The incredible economics of localism and the illusion of scale
ResPublica fringe event at Conservative Conference
Monday 4th October 2010, 20.30 – 22.00
In conversation: John Seddon, leading public sector management thinker, Phillip Blond, Director, ResPublica and Ben Lucas, Director, 2020 Public Services.
John Seddon, leading public sector management thinker asks why do we believe in economies of scale? Adam Smith argued that specialisation leads to efficiency, but does that apply in every field? Including services? No. Specialisation is demoralising.
Bob Chase invented “the back office,” separating customer relations from other functions. The last government applied this across all public services. There are three problems with this:
1)It treats all work as productive. But work not done properly creates extra work (or failure demand). For example, in the 1980s, banks outsourced their call centres to India – but this increased the demand for the service, since problems weren’t dealt with effectively in the first instance.
2)It treats the workers as responsible, when the problem is almost always with the structure of the system.
3)It can’t address the variety of demand. Standardising services actually increases costs. People and problems aren’t standard.
Where is the evidence that scale is cheaper? The evidence points the other way – Dept of Transport and Home Office have increased their costs by trying to combine their HR and legal services.
True economy actually comes from flow.
For example, Portsmouth City Council now delivers services on the day and at the time the customer wants. At half the cost. How? They can study and predict demand, and make resources available at the time they are needed. They look at a specific problem and assess how long it will take - whereas in the government’s regime, standard times were allocated for types of problems. But the Audit Commission saw these outcomes and downgraded Portsmouth’s status – because they didn’t tick the boxes.
The key is to design services against demand.
Ben Lucas, Director, 2020 Public Services challenged the assumption that local economies can’t deliver economies of scale, because it relies on the naïve assumption that big scale projects will be inexpensive (see the NHS database). No other countries try to design systems for 60 million people; we are the second most centralised country in the developed world (after New Zealand). At a recent conference comparing 6 models of schools from other countries, the largest comparitor was a model for 6000 schools whereas the UK model is designed for 26000 schools.
The 2020 Public Service Trust has found that there will be not just financial challenges, but whole new sets of demographic and behavioural demand patterns. On one estimate, this will require 6% more of GDP to deliver the same outcomes in public services. Furthermore, the current settlement (despite more resources) has not been delivering better outcomes. How to change this? The most important quality to measure in a public service is the quality of interaction between the service and the citizen.
Phillip Blond, Director, ResPublica argued that evolutionary biology suggests that the optimal size for group efficiency is roughly 150 people; scale above this size could actually be less efficient. We need to achieve scale by networking small groups.
Localism is about designing services at the point of demand. That is the only way to design truly effective public sector.
But the efficiency of localism is needed not just in the public sector, but in the private sector. To achieve this, we need to look at economies of trust. New trust platforms (such as ebay’s seller ratings) can facilitate reputational interactions that make trust possible across large distances. Signaling to each other that others can be trusted can increase productivity and facilitate small players in the market.