focused on privatisation, only 6.7 per cent of all welfare services have been privatised. One tenth of public nursing and the care of elderly and mentally handicapped persons has been privatised, as has 12 per cent of day-care. Privatisation of nursing has advanced furthest in primary health care.
Some regions have privatised extensively, while others have declined to do so altogether. In Stockholm and other metropolitan areas privatisation has advanced further than average.
Privatisation has progressed more rapidly in local authorities under Conservative control than in those led by other political parties. However, the privatisation of geriatric and mentally handicapped care has advanced more rapidly in social-democratic local authorities.
Three major approaches to privatisation
Privatisation has been implemented in three main ways:
- by competitive tendering (upphandling),
- by turning public operations into joint-stock companies owned by local authorities or provincial administrations, and
- by applying the "service voucher model".
In competitive tendering the local authorities and provinces decide the extent and content of the services to be privatised and have been responsible for subsequent monitoring. Besides commercial and non-commercial organisations, organisations formed by local authority employees have been entitled to participate in tenders.
Lively debate
Since the early 1990s the Swedes have engaged in a lively debate on the need for, and experiences of privatisation. Over the last few years the main topic has become the extent of privatisation. Previously the dispute focused primarily on the question whether to privatise at all.
The defenders of privatisation have argued that it improves control and quality, increases freedom of choice, gives the service provider new ideas and decreases hierarchy. They claim that on the whole privatised services are more effective, productive and beneficial than publicly provided services. They have also presented ideological arguments trivialising the role of the public sector.
The critics of privatisation stress that the principles of a market economy are poorly suited to the welfare services. They argue that privatisation impairs service quality, decreases equality and democracy, jeopardises the continuity that is important especially in care services, and creates a basis for private monopolies to emerge.
Many studies
Many studies have been made of privatisation. These indicate that the range of experiences is wide and diversified. The outcome of privatisation reflects the total impact of several qualitatively different factors. It is therefore not possible to generalise the benefits and the drawbacks of privatisation in the form of simple conclusions.
Competitive tendering demands expertise
The know-how of local authorities and provinces in arranging tenders has evolved remarkably since the early 1990s. The work of the service providers participating in tenders has also become more professional. In the beginning the local authorities and provinces emphasised costs in a rather one-sided manner. Following two or three tendering rounds more attention has been given to quality.
It is essential to define the quality demands clearly. This also helps in directing the work. The objectives and rules must be defined precisely and tailored to the individual case.
Continuity of staff and the emergence of real competition are essential conditions of successful tendering.
Failure in tendering has usually resulted from inadequate preparation. Often the parties have been given too little information. Sometimes the problem has been caused by lack of real competition between the tenders.
Cost impacts heterogeneous
Most Swedish studies conclude that privatisation has slightly reduced the costs of service provision. The size of the change has, however, not generally been significant.
There are also cases in which the costs have risen. The increase in the number of private schools has raised local authority education costs. The service voucher model has also tended to increase costs.
Efficiency has improved and costs reduced above all as a consequence of increased competition, and not because the service has been provided as a public or privatised service.
The decrease in service production costs has not automatically led to lower user fees or lower taxes.
The customer viewpoint: service quality
Little information is available on public service quality.
Particularly little is known about the quality of care services. Partly this may be due to the difficulty of defining and assessing welfare services. Quality evaluations have been made on such diverging criteria that it is difficult to compare the results of various studies. Research findings conflict in many ways. One further difficulty in analysing the impact of privatisation is a lack of quality evaluations made before the tendering.
There are two opposing assumptions about how privatisation influences the quality of public services. The first assumption is that increased competition improves quality. The second assumption is the belief that competition forces lower prices, which leads to impaired quality.
Uniform quality indicators are to be defined in a project run by the National Board of Health and Welfare (Socialstyrelsen), the Swedish Federation of Provincial Councils (Landstingsförbundet) and the Swedish Association of Local Authorities (Svenska Kommunförbundet). The work is due for completion by 2005. It is expected to help in developing services and lay the foundations for relevant national and international comparisons.
Privatisation has not essentially weakened quality of public services. Moderate changes have taken place in both better and worse directions.
The model whereby customers have freedom of choice has been applied, for example, in the care of children and the elderly, and in schools. There must be an oversupply of services for the system function properly. This means that applications of the model increase costs. For the customers it is often difficult to make choices. The "customer chooses" model has also been criticised for requiring service providers to compete instead of jointly improving services. Competition may, however, have an impact resulting in quality improvements.
Studies of customer satisfaction indicate that service quality is more important for the customer than the question of whether the service provider is a public or a private organisation.
In several regions tendering has resulted in markets dominated by a couple of large enterprises. Among the participants of the tenders there have been fewer non-profit service providers, such as associations and co-operatives, than were expected.
Sweden includes cases of reverting to public service provision after privatisation trials. Tenders have regularly preserved the option of return to public servicing. In a few cases the return to public organisation has been delayed by its high costs.
The employee viewpoint
Tendering of nursing has almost always saved total costs by reducing staffing levels, which has resulted in an increased work tempo.
Studies of workplace atmosphere made after privatisation show inconsistent findings. In several cases tendering has improved the workplace atmosphere. On the other hand, privatisation has caused employees to sense increased insecurity and has made them more worried.
Many employees that have moved to a privatised workplace from a job with a local authority or provincial council have found that their prospects of influencing their own work and workplace have improved. The same applies to their scope for acting on their own initiative. Privatisation has, in many cases, shortened the decision-making chain and introduced a simpler management structure.
Employees of local authority and provincial councils have the right to criticise matters in their workplaces. In some privatised units the employees have lost this right.
The viewpoint of the trade union movement
In spring 2002 the Swedish Municipal Workers' Union (Kommunal) defined its relation to the welfare services as a summary of a large scale consultation with its rank and file. The union seeks a system in which services are provided according to need, financed by taxation, and provided mainly by public organisations. The union considers that correctly organised tendering may increase the amount of welfare services financed by taxes. However, in the union's opinion, the provision of services that are tendered must be restricted to one fifth of all welfare services. Privatisation must be decided in democratically elected bodies, the union stresses.
Trade unions and the enterprises providing welfare services have, as a rule, been able to co-operate pragmatically in negotiating agreements. The Kommunal union competes for agreements with other unions. Collective agreements with private employers have not been as good as with public sector employers. Privatisation has generally undermined the working conditions of service sector employees. The difference in job security has been especially apparent.
Privatisation has had an inconsistent impact on wages and salaries. In technical and other traditionally male-dominated jobs it has laid the basis for improvements in wages and salaries. In female-dominated jobs such as care, nursing, cleaning and food services, wages and salaries have remained unchanged or have even fallen. Managers and middle managers have, in general, received salary increases after privatisation.
In many cases pensions, overtime compensation, holidays and insurance, as part of collective agreements, have been impaired at the time of privatisation. Participation in trade union activity has become more difficult following privatisation, the KTV report concludes.
*Suvi Savolainen, Selvitys julkisten palvelujen yksityistämiskokemuksista Ruotsissa, [A review of experiences of public service privatisation in Sweden] KTV 2004