Monday, June 15, 2009

Public services productivity in perspective

‘Productivity’ is how many bangs you get for your buck; it’s not production, which is the total number of bangs put out.

It’s much harder to quantifiably define productivity for public services than for a profit-making private firm (as Nigel Stanley and Andrew R note), but the ONS has had a go in a new report.

Just for argument’s sake I’ll accept its methods as flawless (though they certainly aren’t, as the report concedes).

The headline finding is that inputs and outputs have both risen, but the former more so: productivity in public services fell by 3.2% between 1997 and 2007. The biggest single contribution to this was from healthcare, which recorded a 4.3% fall in productivity.

George Osborne reacted thus:

These productivity figures tell the damning story of Labour’s wasted years of spending. Gordon Brown poured billions of pounds into public services but blocked any attempt to reform them. The taxpayer has been left with massive debts and little to show for it at the end of this wasted decade.

He doesn’t, to his credit, claim that there has been no improvement in services at all - just little to show, which we can compare with the damning, massive waste. So I thought I’d do that.

The blue line shows the rise in healthcare output, the gold line shows the rise in inputs (both based at 100 for 1997) and the widening gap between them indicates falling productivity:

Osborne thinks the bad news far outweighs the good; I respectfully take the opposite view. Productivity is down 4.3% but the actual output of the health service is up 52.5%.


Nigel Stanley said...

Thanks to the link through to my post - and the splendid graph.

It makes me think even more that public sector productivity almost inevitably declines as public services improve. If you only teach the bright kids or treat the not-very-ill you get much better returns than if you teach and treat everyone.

We need other measures!

Tom Freeman said...

Yes, I think this passage of your post is spot on:

"If you double class sizes and exam results only decline by a third, then that class has become more efficient. ... One could make the point even more cheaply by considering a hospital that halves the numbers of doctors but whose death rate does less than double."

We could find the single most cost-effective hospital department in the country and then scrap the rest of the NHS - productivity would soar.

I dimly recall seeing some research finding that productivity across the whole economy tends to decline (or at least grow more slowly) as unemployment falls. The idea was that as more and more people are taken on, employers find that the best ones get snapped up first (or have jobs to start with), and so they're eventually reduced to hiring less productive workers. So a bigger workforce will tend to have more unproductive workers and lower overall productivity.

Perhaps something like that may have happened in public services due to the expansion over the last decade?

Or maybe even a simple supply-and-demand thing: the state supplies healthcare to patients, but first it has to buy the human and material resources needed to do so. Its increased demand for those resources may have thus driven up the cost.

The Plump said...

It is a beautifully dishonest device to focus on productivity in the public sector. To improve the quality of service, productivity has to decline. Spend longer with the patients, have smaller class sizes, give social workers smaller case loads, all are desirable and all lower productivity. Thus the Tories can use something that may be an indicator of an improved service to imply that it has worsened or, to use a weasel word, become more 'inefficient'.

Falco said...

"Productivity is down 4.3% but the actual output of the health service is up 52.5%."

I take it that you are not implying by this that the NHS is 52.5% better for the spending. So what the hell are they measuring?