David Cameron is apparently going to announce a new shake-up of government services today. In the process it is reported by the Guardian that he will say that government is not unlike a business.
They add that he will stress that he is not seeking to turn Whitehall into a business, but will claim that:
“What energises many markets are new insurgent companies, who break monopolies and bring in new ways of doing things. We can apply this thinking to government.
“So many of our country's efforts to extend opportunity have been undermined by a tolerance of state failure. Children in care and prisons being two standout areas. Reform — be it breaking state monopolies, bringing in new providers or allowing new ways of doing things — can cut the costs of these failures both economically and socially and help advance the progressive causes of spreading opportunity and enhancing social mobility that we should all care about.”
It is very hard to know where to start with claims like these that are so wide of the mark that it is very hard to believe that a person charged with responsibility for public services has made them.
First, let's be clear why the government is not like a business. The explanation is easy to supply. The difference is that in business the prospect of failure, whilst uncomfortable, is embraced and even provided for as a matter of fact. The reason why so many businesses operate as limited companies is that their owners recognise that the activities that they plan might fail and that they wish for the opportunity to walk away from them in that case and leave the social consequences to others whilst mitigating their own downside risk.
Although it is counter-intuitive, we have found that society has benefitted overall from this approach, but it has done so for three reasons. The first of those is that we assume if a private sector supplier fails either what it provided was not needed, or could be supplied by someone else more efficiently. Second, because of these facts the social significance of failure is not too high (unless the failed entity is a bank when we now know it is enormous). And third, given adequate disclosure of risk it is assumed that those dealing with private sector entities at risk of failure can afford the consequence of it happening (which is not always true, but is a compromise that has broadly worked).
None of these facts hold true in the case of public services. The possibility of failure cannot be comprehended in those services. To even consider adopting that mentality is wrong. It was wrong when train operators walked away from their franchises and hospital contracts. It will be wrong in every other circumstance where it might arise and the alternative option of state supply has been removed by the abandonment of appropriate skills to provide the services within the state sector.
The reason why that possibility of failure cannot be embraced is because those who need many state services are wholly dependent upon them. And there is no alternative supplier. You do not remove a natural state monopoly that exists precisely because the market cannot and will not supply a service by pretending there is a market when there is none. What you do instead is supply public services of the highest possible standard at lowest possible cost to ensure effectiveness for as many people as possible whilst always asking the question about why the service faces such demand.
If, then, and for example, the prison service is not succeeding because of the excess demand on it the real question is not how innovation in supplying more prisons is required but why we have so many prisoners when it is known that prison is not an effective punishment or deterrent in a great many cases. Privatisation, that perversely commits the government to supplying a continual stream of prisoners for the private sector to manage, is not an answer in that case.
And let's just deal with the supposed business innovation case. Building a prison is no light-hearted gesture. Few businesses, let alone the supposedly innovative SME sector, can come close to securing the capital needed to build a prison and none could do so without long-term contracts for the continuing supply of prisoners at prices guaranteed to supply a profit that the financiers of such schemes would accept as a condition of backing them. There is no process of innovation or enterprise in such a process. This is instead an exercise in building real estate and extracting a rent from it by ensuring the supply of a continuous and guaranteed income stream from the most reliable customer anyone rent seeker can find, which is the government itself.
This is the reality of much (not all, but much) private sector involvement in the supply of state services. Large companies (not small ones) build infrastructure which the government must then service whether or not it may continue to be beneficial to the state to use that structure. And in the process those companies make pretty much the most guaranteed and lowest risk rate of return they can get. This is the basis of the rise of the very few, and rather monopolistic looking, government outsourcing companies in all of which there have been continuing problems of deteriorating service quality and outright failure on occasion.
I am a big fan of the private sector, and have run real businesses and offer no apology for doing so. But to pretend that business risk and public sector service are related and that the chance of failure from the type of innovation David Cameron is supposedly applauding (and which is in the sector he is considering largely a figment of dogmatic imagination) is low or non-existent is absurd.
To put it another way, the chance that David Cameron is anything close to getting his logic right on this issue is remote in the extreme. And we all might pay the cost of that.
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Hi Richard,
Well done on another interesting & balanced piece.
Are there any elements of business practice that you think could work in a state owned context? For example, can you see any justification for a “capitalist” approach to Government management of its own people/resources (for example failing state schools being “acquired” by successful (still state owned) rivals?
I don’t think looking to the private sector works for many services, for many reasons. But the cosy entrenchment of state-employed personnel doesn’t seem to drive optimal service standards either…
It strikes me as really important to find a socialist management narrative that doesn’t sound like an excuse for inaction/failure. I still don’t know if I agree with People’s QE, but I admire the fact is feels like you’re on the “front foot” there.
What to do?
Rob
I think managers have to be respected
And have to be allowed to make mistakes – we all do
But all organisations benefit from change and rejuvenation
The idea of change as a healthy process is key to successful succession planning for all managers
Further to your excellent post Richard, I found this very interesting article yesterday that I thought very enlightening – especially in the context of the evidence-light ‘Corbynomics are not mainstream’ letter to the FT.
Public ownership need not necessarily mean the top-down, centralised approach of the post-war years – and in the context of a proper, modern, freedom-of-information legislation, it’s very much more likely to be open to public scrutiny.
https://www.opendemocracy.net/ourkingdom/joe-guinan-thomas-m-hanna/dont-believe-corbyn-bashers-economic-case-against-public-owners
Corbyn has made it clear that hew wasn’t talking about the old style of nationalisation and something akin to Workers co-operatives, never the less the press and Cooper and Kendall kept insisting he was a throwback to the 80; the level of illiteracy is incredible!
Agreed
Love the idea of workers cooperatives. That is definitely the direction we should be going.
That Open Democracy linked article was excellent. It should be required reading for Labour MPs.
Perhaps the older templates of public ownership (Eg municipal) could be reimagined for the future with modern IT. The real-time sharing of data should allow publically-owned companies to respond dynamically to their local users.
This might for example, involve the open sharing of data on their services and active online blogs (like this) that can be used to discuss problems and best practise. The new public companies could additionally be tasked with acting as the foci of innovation hubs. Funding could be provided for startup companies that improve the quality of the core service provision based on close access to public company and its data.
Strong positive visions for future public ownership can emphasise that anti-neoliberalism looks forward to a happier future more than a nostalgic past.
You’re right Richard. It’s hard to unpick the gibberish that is Cameron’s statement. He probably doesn’t care too much that it sounds like hyperventilated ad-speak, now that he has declared himself a lame duck PM.
The message is clear:
The state fails adequately to provide public services. We should let the private sector in to tell them how to do it, or better still, take over from the state.
What he should say is:
“I have never had a proper job, but I had a few years in advertising. I really didn’t want a second term, but heigh-ho, I’ll hang on a bit longer. I have no idea what we should do to provide better public services, but this is what George told me to say, and my rich friends, and back benchers will like it. And just in case Jeremy Corbyn is on to something, I’ll throw in the words “progressive”, “opportunity” and “care”.”
“he has declared himself a lame duck PM.”
He is probably lying.
Cameron views being PM as his ‘gap years’, pure hobbyist rich-man playing with toys (the country).
Great commentary. It is this type of argument that must be at the heart of the defence to Cameron and Osborne’s future assault on Labour.
I note that Osborne said yesterday:
“The question is not ‘do we have money to spend?’; it’s ‘how do we spend the money that we have to achieve the outcomes we want?’”
In this statement, the defining phrase is ‘the money we have’; with the implication that no more is available. This ‘fact’ will form the basis of the future claim that Labour is a party of wishful thinkers and economic incompetents. Given that most mainstream media are not prepared to question the current economic consensus, it will be down to blogs like this and other online sources to provide the economic ammunition to defeat the Tories main attack.
On a positive note, I was interested to see that Stephanie Kelton (prominent Modern Monetary Theorist) is now advising US presidential candidate Bernie Sander’s team; and that he has just overtaken Hilary Clinton in the Iowa poll. I guess you were probably aware of both of these points, but it does at least suggest that similar challenges to those facing Corbyn are currently being played out ‘over the pond’. Hopefully we will be able to learn from their experiences.
http://www.theguardian.com/us-news/2015/sep/10/bernie-sanders-tops-hillary-clinton-iowa-polls
http://www.washingtonexaminer.com/sanders-names-deficit-owl-his-chief-economist/article/2557903
Stephanie and I talk to each other
This is the usual ‘rentier’ stuff we are all used to being portrayed as a version of the @American Dream’ combined with fallacy of composition non-thinking and utter blindness to the way the market fails time after time in this area. The Prison Industrial Complex -nominally ‘private’ but sybiotically wealth syphoning via Government. As for Care…good grief, stories of staff going on a three day training course for handling dementia patients!!!!Says it all.
Big fan, normally — but I felt compelled to intervene.
“to pretend that business risk and public sector service are related and that the chance of failure from (insurgent companies, who break monopolies and bring in new ways of doing things) is low or non-existent is absurd.”
Dave’s point is that it might improve things, Mr. Murphy.
Of course they are related – they’re both forms of organisation. Owners do indeed walk away from failed businesses, just as much as civil servants and MPs walk away from disastrous policy interventions, and invariably into cosy directorships.
And is it me or are you mixing up the provision of public services with infrastructure?
Governments do not innovate. They can subsidize organisations to do so, e.g. Google, BBC, defence contractors — just as much as they can prop up corrupt banks, dictators, Common Agricultural Policy, Gary Barlow, etc.
And some of these are risky.
You’re trying to draw a line between public and private where, at best it is temporal, socially constructed and rarely pure. There’s no intellectual structure or language about organisational alternatives. Part of the reason for this is that you are too busy trying to make a meal of what managerialists like Dave have said using a pan of boiling water.
Normally, your stuff on here is fantastic.
Keep up the good work.
Governments do quite emphatically innovate
Read Marianna Mazzucato ‘The Entrepreneurial State’
Public sector profit = private sector loss
Govt has always has an infinite amount of money
Govt is not a business 😉
Great post Richard.
I’d like to comment on this line (although it is somewhat tangential to the post):
“Second, because of these facts the social significance of failure is not too high (unless the failed entity is a bank when we now know it is enormous).”
This shines a light on the dubious nature of allowing banks to be operated like regular business entities instead of what they really are….public utilities. Which is to say that the payment system is one of the most important public utilities in existence, every bit as critical to modern society as the electric and water companies. Just like how society could never allow the electric companies to fail and stop operating, we could never allow the biggest banks (because they operate such a large % of the payment system) to completely collapse and go out of business in 2008. Once banks are re-imagined as public utilities, the level and kind of regulation and oversight that the public is comfortable with would change as well. Nobody complains about electric companies being overly regulated (unless of course prices get too high).
I can think of at least 10 private prisons that have been built and run by the private sector.
This thread though has devolved into a binary discussion, a bit like typical healthcare discussions where only the pre-Obama US model and the UK model are the only two options that exist.
It’s quite easy to imagine prisons being run by not-for-profits, charities and even housing associations who seem to do quite a lot of good work with the seriously deranged. If a housing association can get a 20k per unit subsidy per dwelling, which is roughly their current subsidy, then allowing for economies of scale they could build new prisons for less than a 5k per unit subsidy.
It’s also possible to design contracts that do not guarantee fixed numbers of inmates. Energy comes from a mix of supplies, some guaranteed, some not, and even some guaranteed incomes whether they are wanted or not, and the lights are still on.
I think you may need to read The Joy of Tax when it is out
The problem isn’t that public services can’t fail, it’s that you can’t walk away from when they do.
We have seen more than enough examples of how the care systems has failed those at risk and entrusted to them, the concept of failure has to be addressed as simply throwing large sums of money at a problem isn’t always the answer. If a public service is underfunded them surely a private organisation is either going to ask for more money or a change in the service.
Hit the button too soon…..
To take train franchises, it was often claimed that the railways were underfunded, the fact that franchises were unable to run them at a profit to some extent confirms this, though that is a simplistic view and ignores structural issues.
The Government is an issuer of currency -the £ . It has to be in ‘debt’ -otherwise it hasn’t issued anything. So from that argument alone we can understand that Government is not at all the same as a business and the profits of a business are not at all analogous to the surplus of a government.
If the Government receives less in taxes than it spends, it is said to be in deficit. But that deficit is, penny for penny, the surplus of everyone else. If the government didn’t run deficits there would be no surpluses, and no profits, for any businesses.
Just to add to the points you correctly make, Richard, it may have escaped Cameron given his relative youth and lack of experience of the world of work – and particularly public services/sector – but central government in this country have been obsessed with this idea since the early 1990s, and the actual idea goes back to the 1960s.
For example, anyone who worked in local government (or taught students about it) through the 1990s will remember the (forced) move to contracting out (outsourcing) services, and the mantra that local authorities should be the commisioners and “enablers” of public services, not the providers. From Major’s government onward, and driven by the ideological bent that assumes the public are first and foremost consumers rather than citizens, it’s always been the case that successive Tory and Labour governments have slavishly followed the “private good, public bad” doctrine and thus endless policies and processes that “inject” private sector values and practices (eg. the claimed capacity to innovate which it appears is non existent in the public sector) into government and public service. It’s why each government department has a “Board” populated by business people – who are, by definition, much more skilled at advising and “delivering” on public policy than any public servant can ever be!
So, after more than 20 years of this line of reasoning and all that flows from it isn’t it just a little surprising that the miraculous transformation of public services that has been consistently claimed by its advocates has not materialised? No. Because this myopic view is not about designing and delivering public services that people need and the organisations that can provide them effectively and efficiently – whatever the rhetoric of Cameron and the many, many politicians that came before. It’s solely about the dogmatic pursuit of an ideological goal, the endpoint of which is the destruction of any public service from which a rent cannot be extracted. And in many, many cases an inferior service/product even where one can.
ivan, I think this case is emblematic of how corner cutting in care because of the bottom line cause suffering and barbarity and really tells us what privatisation in this are is about-neo-liberals don’t know the difference between things that can be monetized and things that shouldn’t be because the results are human tragedy-http://www.dailymail.co.uk/news/article-2827948/Police-routinely-called-restrain-dementia-patients-deeply-concerning-trend-staff-training-poor-t-cope.html
Indeed, Simon, and there are similar cases from across the realm of social care more generally.
Interestingly, when the “customers not citizens” neoliberal approach to public services and “new” public management first emerged in the early 1990s it was argued that it was all about the “three E’s”: economy, efficiency and effectiveness. But from very early on it was apparent that the first E almost always trumped the third, and frequently the second also. Through the new Labour years some efforts were made to counteract that trend and mindset, with some success. But since the austerity mantra took hold I’m afraid any claims that public policy is attempting to deliver on the three E’s are a sham. Economy (ie. cost) is all that matters, and if we’re lucky efficiency comes with it. But effectiveness in public policy is a luxury we cannot afford – literally.
http://www.3spoken.co.uk/2011/10/qe-in-uk-and-value-of-sterling.html?m=1
Data is our best weapon.
Use this against attacks Richard.
Having worked across public, private, and third sectors and been in the thick of many outsourcing contracts, I just know how wrong PR Dave is, in so many different ways. Simplistic ideology, private sector good, public sector bad just does not stack up against experience. Vice versa can also be also true..
Its a huge topic but I’d pick out a few lines of attack that I’d hope a more intelligent and aggressive opposition would take:
– Outsources of public services usually rely on cuts to staff and their terms and conditions to generate the profits demanded by the financial backers and the cost reductions demanded by government. They rarely if ever involve any degree of long term investment in labour or capital, or indeed any innovation. Public sector services (in my experience) are much more complex and large scale than the private sector, who struggle to manage what they have taken over, and end up relying on the existing staff, the best of whom invariably leave. This should be thrown straight back at Dave and his pals in analytical and unemotional way. There are more than enough examples
– The argument about the repeated failure of many sectors within the private sector to invest (rather than speculate) has been widely made and is well documented. That in turn has been linked to failures to innovate, seen for example in the lack of new drugs coming through. Marianna Mazzucato has made the other side of the case, that its the state that takes in the lead in many if not most areas.
– The kinds of organisations that have emerged to take on public services are impossibly fragmented. How can an organisation like SERCO run services sprawled across health, ferries, railways, defence, education etc. If you’d told a Harvard Business school professor some years ago that this was your business model, they would have fallen about laughing. What is your core competence they would have asked? The only competence they have is as rentiers, milking the assets they inherit. It is impossible for the boards and directors of these organisations to have any real understanding of what they are taking on, hence the appalling cock-ups and sometimes fatal consequences. If they were real specialists with in-depth understanding of a sector, they might have some case to make, that they can bring expertise and innovative ideas. Most of them are not and do not.
– Those who have been closely involved in outsources in the private sector and privatisations in the public sector know that the real agendas are nothing to do with the declared agendas of improving service levels and efficiencies. They are about financial engineering, plain and simple, with the same principles applying in public and private sectors. Assets and people move off the books and often a lump sum payment comes in. In the short term, return on assets improves, short-term profit is boosted, headcount is reduced and borrowing is reduced. The accountants and shareholders love that, as does the Treasury. Directors invariably get larger bonuses as a result. By the time the chickens come home to roost in terms of failures to improve services and endless arguments over contracts, the directors who hatched the scheme are long gone. When the cost of government borrowing is as low as it is, it is doubly daft.
Unfortunately I fear we will just see a continuation of the public bad/good, private good/bad, ya/boo arguments as so few of the politicians and their advisors have the first idea of what goes on in practice. On either side. What it means to run a real, operational organisation, public or private. The evidence is out there if only they knew where to look. Both of good practice in the public sector, and of the many failures of outsources/privatisations. We need people in opposition who understand this, or at least some really good advisors. And who recognise that just sometimes, it might be appropriate
Perhaps a bit like how you Richard, have supported Margaret Hodge…?
Thanks Robin
I have been happy to advise those who have had interest in my ideas
And will continue to do so, I hope