Tom Bower’s recently published biography of Tony Blair is fascinating. Not because of any sensational revelations, but rather because of the relentless narrative describing the failure of politicians and senior civil servants to understand how to make public services work more efficiently, or indeed how an economy really works at all. They simply didn’t get it.
Fast-forward to the present day, and the junior doctors’ dispute is merely the latest incarnation of this. I don’t want to wade into the rights and wrongs of the strike, other than to say that it is crazy to set pay in Whitehall. Pay should be decided at the local level, by the hospital chief executive or the school head. But for that to happen, you need a market.
Blair came to power with a commitment to end the hated internal market in the NHS, and his first term saw promises of new money and targets for standards set in Whitehall (for both health and education). Oh, and very little changed. What a surprise. Anybody with a basic grasp of economics and economic history could identify the problem. The Blairite mantra of “standards not structures” was fundamentally wrong, because it was the wrong way around.
At the beginning of Blair’s time in office, the idea of structuring health and education to maximise the incentives for improved performance – through choice and competition – was seen as an alien concept. Structure was a dirty word. By the end, however, one senses Blair truly understood that it was all about structure not standards. Health and education could still be free at the point of use, but they didn’t have to be delivered by public sector monopoly provision.
Blair had landslide election victories. Just as only Nixon could go to China, or only Reagan could offer a nuclear free world, only a Labour Prime Minister could probably undertake fundamental public service reform in the direction of the market. What a waste.
In fairness to Blair, he at least saw the light (at least partially). Unfortunately he was (and probably is) the only member of the Labour Party who did! In my more reflective moments I do have sympathy for him. After all, with Gordon Brown next door blocking any move towards the private sector and hell bent on making every last man, woman and child dependent on the state, it wasn’t easy.
We have choice up and down the high street, in every area of our lives, but in probably the two most important areas, our children’s future and our health, we are wedded to public sector monopoly provision. Both Labour and the Conservatives have played with perestroika, trying to make the system more efficient, and the current government has taken some big steps in the right direction. But health and education remain producer-led public monopolies. These are weakly contested markets, and seem certain to remain so. The producer versus consumer power balance has shifted, but it’s a triumph of rhetoric over reality if you believe the forces of competition and innovation have been unleashed.
In the twenty-first century, this lack of competition and innovation could cost us dearly. One of the simplest big ideas of the coming decades is that health and education will be growth markets. We need to transform our thinking from seeing them as public sector cost burdens, to private sector growth opportunities. If health and education grew at 5 per cent per annum instead of 2.5 per cent, they would contribute 0.75 percentage points to GDP growth i.e. more than a third of current trend growth.