Contracting-out of welfare services a challenge for unions
Published: 21 April 2005
Local authorities bear much of the responsibility for welfare provision in Finland. The bulk of these services are operated by municipalities themselves but the role of private organisations is increasingly important. According to research by Stakes, published in February 2005, a quarter of all social services and a sixth of health services in Finland are provided by companies or other privately run organisations. The share of private service providers in social services in particular has grown substantially since the early 1990s and the majority of these services are bought by municipalities, the study found. Of local authorities’ expenditure on social services, 10% was paid out to private organisations in 2002, up from 5% in 1993. Private health services, meanwhile, are mostly sold to households, employers and the Social Insurance Institution of Finland (Kansaneläkelaitos, KELA), the public benefits agency. Municipalities also buy these services from the private sector but much less so than in the case of social services. The table below shows the public/private sector distribution of social and health services employment, emphasising the increasing share of the private sector
Finnish local authorities are increasingly outsourcing their welfare services to the private sector, according to research published in February 2005. The main health and social sector trade unions, Tehy and KTV, have come to accept this fact but identify various problems with the process. KTV has responded by deciding to merge with five other unions from 2006 in an attempt to increase its bargaining power in the private sector.
Local authorities bear much of the responsibility for welfare provision in Finland. The bulk of these services are operated by municipalities themselves but the role of private organisations is increasingly important. According to research by Stakes, published in February 2005, a quarter of all social services and a sixth of health services in Finland are provided by companies or other privately run organisations. The share of private service providers in social services in particular has grown substantially since the early 1990s and the majority of these services are bought by municipalities, the study found. Of local authorities’ expenditure on social services, 10% was paid out to private organisations in 2002, up from 5% in 1993. Private health services, meanwhile, are mostly sold to households, employers and the Social Insurance Institution of Finland (Kansaneläkelaitos, KELA), the public benefits agency. Municipalities also buy these services from the private sector but much less so than in the case of social services. The table below shows the public/private sector distribution of social and health services employment, emphasising the increasing share of the private sector
| Social services | Health services | ||||||||
| . | 1990 | 1995 | 2000 | 2002 | . | 1990 | 1995 | 2000 | 2002 |
| Public | 87.9% | 86.6% | 79.3% | 76.0% | Public | 85.8% | 85.2% | 83.2% | 83.2% |
| Companies | 0.5% | 1.6% | 4.5% | 5.9% | Companies | 9.1% | 9.2% | 11.5% | 11.8% |
| Other private organisations | 11.6% | 11.9% | 16.2% | 18.1% | Other private organisations | 5.1% | 5.5% | 5.2% | 5.0% |
| Private total | 12.1% | 13.4% | 20.7% | 24.0% | Private total | 14.2% | 14.8% | 16.8% | 16.8% |
The share of private welfare services is expected to further increase in the coming years as the ageing of the population is creating more and more demand for these services. Furthermore, the government’s 'Health 2015' programme has obliged municipalities to improve their health services, starting in March 2005, and a quarter of local authorities have already indicated that they will not be able to provide the necessary level of services with their current resources. Liisa Hyssälä , the Minister of Health and Social Services, has urged the private sector to help solve this problem, thus following the government policy of promoting entrepreneurship. The contracting-out of welfare services is also strongly supported by the employers’ organisations representing private sector providers of health and social services. There is, nonetheless, considerable opposition to extending the role of the private sector in the provision of these services. Opinion polls have suggested that the majority of Finns prefer municipal welfare services to be operated publicly rather than privately. The issue has become strongly politicised and was the key theme in the local elections held in autumn 2004.
Unions accept liberalisation but remain critical
Public, rather than private, provision of welfare services enjoys the support of many trade unions, including the Union of Health and Social Care Professionals (Tehy), the largest white-collar union in the welfare services sector. It has members in both the public and the private sector, and 93% of them are women. Although Tehy prefers publicly operated services, it argues that contracting-out may sometimes be a good idea and it accepts it as inevitable that the role of the private sector will become ever greater. In the process of contracting-out, Tehy has identified as a problem the fact that some employers are not organised or covered by collective agreements.
The Trade Union for the Municipal Sector (Kunta-alan ammattiliitto, KTV), one of the largest blue-collar unions in Finland, campaigned strongly against the contracting-out of welfare services in the local elections of 2004. The majority of its members, of whom 73% are women, work in either health or social services and are employed by local authorities. In recent months KTV has, however, mitigated its position and now argues that private organisations may be allowed to play a greater role in providing welfare services as long as this is done in a fair manner. KTV argues that it is too often the case that employees’ working and pay conditions deteriorate as a consequence of contracting out municipal services. It calls this process 'the national China phenomenon' by which it refers to the shifting of production to countries with lower wages. According to KTV, contracting-out has led to workers’ annual leave being cut by up to two weeks, their paid maternity leave being taken away and, at least in the case of new workers, their pay levels becoming lower.
KTV insists that before contracting-out is considered as a way of bringing efficiency to welfare services, efforts should be made to improve local authorities’ own operations. It is convinced that private firms are not necessarily more productive than municipalities in spite of what it calls ideological arguments to the contrary. One way of accomplishing more efficiency in publicly-run services is to increase the cooperation between local authorities, KTV suggests. In order to accomplish this, the union considers it imperative that local authorities’ cooperation projects are not legally considered to be public contracts that entail compulsory tendering proceedings. The Supreme Administrative Court recently established that a contract between the city of Hanko and a consortium of municipalities for the transportation of patients must be made subject to a competitive tender. KTV insists that this court ruling endangers local authorities’ chances of making their operations competitive vis-à-vis private firms.
Public sector unions to merge
The increased outsourcing of public services was among the main reasons for KTV and five other blue-collar public sector unions to decide to merge together (FI0402201N and FI0407201N). The merger is to become effective in January 2006 and will unite all the public sector blue-collar unions in Finland. Two of the unions, KTV and the Finnish National Union of State Employees and Special Services (Valtion ja erityispalvelujen ammattiliitto VAL), represent workers in welfare services. Despite being public sector unions, they both also have a limited number of members working in private sector organisations that provide services to the public sector. KTV and VAL expect the joining of forces to bring them a stronger role in the private welfare services sector, in which they have already established a joint bargaining organisation. The name of the new union that is to be formed through the merger, the Trade Union for the Public and Welfare Sectors JHL (Julkisten ja hyvinvointialojen liitto, JHL), also suggests that particular emphasis will be placed by the new organisation on furthering the interests of private sector workers in welfare services.
Commentary
The share of the private sector in social and health services is still rather modest in Finland and the pressure to further liberalise these sectors is growing. The underlying pressure is economic, in that new opportunities for profitable investments would thus be created for companies. In the political sphere, this economic prescription is reflected internationally in the efforts of the World Trade Organisation and the EU, most notably in the form of the General Agreement on Trade in Services (GATS) and the planned EU Directive on services in the internal market (EU0407206F). Both of these apply to Finland and the country’s government seems committed to furthering the liberalisation of services. This is also the case among municipal managers, of whom 79% indicated in a poll in 2004 that they are willing to increase the role of the private sector in the provision of municipal services.
Amid the powerful economic and political pressures, Tehy and KTV have come to accept that their members will increasingly be working in the private sector. KTV has campaigned strongly against the liberalisation of municipal services in the past, especially during the local elections of 2004, but its cause did not gather enough momentum to change the course of the process of liberalisation. Nevertheless, with the reorganisation of KTV and the other public sector blue-collar unions into a new joint union organisation, they will be in a stronger position to further the interests of both their public and private sector members. (Aleksi Kuusisto, Labour Institute for Economic Research)
Eurofound recommends citing this publication in the following way.
Eurofound (2005), Contracting-out of welfare services a challenge for unions, article.
