What the capitalists really want

Since almost everyone in the public sector has been regarded with the gravest suspicion for the past 20 years - branded as backward-looking, unenterprising, workshy good-for-nothings, organising public services for their own comfort - it is only right that an equally cynical view should be taken of the private sector. As most economists would agree, the fastest-expanding markets of the future will be in personal services, including those traditionally provided by the state, such as education, health, social care, and so on. Tory attempts to nudge the public towards buying such services through the private sector largely failed.

For example, despite the propitious circumstances - growing affluence, rapid expansion of the middle classes, inadequate funding in the state sector - the proportion of parents choosing private schools rose only marginally. Now, private sector companies have tumbled to a better wheeze: muscle in on running government-funded services, through "partnerships" and contracts. How much better to enjoy a steady stream of guaranteed revenue from taxpayers than to risk offering services in the open market. In truth, private companies are no more enamoured of privatisation (in the extreme sense of charging the customer at the point of use) than a Tony Benn or a Roy Hattersley. That is the secret behind big business's love affair with new Labour.

None of this is necessarily an argument against the use of the private sector to deliver public services, but it is as well to be cold-eyed about it. The IPPR report on public-private partnerships, published last Monday, lacks this kind of clarity, being very largely sponsored by those who have most to gain from private companies delivering more government services. Its conclusions are in some senses unobjectionable, even pedestrian. Private finance should not be used simply as a device to keep capital spending off the Treasury books, nor should local councils and public agencies be allowed to believe that they can only have a new school or hospital if they get the private sector to build and run it. The mantra of commercial confidentiality should not override the need for transparency in the use of taxpayers' money. Private companies should not be favoured purely because they promise to deliver more cheaply. There should be clear criteria and genuine penalties for when private providers fail to deliver a satisfactory service. Above all, "at no point should it simply be assumed that the private sector is inherently more efficient than the public (or vice-versa)".

One may argue about the details. For example, it is all very well to demand, as the IPPR does, that private companies providing public services should be open and accountable and in the forefront of good employment practice; but the truth is that the freedom to ignore public sector sector niceties is often what gives a private company its edge of dynamism and flexibility. Again, the IPPR calls for watertight contracts to ensure that risk is genuinely transferred to private firms and that they cannot simply pass the costs of operational failure (as happened with Siemens over passports or Andersen over national insurance records) back to the taxpayer. But is it likely that Whitehall and town hall bureaucrats - the people judged too dimwitted in the first place to run services - can outsmart the cleverest corporate lawyers on these matters?

There are more funda-mental flaws in the IPPR approach, however. Its determined pragmatism leads it to the banal conclusion that the private sector should be used when it is . . . well, better. There are two reasons why this won't do. The first is elegantly argued by Michael Jacobs in his essay on page 29: the means by which services are delivered really do matter as much as the outcomes, because the means define the respective roles of the public and commercial realms and so help to shape the kind of society we become.

The second is that, as argued here last week, what keeps the private, profit-making sector honest is the customer, and the customer's freedom to walk away. This is why, for example, the French system of healthcare, in which people purchase from private providers and then claim the money back from the government, makes a kind of sense. But privatisation here has frequently involved services to vulnerable people who have no power of exit and sometimes lack even the clout to bring service failure to anybody's attention. In such cases, of which housing benefit, pensions payments and prisons are the most notorious examples, private sector performance has often been abysmal.

It is because it does not tackle these underlying questions that the IPPR report must be regarded with suspicion. For all its strictures on misuse of private providers, it ultimately sets no boundaries on their encroachment into the public sector.

Dirty tricks at Millbank?

Have Labour's spin-doctors erred? Fatally, perhaps? Suddenly, Kenneth Clarke, whose Europhilia made him an implausible candidate for the Tory leadership only weeks ago, looks a likely winner. This is because the message, which has consistently emerged from Downing Street since the election, is that there probably won't be a referendum on entry to the euro in this parliament. So Mr Clarke's stance on Europe becomes an irrelevance: he can lead the party for five years without mentioning the subject. And Mr Clarke is surely the Tory leader most likely to win an election. But more subtle forces must be at work, as new Labour spinning is infallible. So here's the game plan. Mr Clarke becomes leader; his party surges in the polls. Next spring, Gordon Brown emerges from the Treasury shouting "April fool!" The five tests have been met; there will be an immediate referendum. The Tories, with a pro-euro leader heading a party of rabid sceptics, fall into renewed and terminal disarray.

This article first appeared in the 02 July 2001 issue of the New Statesman, Best of young British