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Is Labour too timid in embracing ‘the market’? A range
of voices have been raised urging the Party and the Government
to clarify its approach to the market, and embrace it. Labour,
it is suggested, needs to clarify its ambivalence towards
the market, and as a first step, resolve its ‘utter confusion’
on market instruments, as Julian Le Grand and Gavin Kelly
recently put it in the New Statesman.
But what exactly is it that Labour is asked to be clear
about? The role of markets in the economy is well understood:
the ambivalence, such as it is, derives from the Party’s
own history. In the mythology of the Party it is supposed
to be root and branch against the market, as the wording
of the original Clause Four makes clear. A faithful rendering
of Clause Four would have produced a watertight command
economy. The fact that no Labour government actually did
this has not in the past countered the guilt its members
and representatives have felt about supping with the market
in practice. Hence any use of market mechanisms on any occasion
was either excoriated, or if introduced, carried out with
profound apologies. Indeed, in the aftermath of the Party’s
flirtation with the command economy as manifesto in 1983,
it took rather tentative Fabian pamphlets such as Saul Estrin’s
Socialism and the Market to point out to the Party
that markets were not always a bad thing.
This is, of course, fairly self-evident. Not only are markets
in simple commodities the best way to convey them from producer
to consumer, but the use of market mechanisms on a bounded
pragmatic basis is neither here nor there where they are
applied to solve specific public service delivery problems.
But this is where ‘utter confusion’ steps in. The question
that is being asked is not ‘should Labour embrace the market’,
but ‘should Labour embrace the market in the delivery of
public services?’ These are different questions and will
receive different answers.
The current answer of the Party in government has been
a reasonably clear ‘yes’ to the operation of markets in
the economy, and an ambivalence to the role of markets in
the deployment of public policy. The issue in public policy,
though, is whether the market is to be servant or master,
and traditionally the Party’s answer has been ‘neither –
we don’t want markets at all, either in the operation of
the private sector or as an instrument in the public sector’.
This has, in practice, been interpreted in two very different
ways. To all intents and purposes, the Party’s theoretical
position on markets in the economy has more or less been
ignored by successive Labour governments, but as far as
public services are concerned, market instruments have generally
been eschewed. The fear that markets might end up as the
master in public policy has caused government departments
also to reject their role as servants. Services have, in
the past, been operated on a command basis. At least this
represented a clear if questionable principle. Governing
by application of markets judiciously and as a servant of
policy aims is that much more difficult.
This difficulty is compounded by two further observations.
Firstly, there happens to be a substantial body of legislation
on all aspects of public policy bequeathed from a Tory government
that was quite clear about where it stood on the market
and public services. Most of this remains on the statute
books. Labour therefore cannot stand back and decide in
the fullness of time: the legislation operates by default.
Secondly, whilst this brute fact may be understood in terms
of the existence of various pieces of legislation, the
processes by which they are implemented are not. Indeed,
they are not only not understood, but their existence is
almost unrecognised as a relevant factor over and above
the legislation itself. The extent to which market dogma
is built into the delivery processes of a huge amount of
legislation is simply discounted in the debate.
On this analysis, the triumph of ‘the market’ is near complete.
The question posed is not now ‘are markets a good thing
in public service delivery?’ but ‘how can [name of policy]
be best improved by market mechanisms’. When this state
has been reached, the whole debate assumes a new tenor.
Instead of a contest between areas of ideology the discussion
proceeds as a technical argument within one area of ideology.
The fact that it looks like a real ideological discussion
is a further worry. We have (almost) got to the position
where ‘the market’ itself determines the boundaries of discussion.
In other words we have become ‘reified’ – our vision no
longer encompasses the possibility that we could step outside
the range of options offered us by the dominant dogma.
This is baldly stated, but it is, I think, an accurate
depiction of where we have arrived at in public policy discussion.
Many of the assumptions we now make in the debate are those
of the market: but we do not know we are doing it. The market
has broken out of its role as an economic tool and now determines
many of the public policy relations we make.
Dogmatic assumptions?
Market dogma has evolved a series of assumptions which
relate its central tenets to the public sector, and we need
to understand what they are. The deep-lying assumption behind
market dogma is that economic transactions involve individuals
– and only individuals – making ‘deals’. These deal-makers
have, it is assumed, perfect information about the deals
they are making, a rational wish to get the best for themselves
out of the deal, and an equal footing in the market place
with all others acting similarly in the own best interests.
This is, to start with, a rather peculiar economic model
to assume, but it clearly works reasonably well for simple
transactions where the parties to it approximate to the
assumed conditions. The production, distribution, marketing
and purchase of – say – processed meat products undoubtedly
works best by making these assumptions about the market
and acting on them. Producers get paid, distributors get
their share, the public gets good salami, and the purveyor
of poor stuff at an unacceptable price is ‘corrected’ by
the market.
The problem arises as transactions become more complex
and (as in the case of public service provision) increasingly
involve ‘intangibles’ such as societal, environmental and
collective considerations. There is very little objective
evidence that the ‘rational actor’ model actually applies
in these situations, and yet the apostles of the market
need to insist that it does in order to allow the dogma
to stay in place. Its more extreme theoreticians such as
F. A. Von Hayek posit a notion of ‘spontaneous order’. This
is the idea that the market, left to its own devices, will
produce the most felicitous outcome possible because the
sum total of everyone acting in their own interests will
always regulate outcomes better than even the most informed
group seeking to intervene in the operation of the market
to attempt planned or cooperative outcomes.
This dogma is essentially unprovable, but once in place
becomes universal. All interference in ‘the market’
becomes deleterious to the felicitous outcome of ‘spontaneous
order’. Trade Unions, planning, bureaucrats and even politicians
can be brought into the firing line, and interestingly,
have been and are.
For it is at this point that market dogma starts to slip
its moorings. We may understand easily the idea of interference
in the market for salami: a cartel of producers, an attempt
to distribute equal amounts of salami to all, a ‘guaranteed’
purchase price for salami on behalf of customers or whatever;
but does ‘market interference’ as a universally held concept
really make sense in other areas? In particular, does it
make sense as far as public policy is concerned?
Supporters of market dogma will tell you that it does,
and logically it must. Hence a substantial school of thought
has arisen which seeks to apply theories of ‘rational choice’
and ‘spontaneous order’ to all sorts of fields outside the
more narrow analysis of simple economic transactions. In
this respect, one is reminded of the period in the 1930s
when the Soviet Union proclaimed the applicability of ‘marxist-leninist
thought’ to pretty much everything that moved. It followed
logically from the universality of the original premises
but the results were, as we can now see, quite laughable.
A universal feature of a prevailing dogma, though, is that
at the time, noone laughs. This is the case for the ‘science’
of rational choice. If we assume that people .act economically
as rational agents in the market, does this then not apply
to other fields? Yes, say the dogmatists. In public policy,
for example, bureaucrats do not have goods to trade in the
economic market sense, but they will act in their own rational
self-interest no less effectively than if they did. In this
instance the commodity to be traded is the ‘bureau’ itself.
Influential ‘public choice’ theorists such as Niskanen (a
favourite read of Mrs Thatcher’s) suggest that they will
‘bureau-build’; that is, they will rationally seek to maximise
their own empires. The result, it is proposed, will be an
inevitable ‘over supply’ of public services as the more
successful bureaucrats build their empires effectively.
But surely, one might argue, are they not merely the appointees
of politicians who can put a stop to this? The proponents
of market dogma have a reply. Politicians are also rational
calculators. They will promise whatever is necessary to
get, or to stay, elected. Clearly, they are not going to
underbid their opponents and will therefore collude with
bureaucrats offering solutions that reinforce ‘over supply’.
Far from regulating the activities of bureaucrats, market
dogma suggests that politicians actually make the situation
worse. The market dogma solution to all this is, of course,
quite simple. Introduce a good dose of the market to these
transactions and all will be well. Introduce contracts,
cost centres, performance indicators, compulsory competition
and so on into the public sector.
Organise the bureaucrats so they are competing against
each other rather than colluding with others to ‘empire
build’. Define the politician’s role as one of regulation
rather than intervention. Manage the system by appointing
to its regulatory bodies those who are likely to want to
interfere least – preferably businessmen and women who understand
the market already in their spheres.
Convert the recipients of public service into ‘customers’
since the reforms put in hand will introduce essentially
the relationship of the recipient to the purchaser of a
commodity. Give the customer ‘redress’ (as you would if
the salami they had purchased turned out to be mouldy),
but restrict ‘participation’ in the service otherwise –
because that, of course, represents interference in the
working of the market which, left to its own devices, will
produce the best for the public.
Remaking public services
This description of the market dogma solution to the problem
of perceived endemic public service ‘over supply’ may sound
rather like a quick round-up of the state of public policy
at the time of the 1997 election. This would not be too
far from the truth. The left, and much of the press, did
not appreciate how overtly ideological many of the public
service reforms actually were. They were often introduced
under the guise of introducing ‘efficiency’, and there is
some substance to the claim. But they did much more than
that, and significantly, sought to bed down ‘the market’
as the process by which public policy would be determined.
The intent of policy change was to relate the market to
all aspects of public policy by a thorough-going reform
of the mechanisms by which public policy works. Guided by
a key element of market dogma, which is that private is
intrinsically superior to public, the necessary changes
were made, often without legislation being involved.
The most thoroughgoing of these changes related to the
wholesale introduction of ‘contract’ culture in local government,
the health service and, latterly, central government. Most
of the provision for the inclusion of services within market
assumptions was contained in orders and not in primary legislation.
The ‘citizens charter’ was derided at the time, but represented
a key element of the capture of the process by the market
– the conversion of citizen to customer, and the treatment
of the supply of public service as a marketable commodity
over which redress and not participation would be appropriate.
This fundamental change in the political view of public
service that market dogma brought about was well-summed
up by William Waldegrave when he suggested in 1993 that:
‘it is not whether those who run our public services are
elected, but whether they are producer responsive or customer
responsive’.
The whole charter machinery required no legislation and
neither did the dismantling of the civil service structure
and its replacement with a Byzantine world of agencies,
contracts and key Performance Indicators. Other notable
‘marketisations’ such as the re-invention of polytechnics
as inter-competing higher education businesses required
only initial legislation, which gave no hint of the processes
to be introduced for the operation of the new system.
In truth, the British system manages the overview of the
link between specific policies and how they are being managed
very badly. It concentrates on the discrete – the item of
legislation, the set piece, the ‘agreed definition’ of a
subject for Parliamentary scrutiny. The wholesale marketisation
of UK public policy was achieved almost without a peep
from Parliament, without any fundamental questioning of
the wisdom of the ideology behind it, and significantly,
by a Prime Minister supposed by all and sundry to be a centrist
consensus builder and an antidote to the ideological stridency
of his predecessor. No-one really noticed.
It is not difficult to blow serious holes in market ideology
as it applies to public service. To start with, it makes
the breathtaking assumption that the whole edifice of public
policy can be reduced to the rational actions of individuals
just as if they were buying fish from a market stall. In
reality, of course, public policy is driven by a multitude
of motivations. There is, for example, the strong sense
in which taxation is collectively applied for the general
benefit of the public, and the public by and large accepts
that the tax they pay may not directly benefit them but
should properly be directed towards overall ‘goods’ such
as a National Health Service, to the education of children
or to the maintenance of public order, because the well-being
of society as a whole is thereby advanced, and that indirectly
benefits the position of the individual within it.
There is also the elementary fault that market dogma makes
with the valuation of public services. To make the contract
culture work, it is necessary to reduce its balance sheet
to a very crude measurement of ‘value’. Financial intangibles
such as the social capital built up by any service delivery
mechanism need to be discounted straight away, but so do
the costs of making the contract system work – the cost
of regulation, of preparing contracts, of paying off the
losing side, of state benefits for those displaced and so
on – the so-called ‘transaction costs’ of the whole process.
These costs are conveniently lumped into other ‘cost centres’
so that the ‘actual’ costs of the contract can be revealed.
In reality it is simply snake-oil economics to act in this
way.
The myth of the continuous success of the process needs
to be maintained, as in any dogma. The failure of the system
to produce the desired results is therefore not usually
ascribed to the failure of the dogma, but rather to the
lack of zeal of those implementing it. The horse then has
to be whipped harder to make it run. This is reflected in
the culture of ‘Performance Indicators’, deliberately slewed
towards those which measure simple things: throughput of
patients being one outstanding example. The fact that such
measures could record the admission and discharge of patients
upon whom no medical procedures had been carried out was
ignored – the measure was all that counted. PIs can measure
progress and are often important in doing so – but, as in
all aspects of public policy, they must take into account
the complexity of the service. Market dogma cannot by definition
do this, since rational calculators are by nature simple
creatures.
Finally, market dogma cannot, also by definition, take
into account the environmental consequences of its processes.
Since the environmental effects of a process individually
affect the rational calculator to a tiny extent, it is very
unlikely logically to affect the outcome of that individual’s
calculation. However, it is blindingly obvious to everyone
free of the dogma that the cumulative effects of environmental
change do have a fundamental effect on society as a whole.
The establishment of one particular stage of environmental
degradation, brought about perhaps unconsciously by the
rational actions of individuals, has inevitable consequences
upon other areas of the environment in a way that market
dogma is quite unable to accommodate.
Confusions and choices
The confusion at the heart of Labour’s approach to the
market in the public sector, then, lies in not recognising
the deeply flawed ideology that grips public service delivery.
Labour is also good at identifying ‘things’ and less good
at identifying processes and to this extent its policy formulation
faults mirror those of parliament. Even Labour’s much improved
policy-making process excites the attention of members
when it comes to proposing action on things, and is viewed
as somewhat tiresome when it comes to discussing processes
and the subtleties of ideological positions that underpin
the implementation of the ‘things’ people are so excited
about. Labour in power has placed in legislation a number
of measures that would instantly strike horror into the
heart of the good market dogmatist. The rights at work Act,
the Transport Act, the minimum wage, the ‘best value’ legislation,
to name but a few, are all measures that explicitly introduce
interference in the market in order to reach towards a benefit
that will be felt collectively. What Labour has not done,
either in new legislation or by re-examination of existing
measures, is to look hard at what would happen next.
Market dogmatists and their operatives in the Conservative
Party in recent years suffered from no such lapse in attention
span. Acting on the principle that the construction of the
agenda usually captures the meeting, they wrote market processes
into each item of legislation passed – and in many instances,
as I have pointed out, bypassed the legislative process
entirely in order to underpin public policy as a whole with
market principles.
And there it stands today. The panoply of regulation, market
testing, performance indicators, audit commissions, agencies,
offices for this and that and so on has barely been touched
by Labour. One could almost be forgiven for assuming that
these instruments of the market are simply not perceived
as such.
There is an instructive comparison to be made with what
has been noticed by Labour. It has recognised, in a way
that no Labour government has before, that the ‘unwritten
constitution’ as it has been received by incoming Labour
governments is a dead weight around the neck of any real
attempt to sustain radical reform. Previous Labour governments
have not noticed this, or have dismissed the significance
of the House of Lords and all that goes with it. Labour
this time has tackled the obscenity of legislation being
held to ransom by those whose sole claim to do so lies with
their ancestry, but meanwhile the front has moved elsewhere.
The assumptions that market dogma makes are as great an
affront to democratic politics as the House of Lords, assuming
as they do that the elected state is logically the enemy
of the people, and that elected politicians are more likely
to connive with state sponsored bureaucratic greed rather
than act to counter it. The introduction of processes that
systematically filter out democratic audit and participation
are viewed, though, as if they were not there, or as if
they do not matter very much, and can relatively easily
be overcome by a good bout of primary legislation.
But they will not be, for the effectiveness of any legislation
lies in the extent to which it is implementable. If the
process by which the legislation is put into practice effectively
counters the principles upon which it is based, then nothing
much will result.
The triumph of the market lies, therefore, in surviving
what the general population thought was the comprehensive
overthrow of a government dedicated to the propagation
of its dogmas. Ideas, or sets of ideas, capture epochs,
and if they do so well enough, they come to seem like a
part of the furniture, ‘just there’, and not under any circumstances
to be thrown out or replaced. Examples of how the maintenance
of market-dogma-led processes may well overcome non-market
legislation are legion, but two illustrations will briefly
suffice.
Perhaps the most naked example of market dogma in legislation
was the introduction of compulsory competitive tendering
in local government service procurement. The rules relating
to anti-competitive action and the restrictions placed upon
local authorities wishing to consider anything other than
narrow financial accounting for ‘value’ read almost as a
catechism for the ideology of the market.
Labour in 1998 swept this away and introduced the concept
of ‘best value’ instead. This, it was stated, would ensure
that value would be assessed ‘in the round’, and that local
authorities would henceforth have considerable leeway to
judge a service on whether it advanced community participation,
environmental stewardship, economic well-being and so on.
Local authorities are also required to judge services on
the basis of accountability and participation in the service
– altogether an impeccable non-market based recipe for the
delivery of local authority services.
But the all-important rules and regulations governing the
implementation of best value – often in the form of circulars
to local authorities – tell a different story. It is as
if the framers of these rules could not imagine how to implement
legislation other than on the assumptions of the market.
Provision after provision enshrines in process the notion
that compulsory competition in the appraisal and delivery
of service is the only way to do things. Much of the machinery
of compulsory competitive tendering is thereby restored,
and much of the effect of the legislation is lost.
This confusion is also apparent in the instructions that
now accompany special government programmes such as the
Single Regeneration Budget, and other ‘zone’ initiatives.
The watchword for the projects is consultation, and lengthy
instructions are given out about how this is to be achieved.
Indeed, the benefits of the initiative do not flow the way
of the local authority until there is clear evidence that
such consultation has taken place. But then the other half
of the instructions directly negate the possibility that
these consultations can be meaningful. The targets, expected
performance indicators and ‘value’ definitions mean that
the consultation, by definition, has to go nowhere if the
project is to succeed within the definitions of the ‘market’-half
of the instructions.
The other immediate example concerns the appointments of
non-elected individuals to boards, quangos, NDPBs, and
other bodies. The first question that arises is: why appoint
them in the first place? Democratic principles suggest that,
if the oversight of public funds genuinely is to be discharged
by electing people to take decisions on its collection
and disposal, then those charged with aspects of the whole
should at least be indirectly elected. But market dogma
would suggest that this is a dangerous path to follow –
the more involved elected individuals are, the more danger
there is that a conspiracy between those overseeing and
those responsible for the bureaucracy will result. This
perhaps explains the smart U-turn that the Thatcher government
did on its initial promise to institute a bonfire of the
quangos – market dogma simply had its way in the end.
But there are few signs that this has changed under Labour.
Procedures for making appointments are less opaque, and
the proceedings of the multifarious bodies are more open,
but the appointments system essentially continues intact.
Not only that, but many of the assumptions made about who
should be appointed remain in place. The recruitment and
appointment of ‘businessmen’ (and businesswomen) continues
to be regarded as important. But why? There is no empirical
evidence that businessmen and women are intrinsically better
at the oversight of public bodies than any other group of
people, and some evidence that the assumptions made about
the applicability of business methods to public policy have
harmed the activity of some bodies. It can only be explained
by the persistence of market dogma – a priori business
people are bound to be better, because private is
always superior to public.
Alternatives
So if we can imagine alternatives, what are they? This
is not a particularly difficult question either. Once free
of the spell of market dogma, the answer appears under our
noses. If we introduce ‘things’ into legislation which restore
the public realm, then we should similarly restore the public
realm in the processes by which the ‘things’ are implemented.
This, of course, entails the straightforward, but to some
profoundly worrying, proposition, that the primacy of politics
in the oversight of public procedures needs to be restored.
Of course we need to ensure that politics is not corrupt,
and that public services are run for the good of the public
and not of their employees. But on balance, the evidence
is that politicians in the UK are not corrupt and that public
servants are largely motivated by the idea of public service
rather than self-enrichment or departmental aggrandisement.
The ‘oversupply’ hypothesis simply does not stand up. Measures
that we take to protect the public should be part of the
oversight of the service by elected and accountable office
holders and not instead of it.
The process of the delivery of what has been raised from
the public back to them in the form of services is intensely
political and always will be. We can best discharge this
obligation by asserting the primacy of politics in the public
sphere, and not through replacing it. In fact, the true
enemy of the process of deciding according to principles
of accountability is the market itself: it is accountable
to noone, and the ‘decisions’ its advocates want it to
take – by ‘the hidden hand’ – by definition eliminate equity
or redistribution.
We can reintroduce politics to the public sphere by ensuring
that services are held to account, as well as being asked
to give an account. We can underscore this by ensuring,
as far as possible, participation in the service, so that
the notion that the recipient of the service is a ‘customer’
is replaced by the idea that the recipient is simply getting
some or all of his or her money back, and should therefore
have a substantial say in the deployment of the resource.
How exactly to do this remains an area of separate debate.
But at least we would be discussing ‘how best can (name
of service) be improved by political mechanisms’, which
would demonstrate that the malign spell of market dogma
on public service had been well and truly broken.
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