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Chapter 2 explores the emergence of ‘neoliberalism’ as the dominant approach to politics and policy in the 1980s and the way in which this led to critiques of the state run model of the 1970s. It charts the subsequent emergence of the market model based upon the split between the commissioning of services and their provision, and the growing acceptance of this as the new paradigm.

This chapter examines the regimes of economic contracts governing competition for public services generally, and the quasi-market organisation of particular public service sectors. It focuses on three main relationships in these contracting regimes: purchaser-provider; state-purchaser; and state-provider. The principal concern is with the effectiveness component of responsiveness, and in particular with efficiency. Particular attention is paid to the manner in which the contractual purchaser-provider relationship is conditioned by the hierarchical regulatory relationship between central government and the public purchasing or commissioning agency.

Commissioning plays a vital role in improving the efficiency of long-term care (LTC) systems as it can ensure an appropriate expenditure of public budgets. This chapter reviews changes in the arrangements for commissioning services in recent years and explores the consequences of these changes for the system. The attempts to reform LTC systems in industrialised countries have relied on a number of market mechanisms such as outsourcing of services, purchaser-provider split and a greater consumer choice for service users. It has been a working assumption of policy makers that these mechanisms will deliver a combination of improved quality of care and cost-efficiency, although countries vary in the degree of implementation of these instruments. The chapter thus explores different commissioning models in respect of: purchaser-provider structures; the extent of outsourcing; the use of tendering and contracts and the degree of user-involvement in the commissioning process. It also reviews the evidence about changes in the prices of services and the quality of care following marketization, it discusses the balance between the provision of home care and residential care in recent years and it considers the nature and extent of transaction costs associated with marketization.

Recent water reform in the Murray-Darling Basin has been strongly influenced by neo-liberal principles. Introduced in the 1990s the water market allowed irrigators to reduce the potential impact of a severe drought in the 2000s. It also made it possible for governments to purchase large volumes of water to slow the decline in resource security and the riverine environment, albeit through large payments for water entitlements handed out near free of cost earlier in the twentieth century. But the strength of neo-liberal perspectives among policy makers and the public is making it increasingly difficult to argue for programs that promote sustainability and resilience in anticipation of climate change when they conflict with profitability. Neoliberal purchaser-provider arrangements are also at the core of the Commonwealth Water Act 2007. It gives the national government control of high-level policy and states will be rewarded financially for implementing plans developed within its framework. This chapter predicts, however, that the distinction between purchaser and provider will collapse in the event of serious tension between the national government and the states because national government members of parliament are unlikely to allow serious financial penalties to be inflicted on voters in their state based electorates.