Outsourcing companies would be beneficiaries of predicted 'fourth revolution' of radical scaled-down government, says Economist editor

Out-Law News | 08 Oct 2014 | 3:54 pm | 3 min. read

A radical scaling down of the size of government and the scope of public services would create opportunities for outsourcing companies and firms running services for governments, according to John Micklethwait, editor in chief of The Economist. 

Micklethwait's recent book outlines his view that governments in Europe and the US in particular have grown too big and must reduce in size and scope if those countries are to compete economically with Asian and emerging nations.

"The companies who will gain a lot are the ones on the outsourcing side because if you look at a modern state the one thing that is really really clear is that you should split the provider from the service," he said, speaking to Out-Law.com ahead of a lecture that is part of the Horizon series run by Pinsent Masons. "There is absolutely no reason why the state should provide things, even if it's providing them for free."

"Look at Sweden, one of the most socialist countries in the world. They decided that actually what they cared about was the poor, what they cared about was delivering good public services and they didn't care who delivered it, they didn't care if it was the government, they didn't care if it was for profit, non-profit, private sector," he said. "So for schools you could use education vouchers and go where you want, for hospitals they didn't care if a private equity company came in and ran it as long as it delivered good quality healthcare cheaper than the alternative. So it will be in that area that you will see quite a lot of private sector growth."

Technology and outsourcing expert David Isaac of Pinsent Masons, the law firm behind Out-Law.com, said that companies operating in Europe and the US should be on the look out for international examples of more efficient ways of operating public services.

"John identifies many examples from around the world of government work being done efficiently, transparently and in a targeted way. Outsourcers and providers working for governments can learn from this. They should be drawing on these methods from all over the world to help governments adopt innovative ways of delivering public services," said Isaac. "This presents a real opportunity to help governments to make changes that will help them deliver improved services for less."

"I think there is a revolution likely to happen in government," said Micklethwait in the lecture. "If you look around the world at the moment people will go to US polls soon in the same mood as in the EU, I'd describe that mood as one of discordant apathy."

Micklethwait said that governments, particularly those in Europe and the US, try to do too much, and do it inefficiently and poorly. Technology is changing that because people can for the first time see the results of the government operation of services, he said.

"One of the things that will change this is that it's possible to go online and look and see why your figures are less good than others. In schools, look at PISA [OECD school] rankings, we know our schools are not as good as those in Singapore or Sweden, but we now also know they are not as good as those in Poland. Now we can go to teachers and ask why we're not getting results."

"In health and education you can see areas where new provision of services is possible, you can monitor people's health far more cheaply than ever before. In education our children can get the same education as Bill Gates' children, he makes his children watch the Khan Academy, a free online service. The economics of education is being challenged by MOOCs [massive online open courses]."

Micklethwait has traced the development of the nation state through three and a half revolutions. Previous revolutions protected individuals from the whims of royal rulers, granted them personal liberty and provided health, education and a basic income through the welfare system.

The 'half' revolution was the attempted dismantling of much of the state, principally by UK prime minister Margaret Thatcher and US president Ronald Reagan in the 1980s. But it failed, Mickelthwait said.

"They took the state out of business through privatisation but in terms of making the state smaller they totally failed. In 10 years of struggle Thatcher reduced welfare spending from 22.9% of GDP to 22.2% GDP," he said.

Mickelthwait urged governments to look at places where administration is taken more seriously and where countries think about the question 'what is the state for?'

"The place to go to is Singapore, which I regard as a model for this kind of thing," he said. "In terms of efficiency of government it provides twice as good a service at half the cost," said Mickelthwait. "The reason is that they take it very seriously, like the Chinese do. They do all the things you'd expect to do if you are doing something better. They hire teachers and pay them well, but they fire the bad ones. Singaporeans work really hard at problems and solve them in relatively simple ways."