Economics

Choice, public services and the predatory state

I have recently had cause to reread CentreForum’s Your Choice: how to get better public services, published back in the summer. Don’t ask. It’s for a thing.

The resonance between the sorts of prescriptions that emerge from Queen Anne’s Gate and the policy prescriptions within the subsequent Open Public Services white paper is all too evident. Equally obvious is the rather thin intellectual base for many of these ideas. As a piece of think tank advocacy Your Choice isn’t attempting to be a rigorous academic study, seeking to provide a balanced review of the ideas under consideration. But it is rather too evident that it draws its intellectual authority from a relatively shallow well comprising previous CentreForum publications, publications elsewhere by CentreForum members, and publications from the axis of management consultants and other organisations with a vested interest in promoting its agenda. The principal credible contemporary academic work cited is by colleagues at the Centre for Market and Public Organisation and that is hardly unambiguous in its support.

But my main concern here isn’t really the problematic role of think tanks peddling flaky ideas into the policy process. I blogged about that a while ago. I have a broader concern – consensus and credibility.

CentreForum note that:

All three main parties …, prior to the 2010 general election, broadly supported the central principles of choice, competition and diversity of provision in public services.

The implication is that this is the only game in town. It is futile to resist.

The report goes on to cite the preamble to the constitution of the Liberal Democrats, which states that:

We want to see democracy, participation and the co-operative principle in industry and commerce within a competitive environment in which the state allows the market to operate freely where possible but intervenes where necessary.

It then positions the approach to be taken:

The present paper, as befits a liberal think tank, approaches the issue of open public services from these perspectives rather than from a ‘neo-liberal’ view that markets should ‘be allowed to let rip’ within public services. It is clear that the state has a very important role, not only as a regulator of the public service market, intervening where necessary, but also as the funder of most, if not all, public services.

There is an important elision here. I noticed the same elision in the last speech I heard Nick Clegg make on the topic. The preamble argues for a state that “intervenes where necessary”.  The CentreForum report interprets this to mean principally regulation and funding. Not provision. The passage seems to suggest that it could be possible for a service regulated by the public sector but not provided or in any way subsidised (“funder of most“) by the public sector to be considered a public service. But that must be nonsense. All economic activity in the formal economy is regulated by the public sector but not provided or subsidised by it.

Of course, this is not the definition of “public services” as most people would understand them. Public services, in common parlance, are services provided by employees of the state. The passage from the preamble cited above does not confine intervention to regulation and subsidy. It doesn’t preclude valuing public services, as commonly understood. Perhaps that comes elsewhere? Well I don’t think so. For example, the next paragraph of the preamble states:

We will work for a sense of partnership and community in all areas of life. We recognise that the independence of individuals is safeguarded by their personal ownership of property, but that the market alone does not distribute wealth or income fairly. We support the widest possible distribution of wealth and promote the rights of all citizens to social provision and cultural activity. We seek to make public services responsive to the people they serve, to encourage variety and innovation within them and to make them available on equal terms to all.

One could link that back to the foundational commitment to seek to “balance the fundamental values of liberty, equality and community” and, without too much difficulty, argue that genuinely public services are the mechanism most likely to fulfil these objectives.

This whole discussion puts me in mind of the argument advanced by James K Galbraith in the early pages of The Predatory State, written in 2008. His starting point is that there is no genuine “conservative” economics left in US politics. Those true believers who drove the Reagan agenda have gone and all their core arguments – the overriding primacy of economic freedom (which Galbraith characterises as “the freedom to shop”), the wisdom of supply-side tax cuts, monetarism, balanced budgets, free trade – have been found to be hopelessly inadequate in practice. And yet, Galbraith argues (p21):

The achievement of … conservative economics … has been to make it the ticket of entry into reputable political discussion, a rite of passage for anyone who wants to be taken seriously on the public stage.

But if the arguments are intellectually bankrupt then what are we left with? Galbraith argues that:

The political world is divided into two groups. There are those who praise the free market because to do so gives cover to themselves and their friends in raiding the public trough. These people call themselves “conservatives” … And there are those who praise the “free market” simply because they fear that, otherwise, they will be exposed as heretics, accused of being socialists, perhaps even driven from public life. This is the case for many [US] liberals. Reflexive invocations of the power of markets … therefore remain staples of political speech on both sides of the political aisle. (p11)

Can anyone in modern American politics actually oppose the market? If course not. Can anyone deny its relevance … ? To do so would be political suicide … Though there are many private doubters, the private doubts are edited out of the public sphere … Thus, we see the grip of “free-market economics” on the public stage: to be taken seriously, one must be able to profess belief in magic with a straight face. (p21)

It is salutary to reflect on the extent to which the UK political scene is any more enlightened. Not much, I would suggest. In fact, one could argue that, in the arena of public service reform, everyone – in public – is looking like, at the very least, a moderately enthusiastic marketizer.

That doesn’t mean everyone is gung-ho for markets. Galbraith notes that:

Many people appear to believe that the best they can do under the circumstances is to hedge and qualify at the margins. That is, they can aver that the market may be imperfect, that under certain conditions it may fail, that it might function better given the aid of fuller information or certain constraints on behavior. (p21)

That is very much where the CentreForum places itself, as quoted above. This carries through to its recommendations. The report makes five. First, there should be better information and advice to enable choice – because asymmetric information is a key source of market failure. Second, there needs to be a strong and clear regulatory framework to ensure quality, choice and competition. You can’t expect these desirable characteristics to emerge if you simply leave it to “the market” to sort things out. Third, a “right to bid to takeover” should be considered. Fourth, a more rigorous approach to risk transfer when contracting out services. This basically boils down to saying, and I caricature a little, that it is a good idea to transfer the low risk, relatively simple, short turnaround activities to the private sector and keep the complex, risky and less profitable activities in the public sector.

Finally, there is a call for “a more logical approach to types of ownership in public services and one which is less guided by politics and ‘fad and fashion’”. What this primarily means is that CentreForum aren’t all that keen on the state trying to protect mutuals or not-for-profits so that they can thrive as alternatives to genuinely public provision. Instead, services should be opened up to the commercial sector as well.

This is curious. CentreForum are keen on justifying positions using the preamble to the Liberal Democrat constitution. So one might have thought that if we want to see “democracy, participation and the co-operative principle in industry” then we should look favourably on protecting these alternative organisational forms.

But no. The need for “competitive neutrality” is the preferred euphemism.

This fails to recognise that the commercial sector has the deep pockets needed for loss leading bids and predatory pricing. It fails to recognise that organisational forms that promote industrial democracy, that are values-driven and not-for-profit, always struggle to compete against multinational corporations. Or, rather, the report implicitly recognises this possibility in its comments about the civil service pension scheme, which it argues will eventually end up in the commercial sector, despite government attempts to set up an organisation with a different ethical basis. It just doesn’t see this as problematic.

It is hard to impute from the CentreForum report whether we are dealing with, in Galbraith’s terms, true believers in “conservative economics” which, in UK parlance, might be out-and-out economic liberals. Or we are dealing with Galbraith’s faux “conservative economics” – which means that this is all a smokescreen for handing public services over to friends in the corporate sector. Or it may be that the true believers among the economic liberals are providing useful cover for the faux conservatives of the Conservative-led Predatory State. Of course, at one level, discerning motivations may not matter. If we look across these agendas as they are put into practice – such as the Work Programme – the practical reality is that erstwhile public services are handed over to Multinational Corporations.

From my perspective, the core of this discussion is power. And power is the one thing that is never discussed. Elsewhere in the preamble it states:

We champion the freedom, dignity and well-being of individuals … We aim to disperse power, to foster diversity and to nurture creativity. We believe that the role of the state is to enable all citizens to attain these ideals, to contribute fully to their communities and to take part in the decisions which affect their lives.

The dispersal of power is typically framed in political terms. Any developments around genuine Localism are therefore welcome. But political power and economic power are not separable. Having your own neighbourhood planning committee is of little value if most of what happens in your area is controlled from a corporate HQ on a different continent.

The route that politicians seem intent on travelling will hand further power over people’s lives to those who already have economic power. This is the precise opposite of what should be happening if our aim is to disperse power. But politicians seem unable or unwilling to resist. To stand against it is to be “anti-competitive”. The invocation of conservative economics is the price that has to be paid for “entry into reputable political discussion”. Even though the core arguments of conservative economics have been shown both by economists and by experience to be of little value or applicability.  The consequence is a Predatory State.

Images: (i) © blondsteve – Fotolia.com (ii) © Scanrail – Fotolia.com

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2 replies »

  1. Excellent article.

    There is much of value in the CentreForum pamphlet, as there is in the Open Public Services white paper – the shame is that it’s buried amongst so much market-knows-best guff.

    Hardly any liberals (or Liberals) would argue against tackling information asymmetry or against an agnostic stance towards State/private provision of services (as opposed to old fashioned Tory mantra of private good public bad, or Labour’s incarnation of it in the form of ISTCs). But placed in the context of public services there’s an elephant in the room – to summon Michael Sandel’s sentiments, we have to ask whether a market in a given area is an appropriate settlement in the first place before we ask what shape that market should take and how it should be regulated.
    Sandel argues that certain goods and services just aren’t conducive to markets, either because we see ethical problems (organ markets, markets for adoption etc), or because the goods/services themselves are altered/sullied/tainted by being subject to market mechanisms. A lot of public services fall under this latter – which is why I’d quibble with your definition of public services as being those provided by employees of the State, I’d define public services as things that we all have reason to rely on no matter what our status and the equitable provision of which accrues benefit not just to the individual user but to the public interest at large through pooling of risk and sharing of advantage.

    So the problem with the white paper, and with publications like CF’s pamphlet and other commentary on markets and public services, is that it starts with the assumption that markets are appropriate in the first place. Whilst that may well be true for some routine things, there’s the risk as you describe that these low-hanging fruit are marketised and the complex stuff is left for the public to fund/provide.

    There’s an absence of critique on the liberal left of this pro-market view, and Galbraith’s interpretation is spot on – we should heed his words, and yours Sir!!

  2. Thanks for the comment. I agree. There is a need to go back a step and understand better at a philosophical level what is ‘public’ about public services. It isn’t just that they are provided by public services (I think my point was that this is how most people think of public services – not that this is necessarily a good definition).

    David Marquand argued that there is something important – but intangible – about such services, in terms of preserving or promulgating particular values as a society. That is, they have a significance beyond simply being a set of transactions delivering a specific service to a specific set of people.

    There would be great value in having this debate – with some urgency. It would be of little value to come to the conclusion that there is something very precious in the notion of public services just after they’ve all been privatised. There will be no going back.

    I think most economic (and policy) thinking is weak on thinking through realistic dynamics and longer term consequences.

    Marketisation processes can be a Pandora’s box. You can have public provision. Or you can have private provision dominated by large providers (quite possibly publicly subsidised). But anything in between is unsustainable over the long term. If one didn’t think this type of private system was desirable then the only choice is not to embark on the marketisation road in the first place. It might be that a hybrid system or mixed economy of provision is more desirable in principle (personally I believe that’s often the case), but it is an unstable arrangement in practice. So it’s not about ‘privatising’ now – policy may well not be ‘privatising’ services by handing them over to big business now – but it’s about where you end up once the forces that are unleashed have worked their way through the system. I think that is the point that the CentreForum paper is indirectly making about the civil service pension scheme. One can also think about various other processes of marketisation – eg bus deregulation, rail privatisation – where policy-structured fragmentation at the outset was overtaken by a process of industry concentration and vertical integration to create a very few large, powerful players.

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