Tapping the hidden power of private companies
Gary Sturgess
South China Morning Post

The Hong Kong government has recently issued several policy papers on
public-private partnerships, confirming that it proposes to follow other
governments in using private companies more often to deliver public
services. In a number of overseas countries, this practice has raised
the question of whether profit-seeking companies are capable of meeting
the social and ethical concerns that are an essential part of modern
public services.

When 343 firefighters and 21 police officers died at the World Trade
Centre on September 11, public-sector union officials argued that their
courage and self-sacrifice was an example of the public-service ethos
that private companies could not match.

No one disputes the dedication of such public-service workers, but this
narrative ignores the eight paramedics who also died at Ground Zero that
day, some from for-profit ambulance companies.

The numbers are low, not because paramedics lack a public-service ethos,
but because their duties required them to remain on the ground floor rather than climb to higher levels where escape would prove impossible. Throughout
that terrible morning, the number of private and voluntary emergency
units matched those dispatched by the local government. There is nothing
to suggest that the private sector was lacking a public-service ethos on
September 11.

Last year, private firms were also on the front line in the fight
against Sars in Hong Kong and Singapore, cleaning wards and moving
patients. Staff were scared about the risks, but they donned their masks
and went about their duties.

This is not to say that private firms are infallible, that they are not
self-interested, that there are no public services that it would be
inappropriate for them to deliver. But there are countless examples
where private companies have been trusted to deliver public services.

The motto of the world's first public railway - the Stockton and
Darlington, established in the North of England in 1825 - was "private
risk, public service". It was owned and operated by a private firm.

In Denmark, a private (for-profit) company has delivered most of the
fire and emergency services for about 100 years. In Britain, a private
company has provided all the technical and support services for the
ballistic missile early warning system for almost 40 years.

So what are the conditions under which private interest can be made to
serve public ends? First, where private interest coincides with the
broader public interest. In Britain, private companies manage a number
of public prisons, delivering the full range of services, including
custodial care. They have delivered major innovations, not only in
reducing costs but also in moving forward the government's "decency
agenda". One reason why they treat prisoners so well is that it is in
their commercial interest: it is less costly to treat prisoners decently
than badly.

Second, where contractual performance incentives work. In the case of
public-private partnerships, governments are able to use contractual
incentives to align duty and interest. In large part this is about
well-designed and well-managed performance regimes, with appropriate
financial incentives. In Britain, the Home Office has been able to
harness the self-interest of leading financial institutions in
monitoring the performance of prison management companies.

Third, when there is commercial value in having a reputation for public
service. In some cases, companies can be motivated to deliver well
beyond the performance criteria in the contract. At Docklands Light Rail
in London's new financial district, the private-sector operator commits
resources to keep stations clean and free from graffiti despite there
being no contractual requirement to do so.

 Why would a company do that? Because it has developed a local and
national reputation for delivering excellent service and it wishes to
maintain public confidence. Public-service companies typically hold few
assets, which means that their share value is driven almost exclusively
by goodwill (or reputation). Particularly in public-sector markets,
where there is often repeat business, it is in their commercial interest
to ensure they meet customers' needs.

And fourth, when employees are motivated by a professional or service
ethos. Critics of public-private partnerships often assume that
frontline workers in the private sector are motivated by concerns about
profit and loss. This is rarely so.

Research in Britain has shown that nurses working in private hospitals
are motivated by the same professional concerns about patient welfare as
their colleagues working in the National Health Service. Good
private-sector managers understand the motivating power of a
professional ethos and they harness it to deliver high-quality services.

The self-sacrifice of private paramedics at the World Trade Centre on
September 11 and hospital workers in Hong Kong during Sars come from
this same sense of professionalism. Of course, governments need to
understand the management culture of the companies with which they
engage in delivering public services and shun those that fail to
appreciate these values.

There is strong evidence that through well-designed and well-managed
competition, and through well-designed and well-managed contracts,
governments are capable of harnessing the creative energy and the
self-interest of private companies to serve the public good. That this
requires a considerable degree of skill is obvious, but then delivering
high-quality public services always did.

Gary Sturgess is executive director of The Serco Institute, a London-based research institute.