Sunday, October 9, 2011

Why not Big Six-style public services?

I had an interesting conversation with my wife at the weekend. It was about a new conservatory. I don't want one, not until our business is in good shape and, even then, I can't say I wouldn't prefer just to whack £25k off our mortgage.

I suspect a version of this conversation goes on in most households at least a few times of the year. Our own position, of course, is one reason why the UK economy is looking so bad just now. If I were feeling a little better about the future, there would probably be Suffolk builders pulling up to my gate on Monday morning to start four weeks' work. My twenty five grand would soon be pinballing around the builders' merchants, homes, supermarkets and pubs of the town.

Instead, it sits stagnating in my offset-mortgage bank account, waiting for the financial bombs to drop. What we are seeing now - the closed shops, bars and cafes (outside London at least), the army of underemployed - is just the beginning of a long period of economic darkness, a long Autumn and Winter for the UK economy.

And we should not really be surprised. UK investment levels have been low for decades. We're relied on historic strengths in services, our language and fortunate geography to compensate for these deficits. Which we got away with for a very long time indeed, almost to the point where our we thought we were cleverer than the likes of Germany, with it's 'mittelstrand' (small and medium sized firms), its very old-fashioned banking sector, its focus on technical education and its social market economy.

What many of us would give to trade places with Germany today, even with its EU obligations? Consistent trade surpluses over many years meant, in effect that it, China, India and others were lending surpluses to consumers and Governments in the US and UK to sustain our public services and lifestyles long before our own economies were exposed as Ponzi-like.

I mention public services deliberately. The settlement we have now cannot continue. We're still running public services like it was 2009. Very little, so far, has actually been cut, in relation to the whole. Hardly any real reform has taken place.

What needs to be done? We are talking about three things. One is the much 'narrated' rebalancing of roles and responsibilities between individuals, the community and the state. This occupies a lot think-tank airspace but I see very little practically going on to recast public services along these lines. In Wigan, Bournemouth and Durham, they are mostly just shutting stuff down, charging for use or keeping them going on reduced lines. The fevered conversation you hear at just about every conference of public sector CEOs hasn't, so far, added up to much on the ground.

Another is breaking-down of large public sector monopolies and the pushing down of responsibilities to the lowest sensible level. Again, attempts to do this (in health) are being stymied by a mix of some badly drawnpolicy, abysmal communication and reflex conservatism on the part of the health establishment. The third is a new market in public services, which, if the Work Programme is anything to go by, looks like a massive slam-dunk for private sector giants, many foreign-owned and wearing the boots in term of their relationship with Government.

Here is where the fork in the road currently lies. I think the Tories' love for free markets is going, before we know it, to see a cartelization of public services into a 'Big Six' - like in the power industry - very quickly. Indeed, by the time we realise what's happened there will be no going back and we'll be stuck with a small number of disliked, unaccountable oligopolists, mainly foreign-owned, charging us what they want.

Ah, I hear you say, might this not actually do some good too. Is the power industry the right comparison? What about the supermarket sector where competition has driven innovation, quality and value? I hear this, and I don't dismiss it either. Genuine competition does bring benefits. One can imagine certain public service markets benefiting no-end from the freeing-up of the market.

But public markets cannot ever be 'free-markets'. Public goods tend to be limited in supply in relation to demand. The distrubution of public money always needs to reflect society's dialogue with itself, and maintain a link to it, through both politics and local public accountability. The patterning of public goods also needs to reflect the long-term goals of a society in relation to its challenges, in our case a challenging demography, growing regional disparity, a fragmented society and need for long-term up-skilling.

Therefore, we need intelligently set up markets which have powerful regulators and rules which reflect our long-term goals. In doing this, they must ensure that markets serve these. Rules are required to guarantee diversity of supply and prevent a handful of firms dominating a market through incessant take-overs. We ensure smaller firms can enter markets.

We say no to any provider, if the consequences of that are that this market is forever lost to a small group over-dominant providers. We ensure that any particular configuration is reservable and that no commissioning decision is going to permanently disadvantage the taxpayer in relation to the provider, however attractive the initial offer.

And, yes, this means being a bit more categoric about mutuals and social enterprises. This sector doesn't really have much chance in a free-for-all. Government commitment to seeing a strong mutual sector, backed by the will to see it done, is what is needed now if the diversity spoken of in the public services white paper is to be more than just a wish-list. Diversity needs to be deliberately created as markets need to be 'made'.

Otherwise we are truly headed, as a country, for bottom-feeder public services which are not going on any level to meet or be responsive to the needs of the country's economy or society. You simply wouldn't see the countries whose economies are going to lead the world in the next 20 years letting go of their strategic grip on public services markets in this way. The paradox of freeing up a system means that we must, at the same time, make it safe through proper supervision and regulation, as our experience in the banking sector has told us.

If that lesson hasn't been learned by now, and its application to public services been noted, then God truly help us.

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