David Cameron’s article on public service reform in the Telegraph was the opening shot in what could be a significant battle both within the Coalition and across the House. The case presented raises at least three important ethical issues.
First, the way in which evidence is being used to justify these proposals is deeply suspect. Mr Cameron states that publicly providing bureaucratic and target-driven services might be worth supporting if they delivered quality services: “but the evidence shows otherwise. Whether it’s cancer survival rate, school results or crime, for too long we’ve been slipping against comparable countries”. These are very partial readings of the data. These claims in relation to both health and education have already been challenged and debunked a number of times over recent weeks. Yet they continue to be advanced as a justification for change.
Second, there has been insufficient recognition of the fundamental differences between the objectives of public sector involvement in service provision and the objectives of private service providers. Understanding the differences in the relevant stakeholders, if nothing else, is vital. Private providers, even not-for-profit providers, have a primary responsibility to their shareholders and owners. The accountabilities and stewardship obligations of public providers should be much broader. Mr Cameron might speak of a system open to diversity: “open to everyone who gets and values the importance of our public service ethos”. But there is already evidence that it is difficult to preserve those values in the face of marketisation. Public services are about more than service provision. Mr Cameron doesn’t give a strong impression that he “gets” that.
Third, the thrust of the current proposals is to allow local providers maximal freedom to determine what they provide and how. The belief is that they can be held to account by their consumers. This sidesteps questions of power and inequality. It downplays important questions of probity and transparency. The details will be important, but it is not hard to image an accelerating rate of the judicial review of public decisions once more ‘flexible’ arrangements are in place. New costs are created by trying to remove ‘red tape’.
We are no doubt in for some lively debate on these issues – among many others – over the coming weeks. This is a topic of the utmost significance. Public services are there to break the link between income and access, to ameliorate social disadvantage and to signal social solidarity. Mr Cameron assures us that these fundamental purposes will be untouched by the reforms. That position is, in my view, either complacent, naive, or mendacious. Liberal Democrats need to engage robustly with it.
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25 Comments
Interesting to note that Cameron and Clegg appear not to see eye to eye on this;
http://www.opendemocracy.net/ourkingdom/ryan-gallagher/nick-clegg-must-oppose-his-governments-privatisation-plans
However I am not looking forward to finding out what the outcome will be.
If I were looking at this from the perspective of central government, I would think that there is a lot to be said for having alternative providers to play off against one another.
“Liberal Democrats need to engage robustly with it” Serco, Capita and KMPG can book the champagne already then.
‘Public services are there to break the link between income and access, to ameliorate social disadvantage and to signal social solidarity.’
Spot on. A real Big Society exists in those things that are collectively owned and funded and which are to our collective moral benefit. Even if I am healthy to the day I die, it is to my benefit to live amongst a healthy population.
The current proposals are almost certain to be a re-run of the privatisations of (for example) the utilities and transport networks in the 1980s and 1990s. Those were, of course, not privatisations in any meaningful sense of the word. Corporatism would be a better word and the utilities have become almost like medieval fielfs, existing for the benefit of the few.
The best example I can think of is privatised bus services – staggeringly awful. I remember the day well overnight the regular double deck buses were replaced by a two hourly minibus service. A 12p far (yes, 12p) became 80p overnight. Youth clubs were forced to close as the service closed at 8:00. Interesting that bus privatisation in London never happened.
I would not be so averse to the coalition’s plans if there was any sense that they understood that the privatisations of the past have not altogether been a resounding triumph.
@Duncan: Au contraire, the buses in London are indeed run by private companies (even East Thames Buses now, which was re-privatised in 2009: http://en.wikipedia.org/wiki/East_Thames_Buses ). It is probably easiest to quote from TfL to explain the situation:
“London’s bus network is unique in the mainland United Kingdom in that it is regulated. This enables Transport for London to plan, procure and manage a network of services in a consistent and co-ordinated manner. This system, along with adequate funding and collaborative working with other organisations has lead to increased service levels, improved quality of services and significant increases in patronage.
Bus operators compete for contracts to provide specified services for up to seven years, and are rewarded for exceeding defined targets to improve the service to our passengers. Their role is crucial to the current and future success of bus transport in London.
The tendering and contracting arrangements are designed to deliver value for money, balancing the expectations of our passengers against the costs of improvements. A London Assembly Transport Committee scrutiny of bus contracts in March 2006 recognised that the London bus network represents value for money.”
And some further stats which show what a properly-regulated and funded bus service can achieve:
“-Bus ridership has grown by 68% per cent between 1999/2000 and
2007/08
-Buses in London now carry the highest number of passengers since
1962
-In the year to March 2008, there were 2.18 billion passenger trips on
the network
-Bus kilometers in London is higher than at any time since 1957, with
468 million km operated in 2007/2008”
http://www.tfl.gov.uk/tfl/businessandpartners/buses/tenderresults/lbsl-tendering-and-contracting-feb-09.pdf
AndrewM
It may surprise you to know that most people don’t live in London with the advantages of that city’s public transport. I suggest you look elsewhere for examples of the true problem of deregulated bus services.
A highly regulated system such as London’s may be a good option but we all know that the free marketeers siren call is for deregulation
@Ste Thomas
““Liberal Democrats need to engage robustly with it” Serco, Capita and KMPG can book the champagne already then.”
Quite. We already know Cameron and the Tories are for more tactically adept than the Lib Dems in Westminster and that poor Clegg is so little respected that he’s publicly slapped down by the PM for making weak jokes about being in charge (and with his special ‘I’m the deputy PM’ mug too). The only way for the Lib Dems to do anything meaningful would be not to discuss these proposals in the belief that this will change them, for they will be made to look like fools, but to vote against them.
@Duncan “I would not be so averse to the coalition’s plans if there was any sense that they understood that the privatisations of the past have not altogether been a resounding triumph”
Really – BT for example?
Water?
Electoricity?
Can anyone tell me where this was in anyone’s manifesto?
@Depressed Ex.
It was in both parties manifestos, right next to the sections titled “Selling off British forests”.
You must have read those bits, no?
Cuse
I also thought it was in both parties manifestos together with: we will raise tuition fees up to £9K, privatise the NHS, cut living standards of the most vulnerable, cut public sector pensions, etc etc. I am sure it was all there in the small print somewhere. I must really buy better reading glasses.
@bazsc: You seem to be misunderstanding my position. I was trying to make the point that even if bus companies remain in the private sector, a massively improved service could be provided to passengers outside of London if they were regulated (and properly funded, which is slightly more difficult at present).
Good Article.
Just a few questions:
“Private providers, even not-for-profit providers, have a primary responsibility to their shareholders and owners”
Really? What not-for-profit provider do you know of that is devoted to its shareholders and owners? What does that even mean in the absence of profits?
I agree that it can be hard to maintain public service in the face of marketisation. There needs to be strong and effective safeguards and high thresholds of quality that private providers must reach before they are allowed to provide public services. But that does not mean that there’s a necessary negative result of introducing non-state providers and actors.
This casual assumption that seems to come up that all private providers, even not-for-profit private providers, are evil, money-grabbing villians with no idea of duty to their customers who will crush quality at the first opportunity and public state providers are uncomplicated and saintly guardians of the public good, is a bit silly. I know what you’ve said is considerably more measured and restrained than that, but it still seems to come from the same underlying prejudice.
“New costs are created by trying to remove ‘red tape’”
This seems a ready made excuse for avoiding any reform. I agree that the details will be important. This can either be done very well or very badly. But I don’t think ready made objections to any reform do anything to help.
“That position is, in my view, either complacent, naive, or mendacious.”
How can you say that when you elsewhere admit that a huge part of how this works comes down to implementation? Implementation we don’t know the details of yet. Sounds a lot like you’ve already made up your mind long before you’ve seen the evidence.
@Simon McGrath: You don’t honestly think that all three of those privatisations have been resounding triumphs do you?
Hopefully you’re being sarcastic, but just in case you’re not, out of the three examples you gave, I would agree that the privatisation of BT and the subsequent competition in the telecoms industry has probably been good for consumers as a whole.
As in the case of telecoms, I can at least see the theory for privatisation in the case of electricity (and gas) in the form of competition between different providers. In practice, however, they seem to act as a cartel and make massive profits, which is why OFGEM is (finally!) investigating the whole sector.
With water however, what is the rationale for it being privately-run? It certainly couldn’t be competition, because you can’t choose who your water company is, it’s a natural monopoly. And according to the Consumer Council for Water:
“Overall since privatisation water bills are around 42% higher in real terms (over and above inflation).”
That sounds like a roaring success for the consumer doesn’t it?
I posted this as a comment on the previous article Alex Marsh wrote on Tuesday for LDV on this subject but unfortuntately nobody responded to it, so I thought I’d try again here 😀
“On the proposals themselves, here is something for supporters of the plans to consider. What if the eligiblity for bidding for contracts were opened up only to charities and two specific legal forms of social enterprises, community interest companies and industrial provident societies (the latter designation includes co-operatives and community benefit societies)? Due to the restrictions placed on these forms of organisations, I think this would remove a lot of the concerns many people have (including, I hope, many fellow Lib Dems) about “increasing concentration of economic power in the hands of multi-billion pound multinational corporations” that Alex Marsh expressed so well.
Why is it necessary to involve profit-making companies, which owe their first allegiance to their shareholders?”
Privatisation has only been shown to for services which we have a choice to use and a choice to easily switch provider.
@StephenW
You keep on asking for evidence that privatising these services might lead to bad results, yet there have been plenty of prior privitisations and there is plenty of evidence that for many state services they simply don’t work. It’s easy to see why they don’t work for economic reasons and determine why they will not work for other necessary public services, e.g. the health service.
I don’t want to build a strawman here, I understand that the proporsed ‘reforms’ are not privatisation in the bluntest sense… but they do invite the same problems.
You bring up the example of water and electricity as successful privitisations. That could be father from the proof, in real terms most people pay far more than they used to for their electricity and water (as the recent priicng scandals involvong the energy cartel have shown this is not directly related to an increase in the cost of resources).
Another clear example is public transport. When the trains were nationalised the taxpayer paid out 1 billion annually to keep the trains running, and ticket prices were far cheaper. Now the government has to pay 5 billion a year in subsidies just to keep the train companies afloat, and ticket prices are astronomical compared to what they used to be (whilst service is worse than what it was). A similar scenario for buses.
In the US it costs the government a greater proportion of their GDP to maintain a private healthcare sector which people have to pay to access than it costs us in the UK to maintain a free health service.
The reasons are quite simple. In situations where a service is essential no government can afford to let prices rise too high or the service too collapse. Part of a market economy is allowing a situation where a company can be allowed to go bust… that’s a fundamental tenant of free market capitalism (although of course apparently not applicable to the banks). The health service, the railways etc can’t be allowed to fail or to charge too high fares, because although they are privatised they remain in essence public services and the economy as a whole revolves functioning and being at least somewhat affordable. So the government has to make sure they keep afloat and that they provide a service that is accessible to the public (even if in the case of trains prices are still extortionate). It costs governments much more to do this with privatised organisations than public ones, since private organisations are run for profit whilst public ones are run for whatever purpose the government (and hence, ideally, people) want them to be run for.
There are two sides of the stupid-coin here. There are some socialists who like to think that nationalising everything will provide and cheaper and better service, when it clearly wouldn’t;… and there are market fundamentalists who believe that privatising everything will provide a cheaper and better service, this wouldn’t happen either. Then there are the good old fashioned Conservative types who don’t care whether or not a nationalised company will provide a better level of service, they just don’t want to pay money to the government to maintain something they won’t use. Then there are the newer Conservative/Blairite/Orange book types who believe in privatising everything because their friends tarquin and gertrude in the health insurance and commodities businesses are finding it hard to compete and they really need some new contracts to afford those beautiful cars they’ve been goggling over.
Aside from these objections there is of course the little fact that both the Lib Dems and the Conservatives have clauses in their manifestos at the last election saying they wouldn’t tamper with the NHS. That voting for these ‘reforms’ (whether or not x MP thinks it is a good thing or bad) would be unethical, treacherous and anti-democratic since the public hasn’t been allowed to vote for them, and in fact (wehther Conservative or Lib Dem) voted for parties promising not to make these kind of ‘reforms’.
Hear, hear! Opening only up to charities, mutuals, not-for-profits and social enterprises would perhaps be a good compromise.
I worked for one of the biggest outsourcing companies for four years. During that time there was a constant tension between the government ‘client’ and the company management. The reason was simple. The government wanted us to deliver an effective public service while the management had no interest in this whatsoever. They had two interests; maximising profit and creating new business areas. Essentially their business model was to ‘get in’ with lower cost contracts and then to make huge amounts of money with added extras – which were carefully planned so that you wouldn’t be able to do without them. The most effective way they found of doing this was to invent whole new sets of business processes which they claimed were fundamental and for which they were able to charge the taxpayer exhorbitant amounts.
“The government wanted us to deliver an effective public service while the management had no interest in this whatsoever.”
The relationship between central government and your company was then much like the relationship between central government and a public sector agency or department of state. They too want to maximise the amount of money they are given (have you ever heard of one that wanted to be given less money?).
Except that the government can try to play competing providers off against each other, which it cannot do when an agency has a monopoly on its service.
Rob: although you say “the Conservatives have clauses in their manifestos at the last election saying they wouldn’t tamper with the NHS”, the Tory manifesto actually did trail the reforms as it said, for example, “We will strengthen the power of GPs as [by] … giving them the power to hold patients’ budgets and commission care on their behalf;… [and] putting them in charge of commissioning local health services.” The core idea of GPs running commissioning was there, explicitly, in the Conservative manifesto. That doesn’t of course necessarily make it the right policy, but it’s an odd myth that has built up that the Conservatives didn’t mention it in their manifesto.
@Andrew m if you really think there is no competition in electricity sup pies then you have somehow missed all the people tyrying to get you to change suppliers.
Water is of course anatural monopoly which is why OFWAT control prices. There has Ben a big increase in prices because the victorian infrastrcure needed replacing. N Ireland shows what happens when you have the state running a water company -massive under investment
@ Rob.
“You keep on asking for evidence that privatising these services might lead to bad results, yet there have been plenty of prior privitisations and there is plenty of evidence that for many state services they simply don’t work.”
I didn’t ask that. I said that we should wait to see the details of any proposals, and that I couldn’t see why these changes should necessarily be a disaster if proper safeguards and controls are put in place.
“You bring up the example of water and electricity as successful privitisations.”
Okay, now I just think you’ve got me confused with someone else. I didn’t mention either water or electricity. Do you mean Simon McGrath who did mention these privatisations?
I accept that state provided public services can be cheaper over-all than private ones, especially in the cases of essential services. But that doesn’t seem to be a good reason to maintain a ban on private providers participating, just to ensure that suitably strong measures are in place to make sure that they only get contracts if they genuinely do offer a better service for a lower cost. I can’t believe this would be totally beyond the wit of man to achieve.
@Simon McGrath:
I suggest you have a look at the graphs at the bottom of this Consumer Focus press release and then try to make a case that competition in the electricity and gas markets is working well for consumers:
http://www.consumerfocus.org.uk/news/consumer-focus%E2%80%99s-response-to-ofgem-retail-energy-market-review
By the way, Consumer Focus, which costs the taxpayer just £6m a year, is due to be abolished once the Public Bodies Bill becomes law. And no, I have no vested interest, except that I am a consumer who will be worse off when the only statutory body standing up for consumers’ rights is abolished.
Comments here are rather broader than the original post. The question of whether privatisation has or has not, on balance, been beneficial is one that will no doubt continue to be debated. The problem with the debate (in general rather than here) is that the economists interested in the topic tend to focus upon efficiency, which is only half the picture. There are relatively few studies that consider improvements in efficiency (reductions in staffing, higher total factor productivity, profitability – although that isn’t necessarily a good measure of efficiency) alongside the impact on equity (eg. whether privatised services are accessible to all, whether they are punitive in their policy on arrears etc). Much of the privatisation and equity literature relates to developing countries, where things like water privatisation result in rocketing prices and sharp reductions in consumer access.
There is also the point that no two privatisations are the same. If we think that privatising telecommunications or street cleaning worked does that tell us anything meaningful about privatising schools or the processing of benefit claims? They are goods and services with such different characteristics in terms of transaction costs, economies of scale, complexity etc that drawing lessons from one privatisation for proposals for another needs to be done with considerable care to ensure that the analogy is appropriate. Contracting out blue collar services in local government worked quite well in many cases, but that didn’t really tell us much about how well white collar CCT would work (not very).
I agree with many of the comments above that regulation is critical. But I also believe that we (Britain) are not very good at regulating effectively. Explaining why that is the case would take significantly more space that I have here. But it is an issue that is going to (or should) return to prominence. It may well be that markets+strong regulation can deliver outcomes just as desirable as public/not-for-profit provision. The aggregate cost may in fact be greater (strong regulation may not come cheap). But markets+weak regulation (which, in my view, is more likely) could deliver outcomes that are considerably poorer. And could still be more expensive, when we have an appreciation of the overall social cost rather than the private cost of the particular service (good example being contract cleaning in hospitals – ok you got your cleaning service cheaper but you had to then have all sorts of extra measures not just to combat MRSA but also to replace the more qualitative role that hospital cleaners had of acting as the eyes and ears on the ward. They were a key conduit of information about patients’ well being back to the medical staff. After contracting they didn’t have time to do that. Hence new roles needs to be created or needs go unmet).
@Stephen W – I agree the phrase ‘shareholders and owners’ could have been better chosen to reflect the situation in not-for-profit organisations. ‘members’ might have been better than owners. But the point that even not-for-profit organisations have a more focused set of stakeholders than public bodies still stands. As a charity trustee, for example, you are charged with seeing that the organisation stays true to its M&A – that isn’t a general obligation to the well-being of the local population.
I am not anti-private or not-for-profit sector. I have for many years been a trustee of an nfp organisation providing housing, care and support for older people. I know what great work value-driven and committed people can do to provide quality services for the most vulnerable. I also know that such organisations are currently suffering badly in the face of pressures to cut costs as a result of supporting people funding squeeze – commissioners’ interests in quality services has reduced, the only concern is how many people can be processed with any type of service, however limited – and that this is an area in which commercial organisations often offer relatively poor services that aren’t cheap. And that is partly a problem of regulation and consumer vulnerability – many consumers are unable to assert their rights effectively and the costs of switching between providers is high (indeed, we know that if people in the care home sector switch homes, let along providers, a proportion of them will die simply as a conseqences of the upheaval). This gives providers an awesome responsibility, to be exercised with great care. These are the sorts of areas where financial viability should be a constraint on values-driven service provision with a strong ethic of care, rather than turning the thing round and saying that profit is the main objective and in order to make a profit you have to provide a decent service in order to avoid going out of business.