To Morrison, the aged care commission has the advantage of kicking a political hot potato into the long grass of the next parliamentary term. “How can you claim we’re doing nothing? We’ve called an inquiry.” Actually, the neglect and mistreatment of old people in nursing homes has been the subject of so many inquiries and reports – going back to the kerosene baths in 1997 – that only an inquiry of the status of a royal commission could have satisfied the many complainants. But I wonder if the increasing resort to royal commissions has a deeper economic and political significance. A key part of the era of what we used to call “micro-economic reform” has been to take services formerly provided by governments – and sometimes charities – and pay profit-making businesses to provide them. Complaints in the aged care sector could no longer be ignored.

Among the first of these “outsourcing” schemes was the Howard government’s decision to abolish the Commonwealth Employment Service and contract a network of charitable and for-profit firms to help the jobless find work. Then came the expansion of childcare to for-profit providers, the move by successive federal and state governments to make technical and further education “contestable” by private providers, and the decision to open the provision of aged care to for-profit providers. Plus the decision to turn five state electricity monopolies into a single, competitive national electricity market. Loading The reformers were sure these changes would lead to big improvements. As everyone knows, the public sector is lazy and wasteful, whereas competition and the profit motive make the private sector very efficient.

The reform would allow governments to reduce their spending on the services they subsidised, even while the public got better service. Competition from private providers would oblige church and charitable providers to lift their game. And introducing market forces meant the providers of government-subsidised services didn’t need to be closely regulated. As any economics textbook tells you, it would be irrational for providers to mistreat their customers because they’d soon lose them to their many rivals. It hasn’t worked out the way the reformers hoped. We won’t know whether non-government provision of job-search services is working well until unemployment surges in the next recession. But we do know that childcare was thrown into crisis when one private provider, ABC Learning, which had been allowed to acquire about half the nation’s childcare centres, went belly up. We know that making vocational education and training “contestable” was a costly disaster, as many private providers conned youngsters into signing up for unsuitable courses (and debt). Introducing a 'contestable market' into vocational training has been a disaster. Credit:James Davies

We know that turning electricity from government monopolies to a national market has seen the retail cost of power double in a decade. And now it’s aged care where mounting complaints about neglect and abuse can no longer be fobbed off. Providers have been required to make public so little evidence of staffing ratios and other indicators of performance that we don’t yet know whether neglect and abuse is greater among for-profit or non-profit providers. Loading The notorious Oakden nursing home in South Australia, after all, was state-government run. But our experience of private operators gaming government subsidies and cutting quality to increase profits in other areas of outsourcing makes me think I know where the greatest problems lie.

And the way the announcement of the commission prompted steep falls in the share prices of four aged-care companies listed on the stock exchange suggests investors share my suspicions. According to research by the Tax Justice Network, if you measure it by number of beds, non-profit providers make up about half the “market”, with the six biggest for-profit providers accounting for more than 20 per cent. Loading The biggest is Bupa (owned by a British mutual), followed by Opal (part owned by AMP), Regis, Estia and Japara (all ASX listed), and Allity. We do know that the number of serious-risk notices given to providers jumped by 170 per cent in the past financial year, and significant non-compliance increased by 292 per cent. This says there’s been a sudden increase not in misbehaviour, but in vigilance by the authorities.

Why are unannounced visits and compliance audits only now in vogue? Good question. Aged care is just the latest instance of the failure of contestability and “marketisation” to deliver government services satisfactorily – a great embarrassment to econocrats and governments of both colours. The chickens are coming home to roost and the uproar is threatening the Coalition’s survival. Calling a royal commission with all its shock revelations may be the answer to the politicians’ problem. It changes the question from “how could you have been so naive as to believe competition would save customers from being abused?” to “what are you doing to punish these bastards and stop it happening?”. It also tells generous donors to party coffers the government's had no choice but to let them go.

Ross Gittins is the Herald’s economics editor.