Control Versus Capacity: The Dilemma of Marketization in Employment Services

Across Europe, market mechanisms are displacing other ways of coordinating public services, such as place-based networks and direct hierarchical control. This applies as much to national economies classified as liberal or coordinated; as much to welfare states classified as liberal, conservative, or social democratic; and as much to post-crisis as pre-crisis Europe. One fertile area for studying this trend has been employment services funded by public authorities to move jobless people into or closer to paid work.

This paper compares the marketization of these services in Denmark, Germany, and the UK. Drawing on interviews with service providers, public authorities, and front-line workers, we ask three questions. First, what does marketization mean in practice in these three countries? Second, what are its effects on services and governance arrangements? Third, how does variation in marketization and its effects map against theoretical national ‘regime types’?

We capture marketization at the level of the transaction. Moving beyond definitions that focus on privatization, we ask whether public authorities organize competition among external providers that is open, frequent, and/or price-based. We observe transactions ranging from those with little or no price-based competition (cost reimbursement and grants) to those that are highly competitive (competitive tendering and vouchers). In between is restricted procurement – such as ‘framework’ contracting in the UK and Denmark and ‘hand-picked’ procurement in Germany – in which market mechanisms are consciously limited.

Moving beyond the efficiency arguments commonly used to justify marketization, we highlight unintended consequences and argue that marketization creates a dilemma for public authorities. On the one hand, if they assert strict control over the quality and price of services, they create disincentives and squeeze resources, which corrodes complex, personalized, and innovative services delivered by qualified personnel.  On the other hand, if they relinquish control, they face a legitimacy problem, since public policy goals may be subordinated to organizational dynamics via the profit motive or the ethos of social workers. This dilemma is not solved through increased openness and transparency or improved incentives (which also create transaction costs) or customer choice (which is also beset by information asymmetries and runs counter to policy principles of compulsion). In some cases they resolve it by bringing externalized services into the public sector.

We conclude that these choices are shaped more by the structures of states than by the principles of welfare regimes. In Britain governments have created a concentrated, uncompetitive market, dominated by multinational firms, to create innovative services and to shift the risk of failure onto the private sector. German employment services are decentralized and therefore diverse; transactions range from highly competitive tendering and voucher arrangements to uncompetitive cost-recovery arrangements, with each market favoring different providers. Denmark’s market is volatile and sensitive to political shifts, currently managed by municipalities and dominated by for-profit providers.