Welfare Reform

Third Way

During the 1980s, public choice thinkers and the rest of the New Right dominated ideas and policies toward reform. The new public management contracting out the internal market and purchaser-provider splits are shaped largely by New Right concerns. Today, debates about reform are framed largely with reference to the third way. Advocates of the third way say that there is a need to rethink a commitment to the welfare state for a combination of the reasons previously mentioned. However, these individuals also reject the prescriptions advanced by the New Right. Advocates of the third way say that while the architects of the welfare state made a faulty assumption that public servants were always knights, public choice thinkers make the equally flawed assumption that public servants are always knaves. A public service ethic is an essential feature of welfare services, and there is a need to refashion services on the assumption that public servants are knaves and knights.

Supporters of the third way seek to steer a course beyond the governance arrangements of traditional social democrats and the New Right. If this denotes what the third way is against, it does not map out what it is in favor of. The third way is a large space that is compatible with a range of distinct, and sometimes contradictory, projects. Some individuals try to fashion a third way in funding by looking at ways that the public and private sectors may combine to build new hospitals, schools, and prisons. Public-private [Page 1019]partnerships and the private finance initiative are examples of attempts to develop models of funding that do not rely only on the public purse (as in traditional social democracy) or private finance (as with free market liberals). Innovations also occur in provision. The “new localism” is a recent attempt to recast the relationship between central and local institutions so that local autonomy plays a much more important role in the delivery of services. The new localism allows central institutions to play a role in the regulation of basic standards but permits local bodies to have considerable freedom over the setting and implementation of policy at a local level. Proponents of the new localism argue that in place of the one-size-fitsall model of state provision, there will be local variations to reflect local circumstances. “Public interest companies” are one way these services may be delivered. Public interest companies are organizations independent of the state charged with delivering welfare services in the public interest. Foundation hospitals are an example of the public interest company model. These hospitals are funded mainly from national taxes, although they can raise limited funds from capital markets for the purposes of investment. They have a stakeholder system of governance that provides patients, the broader public, staff, and partner organizations with representation within the governance of these hospitals. Foundation hospitals can be shaped in a variety of ways. Choice can be introduced by providing hospitals with overlapping jurisdictions and allowing patients to choose among different hospitals. Voice can be enhanced by providing stakeholders with greater opportunities to shape and make decisions.

...