Magazine article Public Finance

No End of a Lesson

Magazine article Public Finance

No End of a Lesson

Article excerpt

For anyone interested in the state of the NHS and our schools - and that should be everyone - we are at a fascinating and historically unprecedented turning point. A popular prime minister with a strong mandate, committed to public service reform, has been in power for ten years, and is about to step down. From where we stand, we can look back over the past ten years and learn the lessons of what works and what doesn't. Only if we do so can we make sure things move in the right direction in future. As Karl Marx - a better historian than economist - said, those who fail to learn the lessons of history are doomed to repeat them.

There is clearly much that needs learning. On the eve of the 1997 election, Tony Blair warned that there were just 24 hours to save the NHS. Voters were concerned about the state of public services, and he romped to victory. But, ten years later, he is the first to admit that under his tenure the pace of reform has been disappointing. There have clearly been improvements - for example, in health service waiting times and in the state of hospital and school buildings - but the results have not been transformational. Blair has made clear that he wished he had done more, admitting with laudable frankness that every time he made a reform he later wished that he had gone further.

So what are the lessons of the Blair era? In short, that there is simply no alternative to market-based reforms of health and education, based on choice, competition and diversity of supply. Everything else has been tried and shown to fall short. Instilling market discipline into public services raises many problems - and there certainly need to be checks in place to limit them - but it is the least bad system there is. Like capitalism and democracy, it might not be perfect, but it is better than the alternatives.

The government's role should not be to manage public services centrally on a day-to-day basis - however good a manager you are, top-down control simply doesn't work for an organisation such as the NHS, with more than a million employees and an annual income equivalent to the gross domestic product of Denmark.

The role of the government should be to create a system that ensures that you get the outcomes you want and that the incentives are right - by rewarding the sort of activity you want more of and punishing the sort of activities you want to avoid. It must ensure that sufficient checks and balances are in place - without resorting to ministerial interference - so any deficiencies are self-corrected. It must ensure flexibility, so the system can evolve with changing technology, user demand and working practices. The government should regulate and ensure equity and that the vulnerable are not trampled on. It should be responsible for financing public services, not micro-managing their delivery.

What Blair has proved conclusively is that you can only achieve such a system through market mechanisms - that financial incentives (with the right checks and balances) have the same beneficial effect in public services as they do in the wider economy.

Public services will only really focus on and respond to users' needs if the power lies clearly in users' hands. That doesn't happen through the ballot box every five years, but through money clearly following patients or pupils, and through patients and pupils having a meaningful choice about where they are treated or educated. It is not meaningful if there is a local monopoly of providers - one hospital or one school. It is only so if there is a diversity of providers, and competition between them - it doesn't matter whether it is a private company doing the hip replacement or a local general hospital, so long as the patient experience and quality of care is good, and patients don't have to pay.

In education, in particular, loosening up the supply side is essential, so more schools can be set up, and so good schools can expand. At present local education authorities have too much of a stranglehold on new schools entering the market, fearing that their own schools will lose out. …

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