Internal Markets

Abstract

The development of internal markets is a key feature of the changing management of the public service in Britain, and to a lesser extent in other countries such as New Zealand, the Netherlands and Sweden. It is most commonly being developed in health services, in order to try to limit the independent power of the producers of health care, to create pressures for efficiency, and to increase responsiveness to service users. It is only in Britain that the internal market has been widely introduced on a compulsory basis, though other countries are adopting it on a voluntary basis, for example Swedish local authorities. The British government sees the internal market as the means of creating market pressures when, for political or practical reasons, it is not feasible to introduce privatisation. In general terms it is intended to apply the internal market to all services that remain within the public sector. The separation of purchaser and provider roles is an attempt to deal with the problems identified by the public choice school, particularly tendencies to overproduction, by ensuring that there are principals motivated to keep the bureaucracy small. It is an attempt to introduce the values of the market within hierarchical structures through clarifying principal and agent responsibilities.