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Competition, not privatisation, is key to public service reforms

    For those who bear to watch BBC Question Time, one word seems to invoke more anger from audience members than any other: privatisation.

    To right-wingers, this is a mystery. ‘Surely they must be left-wing ideologues?’ we ask, ‘craving for state control of every service and aspect of our lives.’ We sit there, puzzled. How can people be so committed to services being provided solely by the state, irrespective of quality?

    In truth, however, most people aren’t left wing ideologues. They want good outcomes. They want good, efficiently run schools. They want good, efficiently run hospitals. They want clean roads, secure prisons, tight borders and a visible police force. But at the same time, they want to keep the lion share of rewards of their labour and spend it on their family or themselves. And yet SOME are still scared of privatisation of public services.

    In the course of public discourse, we don’t help ourselves here. Rather than explaining how the private sector of the market can play an important role, we revert to criticisms of the way the state does it. We dismiss suggestion that the state does things well and consider our own utopias – often based on what we believe ideologically. What we fail to do then is explain why we believe in the power of the market. Because we think it can provide goods and services more cheaply, and with better quality, than a monolithic, monopoly state.

    What we must see and argue is that to achieve good outcomes requires something different from privatisation. It requires competition. Competition is the only means of ensuring efficiency and quality. The fact that we focus so much on who provides it means that we don’t emphasise the true power of the market sector: the pressure to produce efficiently and acquire custom.

    This is the reason why many people are still afraid of the word privatisation. They associate it with railways and Serco ran prison services – situations where state-run services have simply been transferred to local monopolies or private-sector cartels, with no noticeable improvements in quality or the amount of tax people have to pay to provide them, but with big companies profiting from our tax revenue. We are losing the argument in many respects because we have allowed the words ‘competitive’ and ‘privatise’ to be conflated.

    The truth is very different. Of the 1980s privatisations, the telecoms industry is a success story. People now have much cheaper calls, a much larger network, and a greater range of providers. The market is truly competitive, and the innovations have allowed  a British company – Vodafone – to be a world leader. Contrast with the railways, on the other hand, where the regulatory structure enables monopolistic, high-charge franchises to provide low quality services (in particular to commuters) whilst charging them extortionate prices.

    It’s not a case of public bad, private good – rather, public sometimes bad, privatisation sometimes bad, competition always good.

    This is the point that Andrew Lansley seems to have not been able to get across. His reforms aimed to improve efficiency and outcomes, as a result of the competitive pressures invoked by the creation of a clear customer and a range of providers who meet certain quality criteria. Savings from the removal of bureaucratic layers could then be used as additional funding for treatments, medicines and operations under the new system. Instead most people seem to think of the reforms as ‘giving more money to GPs to pay their mates in the private sector.’ The argument of the efficiencies enabling MORE operations, and the competitive aspects raising standards, has not been heard. Now it looks as if the proposals will be watered down – and including hospital doctors and nurses in the commissioning will surely erode the customer/producer element so critical to foster efficiency.

    Likewise, the Big Society agenda is being hampered by the fact that in many cases the operations of the state are simply being subsumed by large, parastatal charities. Over 68% of large and medium charities receive state funding; with over 40% of reliant on it for over 50% of total funding. The small, voluntary organisations that deal so effectively with personal problems are being crowded out by the structures of the state. There is no competitive edge.

    Of course, accountability is important. But to improve outcomes, we must be bold. There needs to be an acceptance that a more open, competitive state sector sector, whilst delivering efficiencies and better quality on aggregate, will result in variable quality (the old post-code lottery). The key, therefore, is localism. By distributing more power to local levels, resources can be diverted closer to problems, with local people accountable for service decision. Individuals in different communities will see the improvements in outcomes in neighbouring constituencies and demand the same level of service or assistance. This will create a virtuous cycle.

    This devolution of power is necessary because it is impossible for Whitehall to deal with the vast range of voluntary, civic sector and local private sector participants. Without it, the range of regulations and control from central government mean that it is impossible for small providers to compete.

    Ryan joined the Centre for Policy Studies in January 2011, having previously worked for a year at the economic consultancy firm Frontier Economics.

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