A large and growing proportion of Australia’s service sector operates outside of the market. Demand for these non-market human services is rising, driven by the ageing population and increasing prosperity. It follows that a focus on the productivity of the human services sector, particularly those services that are substantially delivered and/or funded by government, is critical to the nation’s productivity. 

Yet governments have not put sustained attention on productivity. While there is substantial evidence that reform of individual service delivery units can lead to significant productivity gains, politicians, policymakers, central agencies and executive managers tend to concentrate on policy innovation instead of service innovation. 

In 2022, the Productivity Commission undertook the second in a series of five-year rolling inquiries into Australia’s productivity performance, with a view to providing recommendations on productivity-enhancing reform. 

McKinnon's submission to the Inquiry argues that the potential productivity gains to be made from the reform of delivery systems – such as the criminal justice, emergency services, healthcare and social welfare systems – are immense. This requires a shift in focus towards the front-line workforce and operational managers of individual delivery units (or ‘firms’), such as prisons and hospitals. 

To evidence these claims, McKinnon’s submission draws on a detailed study of the John Morony Correctional Centre, a medium/maximum security remand facility in NSW. In May 2017, the right to manage was awarded to an internal team from Corrective Services NSW (CSNSW) following a competitive tender against three multinational corporations. A new management team assumed control in November 2017 under a 12-year Management Agreement which operates in all respects like a contract with budgetary limits, performance objectives and financial abatements for the failure to meet these objectives. 

From the moment of transition, John Morony provided higher quality services at a cost that is one-third lower than the average for other publicly-managed facilities in NSW. Financial abatements and sick leave fell drastically, suggesting that management quickly improved. 

This example demonstrates that performance can be measured at the firm level, and it is possible to hold operational managers accountable for results and resources over which they have control. By focusing on reforms at the service delivery unit level, notable productivity gains that will make a difference to our nation are within reach. 

NB: The submission itself was made as a Private Submission and so is not publicly available on the commission website so we cannot link to it.