Public sector efficiency


Efficiency savings are all the rage now that government spending is coming under increasing pressure. The idea is to reduce spending ‘without damaging the frontline services that we all depend on’, apparently saving money without affecting the delivery of health care, education or whatever the particular area happens to be.

Many members of public will recognise a worrisome implication in this notion; if the same service can be delivered with less expenditure, where was the money going beforehand?

This gets right to the heart of a difficulty with valuing public services. Because no market forces are involved (in most cases they are free at the point of use) it is extremely difficult to measure efficiency. When measuring the efficiency of a private firm, you can look at the inputs (money invested) and compare it with the outputs as valued by the market.

But this methodology becomes a lot more difficult when public services are involved. The inputs can be defined well enough, but who knows how to value the output? What do you define as a useful output for a school? I can’t see a way of measuring the amount of education a school produces in order to compare this to the input.

This problem, I think, leads to the extremely difficult philosophical problem of attaching a value to lives saved by the NHS in order to prioritise spending. Quality Adjusted Life Years, or QALYs, are currently used as a metric for comparing the payoffs of medical procedures in some areas of the NHS, but this method is far from perfect.

It is difficult to see how budgets can be systematically prioritised when one understands the issue there is with defining outputs provided by public services. Looking at the issue of public sector output in this way helps to explain why public services have at times been underfunded for the purpose at hand, and at other times seem to have money to waste on endless consultants and all manner of shiny billboards.

Nevertheless, efficiency savings are only pledged in certain areas. One could interpret this as a sign that government expenditure is working at capacity in other areas. But judging from the expensive cut of many civil servants’ suits I see when out for my lunchtime walk, I’d say there’s some squeezing to be done yet.