Examination of Witnesses (Questions 560
THURSDAY 6 DECEMBER 2001
(Dr Pirie) The government used to run many industries
and it used to run the major facilities. It used to manufacture
aeroplanes, ships, cars and buses and it used to run airlines,
it does not do any of those any more, do you say that means the
boundary is pushed?
561. I said how far would the Adam Smith Institute
like to see that boundary move?
(Dr Pirie) Many of these public services, health,
education and welfare would benefit from having that boundary
562. Could you be a bit more specific? I mentioned
earlier about the police service and we had the report yesterday
on the police service which was quite critical in parts about
high levels of absenteeism, sickness and poorly performing constabularies.
Would you see the police service or part of the police service
as right for privatisation?
(Dr Pirie) We had another thing two days ago which
moved the boundary in which a private hospital has reached a contract
with the Department of Health?
563. Can we just stick with the police for the
(Dr Pirie) I was going to point out that this is entirely
for NHS patients, it is entirely free at the point of use and,
on the other hand, it does represent private production coming
into assist, if you like, to move the boundary of state monopoly
production, of health care for NHS patients. In a similar way
I think certainly the private sector can come in and do things
under contract for the police force without prejudice to the status
as a public body.
564. Sticking with the police force, what core
police function, if any, do you think the private sector can help
with? I am not talking about parking tickets, directing traffic,
but what we would ordinarily understand as core functions of the
police? Does the private sector have a role, that is what I am
trying to say?
(Dr Pirie) There are many activities that police do
which, in a sense, use over qualified people. You train a policeman
to become a very efficient professional and then use them to monitor
a tv screen. You could contract that out to people of lesser skills
and keep the staff, the highly trained professionals, for frontline
565. Can I ask about the privatisation we have
seen over the last decade, or so, are there any that have failed?
(Dr Pirie) I think putting Railtrack into administration
is indicative of failure there. The tension between the group
owning the track and the groups running the trains has obviously
not produced in practice the creative tension it was designed
to, striking bargains off each other. The point is that they were,
in a sense, kept separate, one was virtually run under the direction
of the government, the other commercial companies seeking profit,
the train operators. The proposal for Railtrack to have the same
thing, just run as a non-profit body does strike the Adam Smith
Institute as offering no solution to those problems, whereas the
government when they privatised the air traffic control they came
up with a brilliant solution, 44 per cent to the airlines, five
per cent to the employees, the rest is private and it is run by
a body who are very interested in having the safest and most efficient
air traffic control systems we could have, namely plane operators.
Why not have the same model with Railtrack, a consortium of train
companies, 46 per cent, five per cent to the staff and surely
you would have a Railtrack, who is very interested in running
the most efficient service?
566. I understand that. Michael Jacobs told
us that organisation such as NATS cannot fail, they cannot be
allowed to fail. Sticking with NATS after the events of 11 September
NATS has now come cap in hand to the government asking to be bailed
out and you tell us that the NATS model is a good one?
(Dr Pirie) Yes.
567. If public money is still required, given
that the service cannot be allowed to fail, then we just hand
over public money.
(Dr Pirie) I take the view that any model of air traffic
control after September 11 requires to meet new standards which
would require extra money.
568. Okay. Are there any other privatisations
which have failed, we all know Railtrack is an easy one. Putting
Railtrack to one side, are there any other privatisations that,
in your view, the Adam Smith Institute's, have failed?
(Dr Pirie) None that I can think of.
569. What about BT? A lot of people are very
critical of BT, 10 years after the privatisation we still do not
have a broadband network in Britain and BT has been dragging its
feet. Can you tell us that the privatisation of BT is a success?
(Dr Pirie) Yes, indeed. It is not just BT, we privatised
that particular area and we now have one of the most competitive
phone markets in the entire world. It is a great success. It is
not BT leading the pack, it is the newer and more innovative companies
who contributed to this.
570. BT is very successful in the terms that
you would define it. You tell us here that you want choice and
competition in the market, giving ordinary people the chance to
help frame their future, redesigning public services, injecting
innovation and customer responsivenes and you tell us that BT
fits the bill.
(Dr Pirie) No, I do not. I think other companies are
571. The privatisation of BT has failed in some
(Dr Pirie) No, it has succeeded. We privatised the
telephone service and others were allowed to come in and take
it up and they proved themselves in practice better than BT.
572. BT is now reconfiguring itself because
the people at the top of BT realise that perhaps it has not delivered
the improvements that people have the right to expect?
(Dr Pirie) This is what happens in the private sector,
companies deliver and they are rewarded. BT has fallen down in
one or two cases.
(Lord Lipsey) I do not think it is necessary to prove
that privatisation succeeds that every single private company
is perfect in every regard, which transparently they are not.
You have to ask yourself two questions, one, if they had remained
in public ownership would we now have a better situation in those
industries or would we have a worse situation? You remember the
work carried out by Richard Pryke in the 1980s on the components
of public ownership, which described in graphic detail the disaster
that nationalised industries were becoming. Two, taking the programme
as a whole, and not every single company, have we benefited? Are
they better run than they would have been? Obviously Railtrack
we can debate all day and night. If you make a huge programme
of organisational changes of this kind you will have one or two
failures within it. You have to look at the picture in the round.
I would say absolutely dogmatically that things are better than
they would have been. I speak as somebody who spent a large part
of my life opposing those things, I was wrong and I think the
party I belong to were wrong.
573. Can I put the same question to you about
the boundary between public and private, because it has changed
dramatically over the last 10 or 20 years, do you think there
are areas of public sector provision that would benefit from being
transferred to the private sector?
(Lord Lipsey) Not much. I do not think it is worth
the bother. There are a few bits where I think private insurance
has a greater role to play myself, for example, in the care of
the elderly. I believe that resources should be concentrated on
the poorest, who are under-served, and if the rich people want
to protect their inheritance from paying fees in nursing homes
they should be insured privately. It is only a very modest adjustment
of the boundaries. I think we should regard the present boundaries
as pretty well a settlement that will endure and, therefore, concentrate
on the measures of both the private and public sectors to make
each bit of that equation work better. That is nothing to do with
whether you employ private companies more in the delivery of public
services, that is part of what goes with that.
574. So we clear our minds on this particular
issue, I am not sure we are talking about the same thing, when
I look at what you say at the Adam Smith Institute in your recent
publication on the reshape of public services you say, "there
is a chance to modernise the public services in the same way that
the state industries and then the utilities were transformed under
the impact of policies influenced by market ideas", so the
analogue log is that we privatised all that stuff 10 years ago
and now we do something very similar, a market revolution in public
services. This is a million miles way from David Lipsey saying,
let us stay in the boundaries as we are. What do you mean by all
(Dr Pirie) I was the co-author of that piece and I
cannot remember whether I wrote those words myself. What I mean
by that is that the state model, the top down model, was the money
and the orders flowing down to the bottom, the production of a
school place or a hospital treatment at the end of it which the
parent or patient accepts. It has to be replaced by one in which
people make choices between different types of school, between
different hospitals with the advice of their doctors. The funding
instead of being directed with orders down is directed by the
choices of those consumers at the bottom. I would like to see
them literally turned upside down.
575. It is a conceptual trick to say that.
(Dr Pirie) May I elaborate?
(Dr Pirie) If, for example, state schools became freestanding,
self owned trusts, non-profit organisations with the ability to
determine their own programme and tried to attract students and
their funding depended on their success of attracting students
then we would have a model very similar to the one I have described.
Provided that new schools can start up fairly easily entry into
market, provided that was there, provided that schools which failed
utterly would close down we would have a corresponding model.
577. We would have market competition in education
with all schools competing against each other and having complete
control of their own admissions, that would have to come out of
(Dr Pirie) In practice.
578. The idea of universities having to take
people here and there, we will just take the people we want.
(Dr Pirie) In practice most schools choose to be two
thirds community, they recognise there is not much value if you
are not rooted in the community, if you do not take your students
from the locality.
579. In my constituency I have three secondary
schools, all of which are over-subscribed and the problem is what
to do with the people who cannot get into those schools. Is it
really the fundamental situation that you if you want choice you
have to have over capacity in the system, but the other alternative
to that is you have to be efficient, creating better efficiencies
and therefore reducing the over capacity and total antipathy for
the issues of choice, which require over-capacity.
(Dr Pirie) It is the education format that is part
of the Baker Bill. Unfortunately it did not really make enough
provision on the demand side, easing the ability to start new
schools. If you have three schools all of which re over-subscribed
there is obviously a crying out demand for a new school to be