Don't try to control everything

Matthew Taylor argues that ministers must encourage the public sector to take risks

Welcome to the evaluative state. Shortly before Christmas a white paper set out targets that must be met, both by government departments and by initiatives (such as crime prevention and family support) that cut across departments. Some of these Public Service Agreements (PSAs) are familiar: the manifesto pledges on class sizes and NHS waiting lists, for example. Others are more obscure. These range from the detailed and measurable - the Department for Culture is to ensure that 75 per cent of libraries are linked to the Internet - to the broad and intangible - the first Foreign Office objective is to "build a modern Nato, adapted to the needs of the new millennium".

Alongside them we have the growth in evaluative agencies: the best known is probably Ofsted, which enforces standards in education. Among the new agencies are the Commission for Health Improvement and the Best Value Inspectorates in the Audit Commission. Only last month Chris Smith, the Secretary of State for Culture, announced Quest, an agency that will measure value for money in the arts (ministers wisely decided against Ofart).

All this is certainly better than what came before. As Tony Blair wrote in the introduction to the white paper: "Too often in the past, governments have only made commitments for what they put into public services - money, manpower and policies - not what the public will get out in return." The Conservatives did not fundamentally challenge this "input culture"; instead, they privatised, introduced quasi-markets and steadily eroded local control. In contrast to the Tories' anti-state rhetoric, Labour aims to strengthen support for public expenditure by providing citizens with clear evidence of where their money is going and what it is achieving.

But accepting the idea of target-setting is one thing; setting the right targets is another. Doctors have argued that the numbers on waiting lists - which Labour has pledged to reduce - are less important for individual patients than waiting times. The waiting-list target does not tell us whether those in greatest need are being seen first. Again, the target for 50 per cent of pupils to achieve five A-C grades in GCSE gives schools every incentive to concentrate on those of middling ability (so that they get five rather than four A-C grades) but much less reason to bother with those at the lower levels of attainment. The target thus becomes a measure not of school performance but of the head's ability to direct resources ruthlessly to a particular group. Education ministers have now recognised this, and included a target to reduce the number of pupils leaving with no qualifications. But the reality of league tables means that schools will to continue to focus on improving the performance of the middle and top bands.

It is a characteristic of management by target that more and more measures have to be developed to correct the perverse incentives created by earlier ones, rather as the judge in the film What's Up Doc? took so many pills to deal with the side-effects of others that he forgot what was originally wrong with him.

Further, ministers and civil servants, knowing that they will be judged by outcomes, start to take stronger and stronger powers to shape those outcomes. They move further and further "upstream", trying to control the process by which targets are reached. In primary schools, for example, ministers have set targets for literacy and numeracy; now they are dictating time, content and method for these subjects.

And therein lie the dangers. If ministers try to extend their control to process as well as outcome, the scope for public managers, local councillors and public service volunteers to use their own initiative will become ever more circumscribed. Creative minds are hardly going to be attracted to public service by the financial rewards. People need to feel they can lead, respond to local circumstances and make a difference. Yet school governors, for example, find themselves acting as managerial assistants to head teachers, dealing with an ever-growing tide of regulations from the Department for Education and Employment or the town hall.

Labour's commitment to civic engagement and the renewal of communities is an important part of its new ideology. It is an area where the values of traditional liberalism and new social democracy are complementary. But by exerting too much control from the centre Labour risks invalidating its commitment to active citizenship.

What is the answer? In championing the PSAs, Blair and Gordon Brown often speak of "money for modernisation". To this should be added the idea of "freedom for modernisation". As public services deliver on their targets, the reward should be not only more resources but also more autonomy over how targets are pursued. Ministers have already proposed "beacon councils", to be given special freedoms as a reward for meeting best-value targets, and even Ofsted - supposedly the big bad wolf of the evaluative state - is developing "light-touch" inspections for demonstrably successful schools.

Such ideas should be extended. But the government will have to do two things it sometimes finds difficult. First, it will have to resist the temptation to exert ever more detailed central control. The muted response to the idea of targets for the patients' charter being set locally is not a good sign. Second, as a thousand flowers bloom in the public sector, the government will have to be willing to take a hit when local innovators get it wrong or when their methods are viewed as too unconventional by Daily Mail standards.

In its recent white paper on competitiveness, the government argued that a greater tolerance of business failure was the price for encouraging risk-taking. It would be good to see a similar standard applied to the public sector. Who knows: it may convince people that ministers are not control freaks.

Matthew Taylor is the new director of the Institute for Public Policy Research

Matthew Taylor became Chief Executive of the RSA in November 2006. Prior to this appointment, he was Chief Adviser on Political Strategy to the Prime Minister.

This article first appeared in the 15 January 1999 issue of the New Statesman, A slight and delicate minister?

Jeremy Corbyn. Photo: Getty
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Lexit: the EU is a neoliberal project, so let's do something different when we leave it

Brexit affords the British left a historic opportunity for a decisive break with EU market liberalism.

The Brexit vote to leave the European Union has many parents, but "Lexit" – the argument for exiting the EU from the left – remains an orphan. A third of Labour voters backed Leave, but they did so without any significant leadership from the Labour Party. Left-of-centre votes proved decisive in determining the outcome of a referendum that was otherwise framed, shaped, and presented almost exclusively by the right. A proper left discussion of the issues has been, if not entirely absent, then decidedly marginal – part of a more general malaise when it comes to developing left alternatives that has begun to be corrected only recently, under Jeremy Corbyn and John McDonnell.

Ceding Brexit to the right was very nearly the most serious strategic mistake by the British left since the ‘70s. Under successive leaders Labour became so incorporated into the ideology of Europeanism as to preclude any clear-eyed critical analysis of the actually existing EU as a regulatory and trade regime pursuing deep economic integration. The same political journey that carried Labour into its technocratic embrace of the EU also resulted in the abandonment of any form of distinctive economics separate from the orthodoxies of market liberalism.

It’s been astounding to witness so many left-wingers, in meltdown over Brexit, resort to parroting liberal economics. Thus we hear that factor mobility isn’t about labour arbitrage, that public services aren’t under pressure, that we must prioritise foreign direct investment and trade. It’s little wonder Labour became so detached from its base. Such claims do not match the lived experience of ordinary people in regions of the country devastated by deindustrialisation and disinvestment.

Nor should concerns about wage stagnation and bargaining power be met with finger-wagging accusations of racism, as if the manner in which capitalism pits workers against each other hasn’t long been understood. Instead, we should be offering real solutions – including a willingness to rethink capital mobility and trade. This places us in direct conflict with the constitutionalised neoliberalism of the EU.

Only the political savvy of the leadership has enabled Labour to recover from its disastrous positioning post-referendum. Incredibly, what seemed an unbeatable electoral bloc around Theresa May has been deftly prized apart in the course of an extraordinary General Election campaign. To consolidate the political project they have initiated, Corbyn and McDonnell must now follow through with a truly radical economic programme. The place to look for inspiration is precisely the range of instruments and policy options discouraged or outright forbidden by the EU.

A neoliberal project

The fact that right-wing arguments for Leave predominated during the referendum says far more about today’s left than it does about the European Union. There has been a great deal of myth-making concerning the latter –much of it funded, directly or indirectly, by the EU itself.

From its inception, the EU has been a top-down project driven by political and administrative elites, "a protected sphere", in the judgment of the late Peter Mair, "in which policy-making can evade the constraints imposed by representative democracy". To complain about the EU’s "democratic deficit" is to have misunderstood its purpose. The main thrust of European economic policy has been to extend and deepen the market through liberalisation, privatisation, and flexiblisation, subordinating employment and social protection to goals of low inflation, debt reduction, and increased competitiveness.

Prospects for Keynesian reflationary policies, or even for pan-European economic planning – never great – soon gave way to more Hayekian conceptions. Hayek’s original insight, in The Economic Conditions of Interstate Federalism, was that free movement of capital, goods, and labour – a "single market" – among a federation of nations would severely and necessarily restrict the economic policy space available to individual members. Pro-European socialists, whose aim had been to acquire new supranational options for the regulation of capital, found themselves surrendering the tools they already possessed at home. The national road to socialism, or even to social democracy, was closed.

The direction of travel has been singular and unrelenting. To take one example, workers’ rights – a supposed EU strength – are steadily being eroded, as can be seen in landmark judgments by the European Court of Justice (ECJ) in the Viking and Laval cases, among others. In both instances, workers attempting to strike in protest at plans to replace workers from one EU country with lower-wage workers from another, were told their right to strike could not infringe upon the "four freedoms" – free movement of capital, labour, goods, and services – established by the treaties.

More broadly, on trade, financial regulation, state aid, government purchasing, public service delivery, and more, any attempt to create a different kind of economy from inside the EU has largely been forestalled by competition policy or single market regulation.

A new political economy

Given that the UK will soon be escaping the EU, what opportunities might this afford? Three policy directions immediately stand out: public ownership, industrial strategy, and procurement. In each case, EU regulation previously stood in the way of promising left strategies. In each case, the political and economic returns from bold departures from neoliberal orthodoxy after Brexit could be substantial.

While not banned outright by EU law, public ownership is severely discouraged and disadvantaged by it. ECJ interpretation of Article 106 of the Treaty on the Functioning of the European Union (TFEU) has steadily eroded public ownership options. "The ECJ", argues law professor Danny Nicol, "appears to have constructed a one-way street in favour of private-sector provision: nationalised services are prima facie suspect and must be analysed for their necessity". Sure enough, the EU has been a significant driver of privatisation, functioning like a ratchet. It’s much easier for a member state to pursue the liberalisation of sectors than to secure their (re)nationalisation. Article 59 (TFEU) specifically allows the European Council and Parliament to liberalise services. Since the ‘80s, there have been single market programmes in energy, transport, postal services, telecommunications, education, and health.

Britain has long been an extreme outlier on privatisation, responsible for 40 per cent of the total assets privatised across the OECD between 1980 and 1996. Today, however, increasing inequality, poverty, environmental degradation and the general sense of an impoverished public sphere are leading to growing calls for renewed public ownership (albeit in new, more democratic forms). Soon to be free of EU constraints, it’s time to explore an expanded and fundamentally reimagined UK public sector.

Next, Britain’s industrial production has been virtually flat since the late 1990s, with a yawning trade deficit in industrial goods. Any serious industrial strategy to address the structural weaknesses of UK manufacturing will rely on "state aid" – the nurturing of a next generation of companies through grants, interest and tax relief, guarantees, government holdings, and the provision of goods and services on a preferential basis.

Article 107 TFEU allows for state aid only if it is compatible with the internal market and does not distort competition, laying out the specific circumstances in which it could be lawful. Whether or not state aid meets these criteria is at the sole discretion of the Commission – and courts in member states are obligated to enforce the commission’s decisions. The Commission has adopted an approach that considers, among other things, the existence of market failure, the effectiveness of other options, and the impact on the market and competition, thereby allowing state aid only in exceptional circumstances.

For many parts of the UK, the challenges of industrial decline remain starkly present – entire communities are thrown on the scrap heap, with all the associated capital and carbon costs and wasted lives. It’s high time the left returned to the possibilities inherent in a proactive industrial strategy. A true community-sustaining industrial strategy would consist of the deliberate direction of capital to sectors, localities, and regions, so as to balance out market trends and prevent communities from falling into decay, while also ensuring the investment in research and development necessary to maintain a highly productive economy. Policy, in this vision, would function to re-deploy infrastructure, production facilities, and workers left unemployed because of a shutdown or increased automation.

In some cases, this might mean assistance to workers or localities to buy up facilities and keep them running under worker or community ownership. In other cases it might involve re-training workers for new skills and re-fitting facilities. A regional approach might help launch new enterprises that would eventually be spun off as worker or local community-owned firms, supporting the development of strong and vibrant network economies, perhaps on the basis of a Green New Deal. All of this will be possible post-Brexit, under a Corbyn government.

Lastly, there is procurement. Under EU law, explicitly linking public procurement to local entities or social needs is difficult. The ECJ has ruled that, even if there is no specific legislation, procurement activity must "comply with the fundamental rules of the Treaty, in particular the principle of non-discrimination on grounds of nationality". This means that all procurement contracts must be open to all bidders across the EU, and public authorities must advertise contracts widely in other EU countries. In 2004, the European Parliament and Council issued two directives establishing the criteria governing such contracts: "lowest price only" and "most economically advantageous tender".

Unleashed from EU constraints, there are major opportunities for targeting large-scale public procurement to rebuild and transform communities, cities, and regions. The vision behind the celebrated Preston Model of community wealth building – inspired by the work of our own organisation, The Democracy Collaborative, in Cleveland, Ohio – leverages public procurement and the stabilising power of place-based anchor institutions (governments, hospitals, universities) to support rooted, participatory, democratic local economies built around multipliers. In this way, public funds can be made to do "double duty"; anchoring jobs and building community wealth, reversing long-term economic decline. This suggests the viability of a very different economic approach and potential for a winning political coalition, building support for a new socialist economics from the ground up.

With the prospect of a Corbyn government now tantalisingly close, it’s imperative that Labour reconciles its policy objectives in the Brexit negotiations with its plans for a radical economic transformation and redistribution of power and wealth. Only by pursuing strategies capable of re-establishing broad control over the national economy can Labour hope to manage the coming period of pain and dislocation following Brexit. Based on new institutions and approaches and the centrality of ownership and control, democracy, and participation, we should be busy assembling the tools and strategies that will allow departure from the EU to open up new political-economic horizons in Britain and bring about the profound transformation the country so desperately wants and needs.

Joe Guinan is executive director of the Next System Project at The Democracy Collaborative. Thomas M. Hanna is research director at The Democracy Collaborative.

This is an extract from a longer essay which appears in the inaugural edition of the IPPR Progressive Review.

 

 

This article first appeared in the 15 January 1999 issue of the New Statesman, A slight and delicate minister?