These days, business groups and many politicians are calling for more and more contracting out of public service delivery. They say private companies can provide public services better and cheaper.
That’s the theory. The facts say otherwise.
Ontario has been gung ho about privatization for over 20 years now, so we have a pretty good idea how it works. In case after case, privatization has:
- Reduced service quality and public accountability by cutting the ties that bind government, service providers, and the public around common goals;
- Increased the price of services because of duplication, inefficiency, and the ever-present need of private companies to maximize profits;
- Eliminated good jobs with decent wages and benefits and replaced them with lower-cost (even minimum wage) labour.
The three case studies below show how we could improve public services, save hundreds of millions of dollars, and protect good jobs in Ontario. There are two ways to do this: bring contracted-out services back into the public service; or stop privatization from happening in the first place. In the case studies discussed here, the public option would improve public access and organizational efficiency; save the people of Ontario $425 million a year; and treat working people fairly by protecting and promoting the good jobs our economy needs.
The evidence is clear: “contracting in” of public services really is Better, Cheaper, Fairer.
Medical lab testing
Contracting in would improve public access and save $175-$233 million a year
At one time in Ontario, most medical diagnostic lab tests took place in hospitals. But today, if you’re not a hospital patient, you’re forced to go to a for-profit private lab in the community. Ever since the Mike Harris government changed the rules, private lab companies have been making big profits on tests even though hospital labs can do the same tests for less.
Using private labs has meant fewer options for Ontarians who need lab work done. When the Ministry of Health forced hospitals to close their doors to community-based patients, Ontarians lost more than 225 access sites. In 2010, the Ministry forced the not-for-profit Hospitals In-Common Laboratory (HICL) to sell its last remaining public collection centre even though HICL labs have a 25-30 per cent cost advantage compared to private for-profit labs. With 450 clients in Canada and the U.S. – and even with no community-based patients in Ontario – HICL returned $100 million in dividends to its member hospitals over eight years. All of that money helped fund public health care.
Ontario has among the fewest access points in Canada where patients can have samples taken for medical diagnostic testing. In 2012, 179,800 Ontarians walked out of for-profit labs without having their tests done because of long waits to have their samples taken.
Meanwhile, our public hospitals are restricted to inpatient testing despite having considerable capacity to take on community work. Almost all hospital labs are underutilized. Volumes that used to make hospital labs even more efficient than they already are have been lost to sustain a private industry.
Public hospital labs do medical diagnostic testing at less cost than private for-profit labs.
In 1997, the Ontario government initiated a pilot project in which 12 small rural and northern hospitals were given global funding to provide community-based testing. In a few cases these labs performed testing on samples collected by local clinics operated by the private labs. The project was not evaluated until 2008, when it was determined that these small hospitals were processing the work at an average cost of $22 per community patient per year compared to $33 for the for-profit private labs.
Similarly, when the Globe and Mail investigated the rising cost of vitamin D testing, they found BC private labs cost $94 per test, Ontario private labs cost $52 per test, and Ontario’s hospitals conducted the same test for $32. The Saskatchewan government lab performed at the lowest cost – at $17 per test.
Ontario spends about $700 million a year on private laboratory testing. By returning lab testing to the public sphere, savings would range from $175 million (25 per cent based on HICL model) to $233 million per year (33 per cent based on a report by RPO Management Consultants). Both these figures are conservative given that neither takes into account the efficiency gains hospitals could make as a result of higher volumes.
The majority of lab workers in public hospitals are unionized, and in some cases they have been for decades. Some private lab workers are unionized, but they are in the minority, and wages and benefits tend to be lower for private lab workers – sometimes shockingly low. Not surprisingly, public hospital lab workers tend to have better wages and benefits than private lab workers. (Also, the vast majority of public lab workers are members of the highly successful Healthcare of Ontario Pension Plan). These good public sector jobs sustain families and communities right across Ontario – all while delivering a vital medical service at less cost to the public.
Cutting off private contractors would save government $200 million a year – or more
Providing IT services to the government of Ontario is no small job. Running the networks, databases, and 68,000 computers that deliver the services Ontarians depend on costs about $1.2 billion a year. Of this amount, $703 million, or 58 per cent, goes to private vendors, whose share of government IT work has increased by 63 per cent in the past five years. This work could be done more efficiently, and at much less cost, if it were provided by IT professionals of the Ontario Public Service (OPS). But instead of contracting in, the government is pushing ahead with an aggressive privatization plan that puts the jobs of all government IT staff at risk.
The government has paid out more than $652 million in the past five years to three vendors for desktop services, server administration and network services. This is work that was once done, and is still done in some areas, by government employees. Here’s what the contracted-out service is like:
- It used to take government IT staff 30 minutes to two hours – at most – to image a desktop computer. The same request can take the hourly contractors between six to eight hours.
- Government IT staff who used to upgrade hundreds of “client” servers that power computer applications for 28 ministries are now required to provide instructions to the vendor’s hourly contractors. A single upgrade to 800 servers will require 800 identical requests. The government has more than 4,000 servers.
- Upgrades to the government’s servers are often held up because the vendor does not have staff during the available change windows – evenings and weekends.
- OPS employees who need a network jack activated so they can access the internet now wait up to three days for something that used to happen following a quick phone call to a government IT employee.
- Government IT staff who used to be down the hall ready to help their fellow OPS employees with a computer problem have been moved out of the worksite, adding another delay to the resolution of IT problems. (If the hourly contractor can’t fix your desktop problem, a government IT employee is called in. Government IT staff are the “safety net” for contractors.)
The Wynne government will put government data and e-mails at risk by closing 22 government data centres by 2016 and running an undisclosed number of computer applications through the privately-operated “Cloud.” This means the government programs that Ontarians rely on, such as social assistance, OSAP, and drivers’ license renewals, and even the government’s e-mail system, could run through the Cloud with data being stored outside of Canada.
This is unnecessary. The Guelph Data Centre, built at an estimated cost to government of $350 million over 30 years, has more than enough server capacity to meet the government’s needs now and into the future. In addition to being big, it is a highly-secure Tier 4 facility, built to withstand tornadoes and earthquakes.
The cost in lost productivity should be reason enough to end the contracting out of government IT work. The cost in lost dollars is even greater.
A 2012 consultant’s report for the Ministry of Government Services found that private contractors cost two to three times more than government employees for five out of six IT services. This explains, handily, why private IT contractors cost more than half the government’s IT budget even though private contractors’ employees are only 25 per cent of the workforce. If the $703 million being paid to contractors is double what public employees would cost, that means $351.5 million is being lost to company profits and inefficiency. Thus, even a very conservative estimate suggests Ontario could save $200 million a year by ending contracting out of IT services.
The Wynne government’s plan to expand contracting out of IT services will add to costs, not reduce them.
Private contractors routinely bill the government at $150 an hour, a far cry from the $26 earned by the lowest-paid government Systems Officer (SO) in OPSEU and still double what the highest-paid SO receives, even with benefits and pension costs included. Yet the employees and sub-contractors who make up much of the private sector IT workforce make substantially less than OPS wages. So what’s the deal?
The deal is this: the big IT companies who do most of the contracting work in the OPS make their profits in two ways: by convincing politicians that they do better work just because they are in the private sector; and by taking money away from their own employees. In doing so, they help turn good, middle-class jobs into lower-paid, more insecure jobs with fewer benefits.
The government should care about good jobs, especially when they cost less than not-as-good jobs. Yet the Wynne government plans to outsource desktop and field services as early as May 2015, meaning 265 OPSEU members will be out of work, and it plans to close the data centres in 2016, at a cost of up to 300 OPSEU jobs. In the end, the jobs of all government IT staff are at risk from privatization as long as government gives into the demands of IT contractors to make their profits off the public purse.
The Liquor Control Board of Ontario
Reining in private “agency stores” would boost government revenues by $570 million over 10 years
Last year, the publicly-owned Liquor Control Board of Ontario sold nearly $5 billion worth of beer, wine, and spirits, returning a dividend of $1.74 billion to provincial coffers.
With profits like that, it’s no surprise that private investors want a piece of the action. But they know government depends on that revenue. So to bolster their case for allowing more private sales of beverage alcohol, they argue that government could increase its revenues by (for example) allowing the sale of beer and wine in corner stores and grocery stores. By introducing price competition and greatly expanding the number of outlets permitted to sell alcohol, they say, sales would rise. Tax revenues would surge, and that would more than make up for any profits lost by government as a result of privatizing and liberalizing alcohol sales.
But this argument ignores an important fact: alcohol is not just another product.
Selling booze is one thing. Selling booze in a socially responsible manner is another thing altogether.
The LCBO was a “revolutionary innovation” when it was created in 1927. It was designed to balance the social need to reduce harm with the popular desire to drink, and it continues to do so today. The LCBO has moved with the times, giving shoppers an enjoyable, sophisticated retail experience that Ontarians are happy to support. When it comes to product selection and staff expertise, you simply can’t beat the LCBO. But a more important part of the LCBO is the way it reduces harm.
As an arm of government, the LCBO reduces harm through a number of research-tested methods: by limiting the number of retail outlets; through pricing policies; and through strong enforcement of the ban on alcohol sales to minors and the intoxicated. (Last year, LCBO staff refused service to 414,600 people.) The LCBO helps keep Ontarians safe.
The price of privatization
Those who want to privatize the LCBO always talk about the revenues that are possible from increased alcohol sales, but they never talk about the costs. Those costs are serious. Alcohol use is linked to:
- lost productivity at work and school;
- damaged relationships at home;
- dementia, cancer, and other negative health effects;
- drinking-related accidents that kill people and destroy property; and
- increased costs for law enforcement.
In strict financial terms, these costs exceed the total of all revenues to government from LCBO profits, licensing revenues, and taxes on alcohol. Based on a 2012 study by the Canadian Centre on Substance Abuse, the net cost to government of alcohol consumption in Ontario is approximately $650 million a year (in 2014 dollars).
From this, it’s obvious that government needs every penny the LCBO raises, just to offset the costs of alcohol consumption. What’s even more obvious is that boosting alcohol sales through privatization will cost government more, not less, as the social costs of increased drinking go through the roof.
The price of privatization is too high.
If the Ontario government wants to increase revenues from the sale of alcohol, increasing consumption through privatization is not the way to go. What is needed is a way to increase revenues without increasing consumption. Fortunately, we have a great opportunity to do that.
Currently, the LCBO sells alcohol through 216 private operators as part of its Agency Stores Program. Originally created in 1962 as a low-cost way to serve isolated communities, the program now serves many communities that could more profitably be served by directly-operated LCBO stores. In November 2010, a comprehensive study of the agency stores program showed that returning 103 of these high-volume agency stores to direct operation by the LCBO could increase gross sales of publicly-owned LCBO stores by $570 million over ten years, with a one-time investment required of just $370,000 per store, or about $38 million.
This cheap, easy, and profitable change would not require increasing alcohol sales or the social harm associated with it. Pursuing this strategy would be good for social responsibility and good for net government revenues.
Proponents of privatization don’t like to talk about what would happen to jobs in a liberalized liquor market. The reason is simple: while profits for private booze vendors would soar, wages and working conditions for retail and warehouse workers in the alcohol industry would deteriorate rapidly.
Frontline workers at the LCBO are unionized. A significant number have good jobs that allow them to live decently, bring their kids up the way they want to, and retire with dignity at the end of their careers. The large number of “casual” workers at the LCBO have less security and fewer benefits, but their wages are, nonetheless, above the minimum wage. Seasonal “fixed term” casuals currently earn $12.21 an hour; the starting wage for regular year-round casuals is $14.51 an hour.
Selling beverage alcohol in corner stores, grocery stores and gas stations would have an immediate impact on wages and working conditions. While some unionized grocery stores offer decent wages, benefits, and other protections, too many jobs in this low-paying sector are stuck at the minimum wage.
Keeping good jobs in Ontario means keeping good jobs at the LCBO.
Medical lab testing:
Ontario Coalition for Lab Reform (2013). “Bad Labs in Ontario – Waiting Too Long.” Fact sheet. Available at http://labreform.ca/wp-content/uploads/2013/10/Fact-Sheet.pdf.
—– (2013). “Public Brief on the Proposed Mega Lab to Ontario Ministry of Health and Long-Term Care.” Research brief. Available at http://labreform.ca/wp-content/uploads/2013/08/Mega-Lab-Merger-Report-1.pdf.
RPO Management Consultants (2008). Laboratory Pilot Projects Review – Final Report. March 31.
Sutherland, Ross (2011). “Private labs: A cautionary tale.” Canadian Nurse, June.
—– (2012). “The effect of for-profit laboratories on the accountability, integration, and cost of Canadian health care services.” Open Medicine, Vol 6, No 4.
Ontario Public Service IT:
Gartner Consulting (2012). ITS Infrastructure Tower Benchmarking: Final results, March 22. A highly redacted report was obtained by OPSEU through the Freedom of Information and Protection of Privacy Act.
Guelph Tribune staff (2011). “New data centre build to stand tall.” Guelph Tribune, April 5. Web edition: http://www.guelphtribune.ca/news/new-data-centre-built-to-stand-tall/.
Ontario Ministry of Finance (2009-2010 to 2013-2014). Public Accounts of Ontario. Toronto: Queen’s Printer for Ontario.
Ontario Ministry of Government Services (2011). “Guelph Data Centre is Leader in Energy Efficiency and Security.” March 31. News release.
Ontario Ministry of Government Services, I + IT Infrastructure Technology Services (2013). Progress Report: IT Rationalization.
Baillie, Ian (2014). “BYOBC: Strategies from BC on How Ontario Can Better Retail Beverage Alcohol.” Speech to the Economic Club of Canada. Toronto, May 9.
Campbell, Robert A. (1991). Demon Rum or Easy Money: Government Control of Liquor in British Columbia from Prohibition to Privatization. Ottawa: Carleton University Press.
Forrest, Ben (2014). “St. Thomas store named one of best at reporting suspected drunk drivers.” St-Thomas Times-Journal, July 4. Web edition: http://www.stthomastimesjournal.com/2014/07/04/st-thomas-store-named-one-of-best-at-reporting-suspected-drunk-drivers.
Liquor Control Board of Ontario (2014). “Challenge & Refusal: Preventing sales to minors and intoxicated adults.” Web posting available at: http://www.lcbo.com/content/lcbo/en/responsibility/responsibility/challenge-and-refusal.html#.VCGXd2d0xMx
Malleck, Dan (2012). Try to Control Yourself: The Regulation of Public Drinking in Post-Prohibition Ontario, 1927-44. Vancouver: UBC Press.
Masson, Paul R. and Anindya Sen (2014), Uncorking a Strange Brew: The Need for More Competition in Ontario’s Alcoholic Beverage Retailing System. Toronto: C.D. Howe Institute, Commentary No. 414, August.
Perreault, S. . Impaired Driving in Canada, 2011. Juristat. Statistics Canada Catalogue no. 85-002-X Ottawa: Canadian Centre for Justice Statistics, Statistics Canada.
Rehm, J. et al (2006). The Costs of Substance Abuse in Canada 2002. Ottawa: Canadian Centre on Substance Abuse.
Sen, Anindya (2014). An Economic Analysis of Increasing Competition in Retail Liquor Sales in Ontario. Oakville, Ontario: Ontario Convenience Stores Association.
Statistics Canada, CANSIM table 183-0019.
Thomas, Gerald (2012). Analysis of Beverage Alcohol Sales in Canada. Ottawa: Canadian Centre on Substance Abuse.
Thomas, Gerald (2012). Price Policies to Reduce Alcohol-Related Harm in Canada. Ottawa: Canadian Centre on Substance Abuse.