ABSTRACT
How does the economic character of services differ by sector? The available empirical evidence on costs paints a mixed picture, and as with social housing, conceals very significant intra-sector variation. Domiciliary care is more costly on average under voluntary than for-profit sector auspices (Matosevic et al., 2001), but residential and day care are more economical in the voluntary sector than in other sectors. This is even after controlling for the cost-relevant effects of differences in user dependency. Domiciliary care’s relative costliness in the voluntary sector is probably largely driven by the higher average rates of pay these organizations tend to pay front-line care workers (cf. Chapter 6). The lower costs of the voluntary sector in other settings seems to involve different combinations of factors. In day care, volunteers’ labour contributions to local affiliates of national specialists (economizing on production costs; Knapp and Missiakoulis, 1982), and capital grant-makers’ preferences for the voluntary sector in a relatively unregulated and politically risky environment (as a way of economizing on transaction costs) are relevant (see Box 8.5). In residential care, by contrast, where relatively large traditional generalists and nonprofit social entrepreneurs dominate, technical economies of scale and scope, cross-subsidy from other current activities outside social care, and historically accumulated reserves allow voluntary organizations to be less costly and/or charge lower fees than their predominantly small business for-profit counterparts. On average, these ‘technical’ efficiency advantages seem to more than outweigh any off-
One of our national specialist interviewees argued that eligibility for public sector capital grants was a significant advantage for the voluntary sector over the for-profit sector in day care:
One of my favourite areas of our comparative advantage is if we want to build new premises for the delivery of day care, we don’t actually have to go to the market to borrow the money at existing rates to do it – although that may well be part of it. We can go to either public sector sources for capital grants, we have trusts, the Lottery for capital too, or we can go out and raise the money from the public. [As far as capital funding under the Department of Health’s general grant scheme of the 1968 Act is concerned] the for-profit sector is not eligible. I know of no statutory power which would enable a body to make a grant to a private sector organization for a property which would in the long term be an asset of that organization. There would be parliamentary questions, a major public row.
