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Family Matters No. 36 - December 1993

Market principles and welfare

Toby O'Connor and Marise Sacco


This article provides an overview of some of the issues surrounding the application of privatisation and market principles to the not-for-profit welfare sector. The paper outlines reasons behind the push for privatisation and raises a number of issues to be addressed in the development of any new relationship between governments and the not-for-profit welfare sector. The paper indicates that there is a need for a greater depth of partnership between governments and the non-government sector in order that human values are the basis of decisions that ensure that scarce resources are used properly in hard economic times. Ultimately, the authors suggest, the questions to be addressed by governments and the non-government welfare sector are: (1) how far should Australia go down the road of privatised welfare; and (ii) what are the principles that should govern the privatisation of welfare services?. Critical comments on the authors' arguments are made by Don Edgar, Mark Lyons, Geoffrey Robinson and Sue Green.


The non-government social welfare sector has a long history of responding to the human needs of Australians, particularly those who are most disadvantaged. The environment in which these organisations find themselves operating during the 1990s is very different to the more prosperous times when there was provision of traditional 'charity-based' services offered to a small section of the Australian community.

Non-government social welfare organisations, like other institutions, have much to offer in the development of appropriate local and national responses to the needs of those Australians who are disadvantaged and marginalised.

From a broad perspective the questions that need to be addressed by Australian institutions and the social welfare sector are:

  • What sort of society will Australia be at the beginning of the next century?
  • What form will our Australian identity take and how should the non-government welfare sector best deal with the changes that are currently occurring and prepare for the future of our society?

The non-government social welfare sector is well positioned to be a significant player in responding to the increasing social demands and needs of Australians who are in crisis. The sector has a significant and unique contribution to make to the development of the social rights of Australia's citizenry. These rights must ensure that people have an entitlement to be cared for by their community and need to pay particular attention to the place of the growing numbers of long term unemployed people as active participants in the life of the community.

The sector must initiate a process that brings about a new partnership with Commonwealth Government and State/Territory Governments. This partnership will assist Governments to implement their primary responsibility of caring for all citizens.

This article should not be read as a criticism of Governments. It signals a call for major changes in the relationship between Governments and the not-for-profit welfare sector. These changes should be brought about for the good of an emerging Australia with a new identity.

The focus of change needs to be about the process of privatisation that all Governments have embarked upon around Australia that are stifling the approach and service that the not-for-profit welfare sector can provide to people in need.

Privatisation principles are, in the main, incompatible with principles of social welfare and the care of people in need.

The future relationship between Governments and the not-for-profit welfare sector must disengage from the current privatisation process and the market values that Governments are using.


The purpose of this discussion is to provide an overview of some of the issues surrounding the application of privatisation and market principles to the not-for-profit welfare sector. The paper outlines some reasons behind the push for privatisation and raises a number of issues to be addressed in the development of any new relationship between Governments and the not-for-profit welfare sector.

The paper indicates that there is a need for a greater depth of partnership between Governments and the non- government sector in order that human values are the basis of decisions that ensure that scarce resources are used properly in hard economic times.

Whilst the paper takes the view that privatisation, per se, is not wrong, it is argued that when privatisation is applied to the welfare sector care needs to be taken to ensure that the needs of people and their dignity do not become subservient to privatisation's market principles. This application needs to take account of certain guidelines which ensure that social welfare services are maintained for all people at all times.

Ultimately the questions to be addressed by Governments and the non-government welfare sector are: (i) how far should Australia go down the road of privatised welfare?; and (ii) what are the principles that should govern the privatisation of welfare services?

If Governments and the non-government welfare sector are to continue to work together, any redefinition of the Governments' or the sector's role in the provision of welfare services needs to be jointly discussed. To many non- government welfare organisations this dialogue will represent an opportunity to develop a new relationship with Government. This relationship must recognise that in a true partnership each partner has a unique contribution to make.

Governments should contribute to determining priorities in conjunction with the non-government sector and the people who are being assisted; the allocation of adequate funding and resources; and, ensuring that there are adequate measures of accountability in place. These functions fulfil the role of government.

Privatisation must not be seen as a means to justify any abrogation of responsibility by Governments or any diminution of Government resources.

Non-government organisations should continue to: direct services to people in need; advocate on behalf of people; and, identify unmet human needs. In providing these services in partnership with Governments, non-government organisations need to operate with the knowledge that the culture and philosophy of organisations will be respected by Governments and their agents.


Privatisation can generally be described as involving the transfer of responsibility for part or all of a service from government to the private sector (Taylor and Pittman 1992; Le Grand and Robinson 1989).

A more detailed description of privatisation can be obtained from Figure One which illustrates that this transfer of responsibility can occur along a continuum defined by the interaction of funding, auspice and competition. In this diagram, government responsibility and market involvement are depicted in relation to funding and auspice.

In the accompanying Figure the following five positions can be outlined:

A. The State is responsible for funding and providing particular goods and services through owning and operating public institutions and employing personnel to deliver the goods and services (for example, Commonwealth Rehabilitation Service, public hospitals, courts).

B. The State uses public funds to subsidise the cost of goods and services provided by the private sector in order to ensure that all citizens requiring such goods and services have access to them. The private sector relies heavily upon the State subsidy to operate and accepts State regulation in all facets of service delivery (for example, marriage counselling, family support programs, child care fee relief).

C. The State uses public funds to purchase goods and services from the private sector to ensure that all citizens requiring such goods and services have access to them (for example, Home and Community Care services, aged care residential facilities, prisons). The State has less direct intervention within the organisations providing the goods and services compared to position B.

D. The State has no responsibility for providing, subsidising or purchasing goods and services offered by the private sector but regulates the provision of these goods and services to ensure that specific standards are met (for example, the banking industry).

E. The State has no responsibility for providing, subsidising, purchasing or regulating the provision of goods and services offered by the private sector. The goods and services are subject to the full market forces of price and competition.

In summary, privatisation can take many forms. Some privatisation schemes seek the replacement of the State (A) by the market (E). Other schemes seek to replace one form of state activity by another vis-a-vis a reduction of State provision coupled with an increase in State regulation of service providers (B, C and D). Still other schemes seek to support and encourage the activities of those organisations such as charities, community and client associations, in the private sector that are neither a State enterprise nor a for- profit organisation (B and C).


Privatisation is based on the notion that through competition (that is, the market) the most efficient and effective services are provided. The attractiveness of a market model is that it involves minimal intervention by the State and diminishes State financial contributions.

In a market economy, services are directly accountable to individuals as consumers who are regarded as the integral driving force of the market. In order to understand the concepts of efficiency, effectiveness, accountability and individualism, it is helpful to overview the meaning of the term 'market model'.

Market model - the supply and demand argument

According to economic theory, demand will fall in the market place as prices rise. Conversely, supply will increase as the price rises. As a result of this principle, the price for commodities (that is, goods or services) can be considered as an arbitrary measure which determines who gets what goods and services. It is also used as a measure of the 'value' placed on a commodity by a consumer. When the supply equals the demand at a certain price a state of equilibrium exists within the market and maximum efficiency is said to be reached.

A price below equilibrium will result in a shortfall in supply (that is, a number of people would not have access to the services they require) whilst a price above equilibrium will result in a surplus in supply (that is, there are more available than are being demanded). Neither is efficient.

To achieve equilibrium in the market it is necessary for those supplying commodities to compete for customers. This competition is seen to result in greater efficiency in the use of resources and greater effectiveness in meeting customer demands since consumers who do not have their needs met with services of sufficient quality will withdraw their patronage. In order to retain customers a service provider must be accountable to the consumer by responding to consumer demands and setting competitive prices which ensure that their clientele does not take their patronage to a competing provider. The market dictates that those providers who are unable to compete will go out of business (Baumal et al.1992).

Within a competitive market there are a number of mechanisms which ensure efficiency, accountability and effectiveness.


Proponents of privatisation believe the private or for-profit sector is more efficient than the public and private not-for- profit sector because of the profit motive, accountability to clients, shareholders/financiers and competition between service providers.

For-profit organisations are obviously interested in making a profit. To ensure a profit they must attract and retain sufficient clientele. In order to retain clientele they must utilise resources efficiently, to effectively supply the quality and type of service at the right price. Other for-profit organisations compete for clients by offering similar or better quality or types of services at minimum cost. So it is that the need to make a profit within a competitive market ensures that organisations are efficient and that client needs are met effectively. A balance has to be reached, within each organisation, between making a profit (staying in business), price levels and quality of services. Organisations which do not maintain this balance face the prospect of bankruptcy. Equilibrium is reached in the market place, when a balance is obtained in the number of organisations operating; the types of services offered; the quality of these services; and the prices demanded for these services.

A public enterprise, it is argued by supporters of privatisation, is not subject to bankruptcy or market takeovers and so has little need to be constantly reassessing its performance and market position. The provision of services is supposedly inefficient because services are not provided at the minimum cost. Public enterprises and public subsidy of services provided by the non-government sector are seen to encourage consumers to demand more of the service than if they were required to pay the true cost (Le Grand and Robinson 1989).

The public purse also ensures that the enterprise does not go bankrupt. Without this threat less emphasis is required on assessing performance and market position. It is argued that this results in little incentive to economise and restrain wages and therefore public enterprises are often criticised for becoming over capitalised and over staffed.

Many of these arguments can be and have been applied to the not-for-profit sector which is partially reliant on Government funding and/or subsidised client fees. It is claimed that these organisations lack the profit motive, are not subject to competition and lack accountability mechanisms.


Private enterprises, and their performance in the market place, have a high degree of accountability to their clients and/or the shareholders or financiers of the enterprise. Shareholders have a personal interest in the effective monitoring of an enterprise. Managers of private enterprises seek to maximise the enterprises's profits in order to prevent takeovers by those enterprises in competition.

Private enterprises are directly accountable to their clients. Enterprises which are funded by client payment/fee- for-service, have a vested interest in retaining and increasing client numbers. It is therefore in their self-interest to provide appropriate quality services which meet their clients needs. If they do not the discerning client will remove their patronage of the service.

It is argued that public enterprises can be less efficient than private enterprises because managers are not directly accountable to shareholders for the performance of the enterprise, their remuneration bears little connection to the performance of the enterprise and their tenure is not related to performance indicators such as profit.

Public enterprises, and private enterprises receiving public funding, are accountable to the Government through a specific Government Department. According to market theory, where the nexus between client and enterprise is broken, neither party obtains a true value, based on the price mechanism, for the services (Gilbert 1984). It becomes the responsibility of the Government Department to assess the quality of service provision and clients needs.


For-profit organisations effectively meet consumer demand by providing only those goods and services demanded by consumers that can be delivered at a competitive price within the market. Effectiveness is concerned with quality as determined by the consumer's patronage of specific goods and services that satisfy their individual need. It is therefore the consumer who judges the effectiveness of a service.

The public sector, it is argued, is less effective in responding to local need because it provides a range of goods and services determined by Government as necessary to the greatest number of citizens eligible to receive them. Supporters of privatisation argue that it is very difficult for a third party not directly involved in the service delivery (that is, Governments) to measure the quality of services provided. There is also a tendency for the public sector to define effectiveness in terms of quantity, that is, the greatest number of people who can receive the goods and services, rather than the quality of the products.

Not-for-profit organisations achieve effectiveness in a manner similar to the for-profit sector with additional criteria based on the philosophies enshrined in each organisation's charter. These organisations therefore view effectiveness as providing the highest quality services to the greatest number of clients with the available resources.

Over the past decade all Governments have applied the mechanisms of the market, that is, efficiency, accountability and effectiveness, to the public sector in order to streamline costs and provide improved services.


Within the market model, individuals are regarded as 'self- maximising rational consumers'. That is, individuals are always, and only, interested in their self interest; they make only rational decisions based on full knowledge of all their options; and they are able to obtain goods and services in the market place. In this way the person or client becomes a rational consumer or customer.

Economic theory seeks to define the individual as 'the supreme and fundamental good, and the interests of community or society have to be subordinated to the individual's interest. Where individual interests and the interests of others or common interests seem to clash, the individualist will put what he considers his own interests first' (Burke 1993; p.7). Individualism is an enemy of community.

In recent years, there has been an increasing public acceptance of the role of individualism within the community. This acceptance is based on the notion that it is the individual who is responsible for themselves and by taking this responsibility many social and economic problems would be solved. Accordingly Governments must not interfere with individual choice .

Opponents of privatisation argue that pursuit of the ideology of individualism allows the worst aspects of human nature to flourish at the expense of weaker, less able or represented members of society.


Traditionally private not-for-profit welfare organisations in Australia have delivered their services with a proportion of Government financial assistance. There has been a long standing relationship between Governments and the not- for-profit welfare sector whereby Governments provide direct funding to the sector while influencing, but not necessarily controlling, the type, quality and quantity of service to be delivered to specific areas and/or client groups. The situation is described by positions B and C in Figure One.

However, the welfare sector is in the midst of change. It is being subjected to an enforced identity change and the adoption of market values that are the antitheses of the values that underpin not-for-profit services to the community. Government bureaucratic practice, if not deliberate Government policy, is shifting from providing broad based subsidies in a spirit of cooperation and partnership to the use of market constructs such as contracts, tendering, versions of voucher arrangements, the encouragement of fee for service structures, outcome performance indicators and quality control structures. These constructs are leading to a model of non-government welfare service stripped of its own values, identity and autonomy. Like market franchise systems, services would simply mirror a corporate identity, value base and service.

The irony is that in a process of co-operating with Governments to become more efficient, effective and accountable, the not-for-profit welfare sector is, in effect, being subjugated to a particular form of privatisation. Governments are shifting more responsibility onto the not- for-profit welfare sector for market-based outcomes in the delivery of services. At the same time Governments are taking increased control of identifying priorities and targeting needs, setting standards and linking outcome performance indicators and efficiency controls to the prospects of continued funding. A situation of distorted responsibilities and accountabilities is occurring within a clash of very different and incompatible values between a market values approach by Government and a social responsibility values approach by the not-for-profit welfare sector.

The approach of Governments to the provision of welfare services in Australia has concentrated on issues of efficiency and effectiveness in order to deliver necessary services with limited available funds. This approach, with its market values, is however developing into a serious threat to the welfare sector's ability to: (i) place the dignity of people first, above government demands for its version of market values, and (ii) provide accessible services particularly to the most disadvantaged in the community.

The formal positions of Governments on this matter is quite ambivalent. At a Commonwealth level whether Government programs and services are provided by one of the levels of Government, the not-for-profit non-government sector or the for-profit sector is seen as being 'of little importance' (Staples 1992). Accordingly, the ability to access services is seen to rely less on the type of service provider and more on the Government's ability to monitor and evaluate the services (Staples 1992). The private welfare sector, both for-profit and not-for-profit organisations, is viewed as a vital element in delivering services efficiently and effectively (Blewett 1992).

The position of State/Territory Governments to the issue of future privatisation of welfare services varies considerably. The ACT Government holds the view that privatisation is being advanced to disguise Government cuts to services and that proposals to tender for services has 'more to do with penny pinching than the quality of services' (Follett 1992). At the other end of the spectrum, the NSW Health and Community Services Social Policy Directorate indicates that continuing economic constraints of Governments will expose the welfare area to further market influences (Schwager 1992).

Still further is a view proposed by Western Australia that another model of privatisation exists in the form of unpaid caring and support provided by families and friendship networks (Semple 1992). Although some commentators define unpaid voluntary work within the privatisation continuum (Evatt Foundation 1989) theoretically, such a position cannot be accommodated by the market model outlined in Figure One although the ideology of Individualism would welcome such an approach.

The evidence of gradual privatisation and the conflicting views of Governments at the very least indicates the need for concerted and formal dialogue between Governments and the not-for-profit welfare sector.


Governments expect us to count clients, display them, sell them, and exploit them. It can be the most disgusting act of indignity imaginable and says much about Government expectations of welfare agencies. (Usher 1992)

There are essential incompatibilities between an individualistic market philosophy and welfare services based on social values of caring for each person. As indicated by Usher, this is particularly so for services delivered by not- for-profit welfare organisations. Full privatisation of welfare services is incompatible with the role of Government and the not-for-profit welfare sector.

In order to recognise these incompatibilities it is necessary to understand the value framework out of which not-for-profit welfare providers operate.

Social responsibility

The philosophy of social responsibility argues that people are communal beings and share a responsibility one for the other. This responsibility forms the basis of a 'social contract', the 'social wage' or 'rights of citizenship'.

It is through the social wage that Governments, particularly the Commonwealth Government, implement their social responsibility to redistribute the revenue obtained through taxation, to those in need. Thus Governments retain an ability to redress inequalities which develop within a market economy. In this view the Government acts as a buffer between the individual and the market where required. Governments who disown this responsibility abdicate their legitimate role in social policy.


Solidarity recognises that each of us, as human beings, have the same human dignity which must be equally protected. Each of us are seen as individuals within a society of other individuals, linked together by the bonding of our humanity (Sollicitudo Rei Socialis para 38).

The philosophy of solidarity requires that all social structures established in community ought to be inclusive rather than exclusive. They should offer every person proper access to essential services such as health care, education and welfare on the basis of a right.

The common good

As social beings people find their fulfilment not in isolation from each other, as in the free market, but in society interacting with each other. Each of us are joined in a pact of solidarity to be responsible, each for the other and for the good of all society. For-profit enterprises enter the social milieu to provide goods and services required by individuals as determined by the market.

It is the wellbeing of the society or the common good that must be a goal for all social policy. In discerning the common good it would be a mistake for Governments to assume that services to the majority necessarily attains the common good. One of the basic yardsticks of the common good is ensuring that the human dignity of the most disadvantaged in our community is enhanced (Pacem in Terris para 11).

The commitment that the not-for-profit non-government welfare sector has to a philosophical framework similar to the above gives rise to outcomes beyond those expected or funded by Government. Whilst an organisation is accountable to Government for those programs that are delivered using financial contributions from the Government, there is little recognition of the problems of applying the same accountability criteria to that portion of the program funded from the organisation's own resources. Without the commitment of the welfare sector to subsidise the real cost of providing programs on behalf of the Government significantly fewer services would be available to those in need.

The commitment of the community to these principles results in the not-for-profit sector's ability to raise approximately one-third of operating expenses from non- government sources (CSV 1992). Some organisations raise more e.g. a recent survey of 71 Catholic social services in Melbourne indicated that they raised over 40 per cent of their operating costs.


The Commonwealth Government has clearly articulated in its social justice policies that the key to public administration reform can only be achieved by placing 'a premium on efficiency and effectiveness in the delivery of services including social programs' (1992-93, p.3). State and Territory Governments are committed to similar policies due to declining economic growth and revenue.

If Governments apply market-based efficiency and effectiveness as the sole determinants of welfare service viability, major incompatibilities of values and dilemmas are inevitable for the non-government not-for-profit welfare sector.

Cost efficiency versus Human dignity

The market model states that cost efficiency and effectiveness determine the value of a service. Not so in the not-for-profit welfare sector where the primacy of human dignity is paramount.

The human needs of people, especially the disadvantaged and poor, must be the determining principle in the delivery of services, even if some programs are cost inefficient and effectiveness outcomes are difficult to measure.

Consumerism versus Human needs

Consumers 'choose' to purchase goods or services with the purchasing power they possess as members of the market community. If a product is not of an appropriate standard the consumer has the freedom, in a competitive market to go elsewhere.

In the not-for-profit welfare sector people in need are not to be treated as consumers. This would degrade their human dignity. People in need do not always have the resources to purchase the necessary goods and services. Moreover, people who are disadvantaged and powerless members of the community have limited ability to choose a service and do not possess the freedom to 'shop around'.

The community must respond to the needs of each person not with the values of the market but with the human values of care and understanding which enhance that person's human dignity.

Fee-for-service versus Universal access

The market driven values of privatisation encourage the introduction of fee-for-service arrangements. A 'user pays' system is regarded as a fair and equitable means of deciding who is to receive access to limited resources.

In the not-for-profit welfare sector such arrangements are the antithesis of the community's responsibility to ensure accessibility to support services for all people especially the disadvantaged and poor. Only those systems which seek to provide unimpeded access to services respond adequately to the human dignity needs of citizens.

Contract and tenders in the market versus Contracts and tendering in the not-for-profit sector

Market values rightly indicate that in the market economy the contracting and tendering processes mean that joint responsibilities and duties are formallY stated and legally binding with the tendering process ensuring that through competition the most cost effective service is provided.

In the not-for-profit welfare sector these processes can impede the quality of services delivered. Tendering in the welfare sector is about lowering the cost to the funding agent of providing a service. Introducing competition will put additional pressure on organisations to reduce the quality of services in order to stay competitive. Once an organisation has achieved a streamlined administration, cuts will be made to those aspects of professional services not directly related to service delivery e.g. under qualified staff and staff supervision.

Stigmatisation versus Right to service

In a market economy, those consumers who do not have the ability to purchase goods and services are redefined as 'the deserving poor' allowing access to the largesse of the community to have their needs met.

The not-for-profit welfare sector seeks to provide those goods and services essential for wellbeing that are beyond the purchasing power of some members of the community. All members of the community, especially the economically disadvantaged, are seen to have a social right to receive such goods and services without the stigma of 'charity'.

Centralised focus versus Local need

It is possible for the market to reflect local needs thereby meeting the requirements of local communities. However, in the instance of market failure (where a profit cannot be made) services will not be offered unless Governments retain the auspice and funding to provide the service. Governments need to provide some flexibility in their funding arrangements so that local non-government organisations can deliver services which reflect local needs.


The following principles should be used as a guide by Governments and non-government organisations when applying the concepts of privatisation to welfare services in Australia:

Role of government

Governments are elected by the community, to whom they are accountable, and are entrusted with the responsibility to serve the interests of the whole community. Good government is concerned with more than sound market- based financial management (ACSWC 1993a; b).

Social responsibility

Governments have a responsibility to ensure that those of its citizens who are disadvantaged or poor have a guarantee that their needs will be addressed. As part of its social justice commitment, the Commonwealth Government recognises that it must retain 'a central and ongoing role in ensuring that social welfare services are widely available' (Blewett 1992).

Those who provide support services have a responsibility to ensure that these are delivered in a manner that supports each individual's human dignity. Adequate resources must be available to ensure that the least well off in the community have access to basic welfare support services and any move to privatise these services must not be used to justify an abrogation of government responsibility to provide adequate resources and services.

Rights of the individual

Governments and community organisations have a duty as participants in a democracy to promote and protect the rights of those in the community, especially those who are disadvantaged. Particular care must be given to ensure that all citizens are enabled to participate in and contribute to all aspects of community life.

Preferential Option

Those in the community who are disadvantaged should be provided with substantially better opportunities than those opportunities available to the general community. Better opportunities refer to issues such as access to, availability, quality and appropriateness of services. It may sometimes be inappropriate to apply the concept of efficiency, in terms of minimising prices per maximum unit output, to this principle.


Discussion about the role of the State and the role of not- for-profit welfare organisations which provide social services to the disadvantaged have occurred since the introduction of the British Poor Laws in 1834.

At a federal level whilst there have been many initiatives to reform aspects of Australia's welfare system, particularly during the 1970s and 1980s(1), little attention has been given to the relationship between the Commonwealth and the non-government welfare sector. A recent Parliamentary review of funding to welfare and health bodies(2) conducted in 1991 focused only on national peak organisations and how their expertise could best be harnessed by the Government. These views have taken little account of the increased Government purchases of services from the non- government sector since the 1960s (Gilbert 1984).

The Commonwealth's forthcoming Industry Commission inquiry into charitable organisations is welcomed only in so far as it considers the inter-relationship between Government and the not-for-profit non-government welfare sector rather than as an apparatus to limit the legitimate mandate and operations of the sector. Since 'charitable organisation' is a term applying legal status under the Tax Act, the appropriateness of any review of the effectiveness of Government funding to the welfare industry should not be confined to charitable organisations. Community not-for- profit and for-profit organisations must also be invited to participate in the review.

The major responsibility for providing welfare services in Australia belongs with the States and Territories. However, whilst the States have turned to the not-for-profit sector to deliver a variety of welfare services to the community the relationship between Governments and the sector has relied upon the realisation of common objectives. Some might argue that the sector has played a subservient role, in the relationship because they rely upon Government grants to continue operations.

In 1992 the Commonwealth had over 90 non-statutory bodies to provide advice to the Minister of Health, Housing and Community Services in the activities and services of the Department (1991-92 Annual Report). None of these bodies had a specific mandate to advise on the role of the non- government welfare sector to deliver programs on behalf of the Government or the relationship between the Department and the sector. Most State Governments have also established Community Welfare Advisory bodies to advise State Ministers on matters relating to community welfare and social development. Due to the purview of these bodies, there is little ability to review the relationship between State Governments and the sector, although the recent Community Services Sector Review in South Australia offers an opportunity in that State.

The 1990s present an opportunity for non-government welfare organisations to develop a new partnership with Government. Recognising the need for increased co- operation between Government and the non-government welfare sector, the Deputy Prime Minister has acknowledged that 'no one sector has all the answers' (Howe 1993). As one State Director of welfare services has pointed out, the issue of cooperation is primarily a political issue which 'required resolution by Governments rather than the public service'.


The Australian Catholic Social Welfare Commission calls on all Governments to establish a new partnership with the non-government not-for-profit welfare sector.

This new partnership must acknowledge the incompatibility of the market values of privatisation with the values that underpin social welfare.

Recognition must also be given to the not-for-profit welfare sector's ability to develop and use self regulating mechanisms that would ensure that efficiency, effectiveness and accountability are addressed by the sector whilst maintaining the dignity of clients and high quality accessible services.

Governments need also to acknowledge in a new partnership that while public funding to the not-for-profit welfare sector is significant it is substantially supported by private monies.

A formal mechanism is required to facilitate open dialogue between the Commonwealth Government and State and Territory Governments and the non-government welfare sector. This mechanism must recognise the need for increased co-operation and the unique contribution that both parties bring to the delivery of welfare services in Australia.


(1)Royal Commission on Australia Government Administration, Report of the Health-Welfare Task Force (1975), Canberra: AGPS. Task Force on Co-ordination in Welfare and Health, First Report(1977), Canberra: AGPS; Second Report (1978), Canberra: AGPS; Report from Senate Standing Committee on Social Welfare, Through a Glass Darkly: Evaluation in Australian Health and Welfare Services (1979), Canberra: AGPS. Social Security Review (1986-88).

(2)House of Representatives Standing Committee on Community Affairs, A Report on Funding of Peak Health and Community Organisations (1991), Canberra: AGPS.


  • Australian Catholic Social Welfare Commission, Catholic Social Welfare, 1993(a), Vol 2 (1), Canberra.
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  • Schwager, J. NSW Ministry of Health and Community Services, Social Policy Directorate, Correspondence, October, 1992.
  • Semple, D. Department for Community Services, Western Australia, Correspondence, November, 1992.
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  • Staples, P. Minister for Aged, Family and Health Services, Correspondence, October, 1992.
  • Taylor, J. and Pittman, S. 1992, Moving Along the Privatisation Continuum: A Family Action Resource Paper, Melbourne.
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This paper was originally published in Catholic Social Welfare, Vol.2, No.2, May 1993 - a publication of the Australian Catholic Social Welfare Commission. We thank the Commission for their permission to reprint the paper.

The Australian Catholic Social Welfare Commission is established by the Australian Catholic Bishop's Conference with a mandate of advocacy, co-ordination, support, research and advice in the field of social welfare. As part of this mandate, the Commission puts out public statements and promotes public discussion, on the understanding that views expressed in the statements are its own.

For further dialogue on the themes contained in this paper contact: Fr David Cappo, National Director or Mr Toby O'Connor, Deputy Director, Australian Catholic Social Welfare Commission, PO Box 112, Curtin ACT 2605. Phone: (06) 2851366. Fax: (06) 285 2399.



Over the course of history, four elements have been put forward as the basis for a just ordering of society: equality, merit, utility and need. Christians have insisted on the equality of all people, but so have Karl Marx and Bertrand Russell. Aristotle stressed merit and effort and so do most people in any society. A strong pragmatic tradition speaks of utility, that is, that a society should simply seek to do those things that will bring the greatest good to the greatest number of people. All religious traditions have emphasised the needs of the poor and weak and so do many humanists. It is obvious that there are strong arguments in favour of all four elements, but it is very difficult to hold all four in balance.

The Great Depression was so overwhelming that it was obvious to all that many people of great merit had been reduced to poverty, so equality and need tended to come before merit and utility. Long before the 1990s, however, the pendulum had swung again and merit and utility have been crowding equality and need.

One of the forms this has taken in recent years is the idea that welfare should follow more closely the laws of the market place, with a strong emphasis on efficiency and market competition to deliver a 'product'. These ideas have been summed up by the word 'privatisation'.

It is obvious that there are arguments in favour of partial of complete privatisation of Qantas, the Commonwealth Bank and a number of other Government assets. It is equally obvious that the delivery of all forms of welfare should be as efficient as possible. Despite this, there must be serious reservations concerning the language and practice of the market place in the field of welfare.

This is the issue that this paper seeks to address. All Australians need to think about the kind of Australia they want and I recommend this paper to the serious consideration of all.

Bishop Geoffrey Robinson is Secretary of the Bishops' Committee for Social Welfare



The paper 'Market Principles and Welfare marks a turning point in Australian social policy discussion. The next decade must be, as the ACSWC insists, one where new partnerships are developed between governments, businesses, private welfare agencies and families themselves.

The past decade, it seems to me, has been marked by the dying gasps of outmoded ideologies. Not just the grand ideologies of communism versus capitalism, but dogmas based on the welfare state versus free market, private versus public nexus.

The time has come to recognise that it is not only a government responsibility to provide 'the social wage', but that the policies and actions of business and community groups also affect access, equity, relative wellbeing, every aspect of the social wage.

While I agree with the paper's argument that the market model of supply and demand is not a more effective way to ensure fair access to needed services, it may be time to challenge also the 'top-down' service-delivery model of many welfare organisations as well. Dependence upon government funding is not conducive to innovation, flexibility, responsiveness to changing community needs. Professional 'we know best' attitudes can be just as inhumane and demeaning as a consumer framework. Rigid rules, office hours, delivery modes in the welfare industry run parallel to those in other areas of the labour force. And there is often too ready a jump from 'needs' to 'services', rather than asking whether 'resources' that people might draw on in their own ways might meet those needs more effectively than services.

What the paper implicitly calls for is an end to the simple dichotomies of private/ public, individual/community, self interest/the common good, centralised/local; but I'm not sure the implications are yet fully understood or worked through.

For example, although it is doubtless true that 'where a profit cannot be made services will not be offered unless Governments retain the auspice and funding to provide the service', it does not follow that all needs require services, or that a central body should dictate what those services or resources should be. Businesses, schools, community groups are capable of joining together to devise new strategies for meeting needs, strategies that may not cost a lot of money, not require lots of staff but rather new ways of working with existing resources. This is the approach we have taken with the 'New Links Workplace Project', and though we will monitor the 'cost-benefits' (in terms of reduced absenteeism, staff turnover and improved productivity), the essential message to corporate employers is a moral one: They have an equal responsibility for community welfare; their outmoded work practices damage people's lives and they can no longer get away with the illogicality of blaming governments, complaining about high tax costs, yet at the same time saying 'welfare' issues are for government, not for private business to worry about.

The notion of 'the common good' needs a much higher profile, for the essence of modern society is not fragmentation but inter-dependency, each part contributing to the efficient (and decent) functioning of the whole.

There are signs of change. Business leaders are realising that healthy profits depend upon healthy people, healthy families, a respect for workers as 'whole' people living in a more caring community. These issues were covered in an Address at the 1993 World Congress of the Business Council for the United Nations, New York by Michel Camdessus, entitled 'Cooperation for Development and Transition to Market Economies - The Way Forward'.

Even the Committee for Economic Development of Australias recent report on Vision 2000 by Fred Argy pushes this more holistic, better balanced perspective.

The message is that welfare cannot be privatised. It is the concern of every part of the community. The Catholic Social Welfare Commission's paper is a valuable contribution to this new wave in social policy.

Dr Don Edgar is the Director of the Australian Institute of Family Studies



'Market Principles and Welfare is an interesting paper on an important topic. It is, however, flawed in several important respects.

The paper assumes that the state in Australia has taken responsibility for welfare services but uses private, not-for- profit organisations (PNFPOs) as agents. This is to misread history and current arrangements. Human services were initially the exclusive preserve of PNFPOs in Australia but their inability to meet needs soon involved the state in subsidising them. Then, as some services came to be seen as a right to be available to all, the state came to provide services. In education, health and income security, the state was the major provider as well as funder by early this century. No so in welfare or community services. There the process of 'voluntary failure' which has led to state expansion has been far less pronounced. Australian governments significantly subsidise but provide relatively few community services directly. Because there is relatively little direct government service provision, there has been relatively little privatisation (or movement from positions (A) to positions (B) or (C) in the model). Indeed, there have been equally important cases of nationalisation or movements from (B) to (A) - as with the Homecare Service of New South Wales.

The paper wrongly assumes a single movement by all governments in applying marketing principles to welfare service provision. While the Commonwealth government (and now, apparently, Victoria) has been moving towards voucher type funding, the states have been moving towards greater bureaucratic control. This utilises what are called contracts, but there is nothing of the free market in the way they are developed or applied. Basically they involve governments using their monopsony power as dominant purchasers to pay something less than the full cost of the service.

In that regard, it could conceivably be to the advantage of PNFPOs if governments did invite competitive tenders for the provision of services and let the tendering process determine price. PNFPOs may then be able to cover their costs from government payments. For similar reasons, it is not clear that vouchers would not work to advantage both low income users of services and providers of services - providing governments did not again abuse their monopsony power and set the value of the voucher too low.

This leads to a final criticism of the paper. Because it sees PNFPOs as agents of the state, it radically de-emphasises their autonomy. Recent shifts in government policy, whatever they are, do not strip PNFPOs of their 'values, identity and autonomy'. PNFPOs obtain their income from a variety of sources: government grants or government fee relief is the major source, but they also charge fees to users that can afford them; they raise funds from the public and business and from their own investments and they operate associated business ventures. The CSV study of PNFPOs that receive grants from that department may have found that those grants constitute two-thirds of their income, but a 1981 Australia wide study of a sample of all non- government welfare organisations (and not just those receiving government grants), found that on average less than 40 per cent of their income came from government sources.

There is a need at this time to review the future directions for community services in this country, but the starting point for such a review must be the private, non-for-profit organisations which provide more than half of those services. They should recognise their dominant role in the industry. Together with consumer groups amongst their members, they should invite governments to participate in a review and to indicate where they (that is, governments) think they are going.

Mark Lyons is an Associate Professor in the School of Management at the University of Technology, Sydney, and Director of the Universitys Centre for Australian Community Organisations and Management. Between 1986 and 1989 he was Director of the Australian Council of Social Service. He has been a member of the ACOSS board and the board of the Mercy Family Centre in Sydney.



This is a timely and clearly written article on the principles of privatisation. It illustrates the incompatibility in the cultures of thinking, language and underlying values between social policy which talks of human dignity and community good on the one hand and economic policy which talks of profit motives and competition on the other.

For those in the social policy camp there is an unsurpassable chasm in describing a young homeless person or a disabled child as a 'self managing rational consumer'. Sadly, however, the economic discourse is the dominant ideology of current times.

A significant part of the problem is that economics does not have the framework for reflecting the differing dynamics of non-profit service provision. Welfare services meet basic needs rather than 'consumer wants' and are in greatest demand when 'consumer spending power' is poor or absent. They are already 'privatised' given the significant investment from volunteers in both management and service delivery. Furthermore, voluntary labour contributions and income from donations and other sources represent close on a 50 50 investment in many services when properly costed.

The challenge for the non-profit sector is to demonstrate these differences and to negotiate a new social contract and overall policy and planning framework with government which is inclusive of the values of social responsibility. Otherwise the community good is threatened.

Sue Green is a Consultant in the welfare and social policy areas and part-time Policy Officer with the Victorian Council of Social Services.