The Tories had privatisation, Labour has targets. Both are flawedby John Kay / June 20, 2001 / Leave a comment
The term public service is old-fashioned but still useful. A public service is an activity whose purpose is to meet the needs of its customers when these needs cannot be appropriately met by the process of profit-making firms operating in a competitive market. Perhaps because competition is impossible, as in electricity transmission. Perhaps because the service is intrinsically uneconomic, as with railways. Perhaps because there is a strong social interest in the quality of the output, as in education or water supply. Or perhaps because commercial motives are incompatible with the ethos that customers expect from the service, as in health.
The most important problem Labour faces in its second term concerns the management of these public services. In education and health, voters want better results and the government is ready to pay for them. But in government there is the fear-even the sickening certainty-that the money will disappear down a black hole. Five years from now spending will be higher, but dissatisfaction with what is provided will be just as great.
The failure of railway privatisation, and the wrangles over the London underground, are also reminders of unresolved problems in the regulation of privatised industries. Privatisation was meant to end direct government involvement in these businesses, but even before Gus Macdonald and John Prescott appeared on television discussing every operational problem on the railways it was evident that this was wrong. Privatisation was a more modest reform than either its supporters or its detractors recognised: simply another phase in the relationship between government and utilities.
The transformation of Welsh Water into the non-profit Glas Cymru is one of many steps on the road back from privatisation to public service. British Gas has already hived off its regulated business to a separate company. It is very likely that other water companies, electricity distributors, and British Telecom will do the same. It is simply cheaper to raise finance for a ring-fenced public service than for a diversified private company. In this fundamental way, the market itself has rejected privatisation.
If privatisation was the Conservative answer to the problems of managing public services, targets and objectives are the Labour response. Hardly a day passes without some new targets, new objectives or new control mechanism being rolled out. These mechanisms will not work. They won’t work because public services have complex and multiple objectives, because both the balance among these objectives and…