Select Committee on Public Administration Minutes of Evidence


Examination of Witnesses (Questions 552 - 559)

THURSDAY 6 DECEMBER 2001

LORD LIPSEY, DR MADSEN PIRIE AND MR MICHAEL JACOBS

Chairman

  552. Can I on behalf of the Committee welcome our witnesses for the second half of this morning's session. We are delighted to have Michael Jacobs, the General Secretary of the Fabian Society, Lord Lipsey, Chairman of the Social Market Foundation and Madsen Pirie, President of the Adam Smith Institute. I realise we have a general secretary, a chairman and a president, we have a full house. You have heard the kind of matters we are interested in exploring. I do not know if any or all of you would like to say something very briefly by way of introduction.

  Mr Jacobs: Thank you for inviting me. I wanted to address the question of what the public service ethos is. My understanding is that in much of the deliberations the Committee has had you have focussed on accountability and motivation. It seems to me these things are important but there is a third element which is more important and more defining, and that is what I would call the "principle of non-exclusion". To me the defining characteristic of a public service is that it cannot exclude the citizens whom it serves from the services that it provides. Those citizens may be everybody or in defined categories. Within those defined categories you cannot fail anybody, you cannot exclude people. The market excludes those with ineffective demand. The market is a model which does exclude. The voluntary sector, though it may prefer not to exclude, frequently does, either on the basis of ascription, such as church membership, or simply through lack of resources. In fact most of the exclusion that goes on is simply a question of a lack of resources. The public sector by definition cannot exclude. It does not matter how old you are, how ill, how mentally ill, how criminal, how homeless, how unemployed you are you have a right to public services. This is based on the principle of citizenship. The principle of citizenship, of the equal worth of every individual and their belonging to a community, geographically bounded, in which they live, seems to me to be a fundamental building block of public services. It leads to the whole edifice of public sector institutions. There is another way, which is that the public sector or state picks up all of those people with ineffective demand, and the private sector handles those people with effective demand. This is, by and large, the system we have in this country and it is the system that operates in the United States. It is a possible model. I disagree with it; I am in favour of the universalist model we have here, I believe it leads to a very fractured, divided society, a society in which those who can afford to pay for services get good services, and inevitably all the pressures of resources tend towards those with effective demand. Clearly market pressures are to give good services to people who can afford to pay, but also political pressures: you undermine the basis of the taxation system which then pays for the people at the bottom. The basis of taxation is that the contribution you make goes not only to others but to yourself. A system which basically provides through the state, through tax funded services only for people at the bottom seems to me to inevitably undermine the political sustainability of that taxation settlement. As in America and a lot of places you get pressures to keep taxes low, because tax becomes almost entirely redistributive and that seems to me to be very unfortunate. There are instrumental reasons for not preferring a society that is socially fractured. But I am very happy to say that this is a moral principle too. The conclusion that I think follows from all this in terms of practical implications is that public services cannot fail. Public services are, by and large, essential services. The market frequently fails: firms go out of business, and so on, and where those are trivial services and there is genuine competition that is all right for the consumer. Most public services are natural monopolies with very high barriers to entry and for most of their users they cannot fail. As long as a service cannot fail there are limits to the extent of competition you can have in that system and that seems to me to be a very important building block in the system, which is why I do not think risk is ever properly transferred to the private sector. We have seen that with Railtrack. This is not just in the public sector. You also get the failure of risk transfer even in private services. Why is it that we have bailed out from public funds, insurance companies, pension companies, hedge funds which have gone out of business? It is because their failure would be catastrophic and when failure is catastrophic the state cannot allow failure to occur. My view is that this principle of non-exclusion and the inability to allow catastrophic failure means we need publicly funded services. I would also personally argue for largely public ownership of such services, but I think that is the fundamental principle of citizenship.
  (Lord Lipsey) May I first declare an interest in that I am Chair of iMPOWER, which is a company offering consultancy services in e-government to local government essentially. I do have a foot in both public and private sector. May I say how much I welcome this inquiry, in particular the emphasis on the public service ethos, it shows the uncanny knack of this Committee to get a buzz subject of the moment and you have hit the subject again with this. Thirdly, I have been reviewing briefly the very interesting evidence you have already taken on this, it is the old knights and knaves debate. It is fascinating to compare the evidence of John Edmunds who, like all trade unionists, said he is all for public service reform but, and when it came down to it "but" was a great deal larger than public service reform. Sir Steve Robson said the public sector ethos is a bit of a fantasy, there is quite a range there. May I say that same range—and we started our political life at about the same time, Chairman—applied in a swing over my active period considering these matters. When we went into the 70s—I was a political adviser to the Labour government at the time—it did not occur to us that public servants could be knaves, it did not occur to us that there was anything other than the public service ethos that motivated the public sector, that is why we never thought of privatisation. We did find our understanding somewhat changed over the period, indeed in 1979, when the public service ethos of the council workers in Liverpool led them to decide not to bury dead bodies in their search for money. That was a shocking learning experience. Things then swung to the other extreme that lead to the anti-trade unionism of the Thatcher government. There was also the import of the public choice theory from the United States, the theoretical underpinning of the knave theory, which said all bureaucrats are out for themselves and anybody working in the public sector was wholly opposed to public good. That seems about as ridiculous to me as the view we held in the 70s to the exact contrary. I hope we are swinging back to the middle way which effectively choses from these two extreme positions. Having said this I rather fear that we are going to swing back too far. The public sector ethos is on a bit of a roll at the moment as a result of various bits of happenstance, particularly the events of Railtrack, which brought out the difficulties of the direction in which many things are moving and we may, therefore, be inclined, as a result, to abandon very important parts of the public sector reform programme and hope again that the public sector ethos will do the job. It will not, it cannot and we have to think more creatively, more deeply if we are to find a more constructive and more effective solution.
  (Dr Pirie) I would like to start by saying that I think there is a public sector ethos, that the motivation to serve others, even at the expense of personal reward, does exist. I take the view that this existed in the private sector as well. Many people working in private services consider it an honour and a privilege to serve others and want to do so well. Part of their self-esteem comes from being rewarded accordingly and from being given the responsibility to do so in an effective way. Part of the dangers in the public sector is if government uses that public service ethos as a means of driving down its wage bill and if it imposes such tight central controls there is no sense of responsibility lower down and the self-worth and the self-esteem will be diminished and the quality of service will deteriorate accordingly.

  553. We have some delightfully opposing positions here, we will see if we can find the third way Gordon Prentice has spent his life looking for. You are telling us that when you talk about the state you talk about an anomaly and you think about how you can break up this anomaly in order to produce what you think are more sensible outcomes. When Michael Jacobs thinks about the state he thinks about something which attaches the principle of citizenship and does not exclude people and cannot fail. These are diametrically opposed ways of thinking about the things that we are talking about. Is there any kind of meeting point between these or not?
  (Mr Jacobs) From my own point of view I think we need to distinguish between the principle of publicly funded, that is taxpayer funded, and publicly accountable services; and the various ways they might be internally organised. I would like to see much more decentralisation of public service organisations. Decentralisation in two respects. One is that I would like to see more political decentralisation. The problem of accountability in many of our public services, and we are talking about a huge range of different kind of services, is that their political accountability is national when they are not primarily national services, and they should not be. National service generates uniformity and the very curious form of political accountability that we now have. There was a moment in the first term which expressed this. You may remember there was a school in Nottingham which was having problems with a difficult pupil and the teachers, more or less, went on strike. David Blunkett got drawn into the argument about what to do about the pupil. It seems to me to be utterly extraordinary that the Secretary of State for an entire country could be drawn into an argument about what to do about an individual school. It reflects a vastly over-centralised, political culture which says that accountability is ultimately for the Secretary of State. The Labour Party, I have to say, has now taken us politically further down this road, more or less saying, we will sort out public services and that is why you should elect us and judge us on this next time round. Your seats are dependent on the performance of thousands of individual units of public servants and services round the country, over which you have no control, many of which are not even politically in your control, they are run by local authorities. This is very, very dangerous politically for you as politicians to be judged by the performance of these individual units. It creates a political culture which means you do not have proper accountability, because political accountability is miles from the delivery of the services. The first is political accountability. The second area of decentralisation I would like to see is much more pluralism in management. I am in favour of having groups of managers who are in competition for managing different parts of the public service who, if they fail, will be kicked out, and if they succeed, will be asked to take over other parts. I would like to see competition within the public sector, although I do not think this is primarily about competition, this is about issues in the private sector.

  554. Let us use that as the peg we can have an argument on, someone could say, that is a cop out, simply to say that the state monopoly, as long as we decentralise it, will be all right, it does not meet where people are at. What people want is state services just to be different in the way that they operate in relation to them. The argument goes, and you will be familiar with it, people increasingly expect in all areas of life to have far more say in choice and responsiveness in how they access services, yet when they go to the state the state is like it is. Although I know what you mean when say "the state cannot fail" in that nice sense but, of course, in most people's experience the state often does fail in a practical way. Is the real challenge not to try to get hold of a sense that people can have far more control over some of these things, far more choice about what is going on in them. I suspect if you ask people if they had money how would they educate their children, how would they provide for their health, how would they do all kinds of things the answer would not be, I will vote for the state, would it? It would be, I will opt out of the state if I possibly can.
  (Mr Jacobs) Let me respond to that, if are you asking me directly. Firstly, the experience of most people is not that they fail. We need to be very, very careful about the assumption that what we are seeing is massive failure right across public services. There are very well-publicised failures and they get well publicised because it is important we know about their failure. But the idea that most public services are failures is wrong, I think it is a very dangerous illusion. Good news is never news, so you do not get news about how public services are doing okay. I do not think most public services are doing fantastically but I think most of them are doing okay most of the time. Most of them are invisible to most of us. I think that is a really dangerous illusion, I think the reverse is true. I disagree with David Lipsey completely that public services are on a roll. On the contrary, I think all of the intellectual debate is now moving towards some form of private sector involvement, choice, top ups, and so on. I think we need to be very careful that we do not assume that everything has so catastrophically failed that we have to reform the whole thing. Secondly, I think you can have choice and competition within parts of the public sector. But you will not get a choice of GPs unless you have enough GPs, similarly with teachers. I am very happy to talk about choice in the community and in the public sector, but do not let us think that you can simply introduce it, in some sense that is an opportunity that you need. There will be no choice or competition in the public sector, for example in schools or hospitals, until we have more doctors, nurses and teachers. In France you have choice because there is oversupply.

  555. We need to make the public sector bigger.
  (Mr Jacobs) Yes, if you want choice of that type you have to increase capacity. This is expensive and it takes time. You have very high barriers of entry, you cannot simply "produce" an extra doctor. You can produce an extra hairdresser in a high street immediately, but you cannot produce an extra doctor's surgery.
  (Lord Lipsey) I am listening to this dialogue with increasing fascination. I think we do need more resources but that does not solve any of the problems we are talking about in themselves. The French system, whether you think it is a good one or not, does not offer more choice, it has more resources, and we should not mix those things up. The issue is that of monopoly provision, and the way in which we try to weaken the monopoly provision includes the contestibilities of the service and the option of people going private. That has severe costs attached to the break up of the services. Those are often powerful reasons for going for one of those solutions. In some cases the monopoly may be correct and the disadvantages are more than outweighed by the advantages. I am inclined to think that some measure of the contestibility is generally considered the secret to getting better public service, it can be contestibility by another public sector provider.
  (Dr Pirie) I think the model of us all as citizens participating in public services is one we have moved on to. It has lead to a centrally directed top down organisation in which the public get the service the system which is able to be provided at the bottom end. We have moved on from that in which people are the consumer of public services. We are trying to get a system which is directed from the bottom. The choices they make will ultimately determine where the resources are allocated within that system. The citizen participating organisation is top down and outdated and inefficient. The consumer model is bottom directed, efficient and satisfying what people want out of it.

  556. Does the consumer model mean ditching equity?
  (Dr Pirie) It means giving the consumers what they would get in the private market. The attempt of the Citizen's Charter was to persuade the public services to behave like departments when something goes wrong and to redress the complaint with satisfactory methods.

  557. The answer to the question is, you are happy to wave goodbye to equity in achieving consumer responses? Michael Jacobs was telling us that equity essentially is at the heart of what the public service is. In order to make it consumer responsive you are quite happy to wave goodbye to what essentially is an unpinning concept.
  (Dr Pirie) I do see the consumer gaining choice in the system and having people respond to their demands in any way conceptually, as long as people have equal rights to those things.

Mr Prentice

  558. That is the point, is it not? Michael Jacobs started off by telling us about non-exclusion, that state provision was universal, and we derived these rights from our citizenship, but with the consumer model you get what you pay for, and if you cannot afford it you do not get it.
  (Dr Pirie) I was referring to the things paid for by taxation, public services. I am not talking about people buying health and education in the private market, I am talking about restructuring the state services so they are driven from the bottom, as if people were consumers rather than citizens participating in them.

  559. Can I then ask about this boundary between the public and the private sector and how far the Adam Smith Institute would push it?
  (Dr Pirie) The boundary between public and private?


 
previous page contents next page

House of Commons home page Parliament home page House of Lords home page search page enquiries index

© Parliamentary copyright 2002
Prepared 1 March 2002