Leapfrogging the Tories

Down with the public sector, long live public spending! Rick Nye considers a new book which argues that if Blair's active government is to make a difference it needs to go further than the Tories in reforming the state
June 19, 1998

At the time of the debate over Clause Four, Tony Blair accused Old Labour of confusing means with ends. All the recent talk about the third way suggests that New Labour has ended this confusion only by abolishing the distinction-"Not Left, Not Right, But Forward."

Does any of this matter, or does coherence in public policy belong to the discredited dogmas that the third way is supposed to have replaced? If the last election proved anything, it is surely that a sense of purpose, leadership and optimism were more attractive than the intellectual consistency of a weak and divided party. Labour said that democratic politics could and should make a positive difference in people's lives and that life in Britain would be better if we elected a party which actually believed in the power of government to do good.

Judged against this prospectus, Labour's general behaviour in office looks more rational. The talk is of "relentless pressure from the centre," to drive up school standards, to bring down waiting lists or to stamp out drugs. The array of hit squads, action zones, units and success measures are simply the tools of a government confident in its ability to wield power to positive effect. To borrow a commercial term, Tony Blair is seeking to increase the value which politics adds. And it fits the public mood.

Both Tony Blair and Bill Clinton have understood that sustaining modern centre-left parties in government hinges on not interfering with the rising living standards of the many while convincing us that they are tackling the social problems of the few. The main implication of this approach is that the actual size of government won't grow but that its presence will be more decisive and pervasive. The era of bigger government may be over, but that of the "in-your-face" state has just begun.

In this context Evan Davis's book, Public Spending, is a timely examination of the relationship between government expenditure on the one hand and the way public services are delivered on the other. Davis's skill is to reduce abstruse economic concepts to everyday anecdotes.

Typically, he begins by recounting Julian Clary's effective put-down of a heckler: "Who cuts your hair? The council?" He contrasts this with the fact that we entrust the education of our children to a body of people we wouldn't let near our fringe. This is the starting point for challenging our assumptions about the way public services are run.

For all of its economic rigour, Public Spending is not a dry book in either sense. Davis is no right-wing zealot. From the start he assumes a "solid state," at least as far as its overall share of national income is concerned. He is an advocate of "supply-side" reform. He asks questions such as: "Why is Sainsbury's so much better at selling food than most of our schools are at teaching children?"

At the outset he professes the slogan: "Down with the public sector; long live public spending." His reforms are aimed at increasing value for money and levels of service which in his own words "could reinstate public confidence in public services and increase public willingness to pay for them."

Davis's argument is aimed at the contemporary centre left. His ultra-modernising recipe involves forcing schools, hospitals and other public providers to be run on more commercial lines. This is the real meat in the third way sandwich.

He starts by looking at the size of public spending and the nature of the public sector. The national accounts are dismantled to reveal an interesting story behind the fact that the size of the British state has remained relatively constant over the past 20 years or so. This is that the government's role as a frontline provider of public services-in Davis's terms the value that it adds beyond its role as tax collector and disburser of cash benefits-is now more modest than at any time since the early 1960s.

For Davis, this is a sign of progress. Tory policies such as privatisation, contracting out and market testing introduced a degree of economic logic into the organisation of public services which made the fulfilment of social objectives more effective. But the reforms of the Thatcher-Major era only went so far. Large swathes of the public sector remained untouched by this first phase of the supply-side revolution.

According to Davis this helps to explain the public's constantly stated desire for more spending on areas such as health and education and their marked reluctance to translate this feeling into votes for parties which campaign to increase public spending. As he puts it: "There appear to be a lot of things the public want and are willing to pay for, but the only store in town selling them is run by someone the public doesn't fundamentally trust."

Both the public and the private sectors must ration scarce resources, but the former does so bureaucratically and centrally while the latter responds directly to the needs of its customers. There is no doubt which model Davis finds superior.

Introducing market disciplines, either by allowing private companies to compete directly for the right to run public services or by giving existing public agencies the freedom to operate on commercial lines, will lead to a more dynamic delivery of collective goods, he argues.

It means the government doing less but offering more. It involves forcing the public sector to start paying for the capital it uses, determining the pay and conditions of its workers locally, and allowing it to borrow money privately against existing assets.

Davis is phlegmatic about introducing bankruptcies, closures and takeovers to the world of the public sector. The creative destruction to be visited on local schools and hospitals is, in his view, the necessary price of raising standards in the longer term. Moreover, the public will accept this sacrifice in return for higher quality services underwritten by a Labour government.

Davis's version of the third way is to extend John Major's public sector reform programme by wedding it to Tony Blair's promise of better government. It is an elegant approach pursued with bracing logic, but it is, alas, an unlikely blueprint for change.

Davis wants politicians to add less value, Blair was elected on the promise that politicians would and could deliver more. Under New Labour, public services are to be improved by central diktat, not local experimentation. GP fundholding is being run down, grant-maintained schools are being reabsorbed by local councils and Scotland is to have its own parliament but not the power to set benefit levels. We now have a government which wants to spread best practice without going to the trouble of generating it in the first place.

This is scarcely surprising. As John Major found out to his cost, notions such as fairness still exercise a huge influence over the British people regardless of whether they can be justified in terms of economic efficiency.

Such notions prevented the Major government from following through on its reform agenda in some of the ways Davis now suggests. Back then, critics referred to the "Tory nationalisation of Britain." The last election showed people objected not to the system but to the fact that it was overseen by the Conservatives.

In this climate, Davis's prescription is easy to read, but his medicine is hard to swallow. It requires people to look beyond their localities to examine the role of government as a whole, an easier job for a BBC economic commentator like Davis than for individual patients and parents.

Even if such a revolution in popular attitudes were to take place there is no reason to assume that it would stop at liberalising the supply of public services. As Davis himself points out, from higher education to second pensions people are increasingly being asked to make direct contributions to complement financing from general taxation.

And this is the paradox of the book. For all that it plays fast and loose with local schools and hospitals, Public Spending is essentially an appeal for maintaining current levels of public spending through better service delivery. It is meant to be a bulwark against the minimal state arguments of the right. However, understanding or accepting the rigours of the private sector, including bankruptcy and closure, usually comes through buying goods privately, of which the right would like to see more. To use Davis's own analogy, when was the last time you signed a petition against the closure of your local Sainsbury's?
Public spending

Evan Davis

Penguin in association with the Social Market Foundation ?8.99, 1998