Posted by: olymponomics | June 9, 2012

The contracting state and Olympic risks

It has been reported that the firm at the centre of the diamond jubilee row over the use of unpaid stewards on work experience has a £850,000 contract with LOCOG to provide fire marshals at Olympic venues. Aside from the moral issues about the use of unpaid labour for private profit (which are worryingly reminiscent of some of the debates about poor relief in Victorian times), this highlights an inherent problem concerning the reliance of the modern state on the market to provide goods and services rather than direct use of public services (it also points to some of the potential consequences of opening up other sectors such as the police and the health service to private competition). The market is not constituted in such a way to provide an allocation of resources that is optimal to citizens as consumers. The withdrawal of private developers for the Olympic Village for London 2012 at the height of the global financial crisis is an example of the problem of moral hazard in the state contracting out to private firms – who are unwilling to bear risk (handing that back to the state), but still expect to collect the profits. CPUK apparently won its Olympic contract due to its competitiveness on price, whereas its rivals offered more highly trained fire-fighters. Contracting out to private contractors creates a tension between cost-cutting and service-orientation, with potential consequences for risk. This ‘survival of the unfittest‘ is precisely the problem that Flyvbjerg identifies in the selection of contractors for large scale infrastructure and construction projects: with the most optimistic bid having the highest change of winning. Contracting out is not a panacea for better service delivery and is a potential source of risk — privatising profits at the same time as socializing risk. It can also raise questions about the suitability of firms, and investigation of their record for good governance.

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  1. […] of the police privatisation threatened by the head of GS4 no less. The problem of moral hazard is not just confined to contracts in the realm of security, however. Share this:TwitterFacebookLike this:LikeBe the first to like […]


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