For those who aren’t aware, « Le Monde Diplomatique » is one of the few independent French journals that are left. In its edition of November 2021, I read a very informative article titled “Quand l’Etat paie pour disparaître” (when The State pays to disappear) [1]. The article talks about how the French government is externalizing (hiring consulting and service companies) many of its public services, at their own detriment, often promoting the myth: "for better quality, more flexibility and less cost". Here’s a summary.
Historical Background and Scope
The practice of hiring external
or private entities to deliver public services dates back to the times of the
French Royalty. For instance, in the 17th century the French Monarchy hired
private services for the construction of
navigation canals while later in the 19th century it was for the construction
of railways, public street lighting, drinking water supply, etc.
This trend got reversed during
the years 1930-1950 when new public sector companies took over the
administration and marketing of services such as electricity grid, gas,
railways, etc. However, inspired by the “New Public Management” trend of the 1970s
in United States as well as in United Kingdom, privatization resurfaced in
France during the years of 1980. The popular term that was coined to promote
this strategy was “State Reforms”. This included major privatization projects from
1997 onwards such as Air France and highways as well as implementation of the
electoral promise of the French President Nicolas Sarkozy (2007-2012) of
non-replacement of 50% of the retired civil servants.
Dominance of American Consulting Companies
In recent years, international
companies, notably major American companies such as McKinsey & Company and
Boston Consulting Group (BCG) have been preferentially engaged by the French
State. Interestingly, all these previous years these companies were accustomed
to offer services to countries that do not have a robust administration. Initially
welcomed with a bit of reticence the presence of the private consulting
companies in the public sector has now become commonplace. Their major
activities involve formulation of strategies and action plans for state missions,
drafting of laws, the operational activities related to the reform of the
driving license, change of software for the salary slips of the military staff,
procurement of masks and organization of vaccine campaigns, etc. Almost no
domain is an exception that is not entrusted to the private consulting
companies. This in the backdrop of the public sector administration that is
deliberately under equipped and which is thus easily overwhelmed.
Huge cost to the Exchequer
For the year 2019, when one adds
the amount paid by the French State, including the one paid by the territorial collectivities and the public
hospitals to the external entities, then the sum leads to a whopping 160
billion Euros which is equivalent to 7% of the GDP or 25% of the annual state
budget [2]! Two third of this sum went to delegate
the public services e.g. public transport, water management, etc. while the
rest was spent to hire consulting services such as expert advice, management,
cleaning, etc. However, such an enormous amount never became a topic of public
debate neither was this information provided to French parliamentarians. More
strangely, it hasn’t yet become an electoral topic, even when Presidential
elections are due in April 2022.
Moreover, for a public operator, the fees paid to private sector undertakings are liable for VAT, the standard rate of which is 20%, a cost which does not apply to services carried out internally [2]. Most outsourcing contracts also generate so-called "transfer" costs of knowledge from internal to external or between service providers [2]. Finally, there are many cases where advisory missions conducted from one territory to another could give rise to pooling of skills or expertise between territories, but the use of the private sector prevents this [2].
Conclusion
- Hiring of private consulting companies for key sectors such as health, security and administration has major adverse implications such as loss of state independence as well as autonomy. Further, these sectors and thus the state lose precious know-how, experienced personnel and strategic planning.
- Since the public sector is deliberately neglected and deprived of key expertise, it often hampers their ability (both technical and managerial) to monitor the delegation of missions to the private sector. This in turn results into substandard and inefficient services offered to the citizens.
- For public operators, outsourcing to the private sector involves paying VAT of 20%, generates costs of "knowledge transfer" from internal to external or between service providers, and prevents the possibility of pooling of expertise between territories.
- The citizens often find themselves dealing with customer care center personnel that operate from a foreign country. They usually have no possibility to engage with staff that has any decision making powers for the exact service that they seek.
- The multiplication of intermediate private entities greatly hampers efficiency and reactivity of the public sector. This adversely affects the motivation of the employees.
- The choice of externalization has both technical as well as budgetary implications, prohibiting a return to the initial situation. In reality, once the choice of externalization is made for a particular service through requisite budget cut, it then becomes quasi impossible to allocate more budget in the successive years to come back to the original situation.
- “Re-internalisation” often means rebuilding the know-how and skills from the scratch, and thus a major loss to the State. This becomes more complicated if the externalization dates back to 10, 15 or in some cases even 40 years.
References:
[1] https://www.monde-diplomatique.fr/2021/11/BONTEMPS/64030
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