Public sector can raise productivity but it should not be pushed over the edge

By Bart van Ark

The Chancellor’s March budget implies that the government will have to double down on efficiency gains in the public sector to “responsibly reduce the deficit” without having to exclusively rely on spending cuts. For example, local councils will be required to accelerate delivery of their Productivity Plans with tangible efficiency gains in the near term. Other sectors will also be required to look for possibilities to look for reducing waste.

However, forcing quick results on raising productivity is a risky strategy. Not because public sector productivity growth is not needed (it is), or that such gains are not possible (they are). However, the danger is that raising the pressure to “do more with less” might push public sector organisations, several of which are already at the brink of collapse, over the edge. By squeezing more from current resources, we may end up making things worse as we let opportunities for innovations in the longer-term go to waste, demotivate public sector workers to making change, and see the quality of Britain’s public service delivery go further downhill. That would be a step backwards rather than forward.

It is often assumed that public sector productivity is irrelevant because the sector’s growth is primarily driven by more demand requiring more inputs. Indeed, for about 40 percent of public sector output, the Office of National Statistics (ONS) assumes that the growth in public sector output more or less equals the growth in inputs, which implies (near) zero productivity growth. But for the other 60 percent of output, the ONS actually shows that measures of specific activities, often adjusted for quality change, generate genuine improvement. For example, during the 2010s, the healthcare and education sectors made significant productivity gains, in some years even better than in the private sector.

However, even before the pandemic there were already signs of productivity gains beginning to level off. Various organisations, including the Institute for Government and the Health Foundation, have argued that more investment would be needed to make further improvements possible. The pandemic, of course, provided a major blow to productivity, from which the public sector has not yet fully recovered.

It is therefore good that the Chancellor, in June last year, launched a new government programme to improve public sector productivity. The timing seemed right, in part because the availability of new technology creates scope for productivity improvements across the public sector. Our work at The Productivity Institute, which has looked at productivity in the policing sector, health care and local government, shows there are many opportunities and examples of reflecting good intentions and, in some cases, good results.

But change is not easy and often slow. For example, there is a lot of excitement about the opportunities created by artificial intelligence (AI). But, in practice, AI applications require improving digital skills, creating more flexibility within and between organisations to reallocate resources, and establishing clear guardrails ensuring privacy, safety and security.

Even if individual initiatives generate good results, they are often do not translate into big productivity improvements in the aggregate. To scale up, there is a need for more exchanges of best practices and room for experimentation. The Productivity Institute collaborates with the Institute for Government on sharing “Productivity Pitches” from practitioners across the public sector. There is a need for a systematic creation and sharing of what works and what not, for example, in collaboration with the What Works Centres.

But, at the end of the day, a long-term strategic approach is needed to make public sector organisations more productive. Short-term results are possible, but only when there is a culture of continuous innovation and experimentation.  It would be unwise to push for quick wins at the cost of a strategic approach to create more innovative public sector organisations which will deliver public services more efficiently while also serving the needs of citizens.