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© 2017 BY FREDRIK GALTUNG

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Open Beneficiary Partnership with Swiss Solidarity gives voice to Nepal earthquake victims

August 29, 2017

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How is Open Beneficiary Feedback different from Open Consumer Feedback?

July 10, 2017

 

In an earlier post I suggested that those concerned with beneficiary feedback have a great deal to learn from Open Consumer Feedback. I implied that if it was deployed well, an Open Beneficiary Feedback system may be as positive and disruptive an innovation for public goods and services, as Open Consumer Feedback platforms have been for many service sectors. 

 

But there are, of course important differences between being a consumer and being a beneficiary. The most significant differences are: 

 

1.  The difference in the cost of exit

 

The "cost of exit" is the barrier or cost to a company or individual that wishes to leave a market, sector, service or product.  For example if you have invested millions into one type of software to run your business it will be cheaper to pay for an upgrade than to switch software platforms, at least in the short run. 

 

The individual consumer generally has a low cost of exit. When I'm deciding whether to purchase one headphone or another after reading the online reviews, it costs me nothing to decide to favour one over the other. The same goes for restaurants, hotels, car rental, etc. Switching bank accounts is a little more cumbersome, which is why few people do it. But generally speaking, when it comes to consumption decisions, the price of exit is very low. 


When it comes to a public good or service the price of exit is almost always considerably higher. If the school system is poor, I may decide to send my children to private school. If the health system is failing I have to go private again. In the extreme cases, if I don't see a future for my children because of rampant corruption and failing services, I may even decide to leave the country of my birth. Those are incredibly high costs. 

 

2. Monopoly provision of a good or service vs market responses

 

The exception to the low cost of exit is when it is provided by a monopolist.

 

Positive feedback loops are very effective under competitive market  conditions. If a small restaurants serves great food at an affordable price, its ratings go up. It gains visibility in the review websites and therefore more customers, and so on. All the successful businesses that rely on Open Consumer Feedback operate in markets that are open and competitive.  

 

How effective are positive feedback loops when a good or service is provided by a public or private monopolist? In most countries, only the government issues birth, death and marriage certificates. No one else issues driving licenses or company registrations. Taxes, customs duties and license fees are all generally strictly controlled by one monopolistic entity. 

 

In some countries, the state may no longer own or manage key national and strategic infrastructure, such as national highways, ports, and airports, or energy production and distribution. These may be wholly or partly owned by private companies. But the point actually remains the same. The good or service is controlled by a monopolist. 

Does open feedback work when the good or service is provided by a monopolist? 

 

When there is a monopolist, exit may be very costly and voice on its own is less likely to be effective.

 

If the differences are so significant, how do the insights still apply? 

 

What we learned at Integrity Action from more than a decade of concerted trial and error is that giving feedback and voice is not sufficient when it comes to goods and services where the cost of exit is high, all the more so when it is provided by the monopolist. 

 

Whereas feedback can move markets in competitive environments, it cannot, on its own achieve the same results under non-competitive conditions. 

 

In these cases monitoring and feedback has to go one step further, translating problem identification into problem resolution and effective recommendations. We call this the Fix-Rate. I will be writing more about this in upcoming posts. 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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