Tuesday 16 July 2013 9:08 pm

Time to stop under-reacting to scandals in the public sector

GOOD intentions are never enough – and in most cases, they don’t even matter. That is one of the central lessons of economics: with the right institutions, including proper property rights, the rule of law and no artificial distortions imposed by politicians, self-interested behaviour in a market economy tends to bring about the common good.

As Adam Smith wrote in the Wealth of Nations, “it is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages.”

The problem is that the public don’t really see it this way – or if they do, they don’t like it. They grudgingly accept that capitalism works, but they continue to treat the profit motive with suspicion, as morally inferior to other forms of social organisation, such as state ownership or mutuals. Capitalism may deliver prosperity but it isn’t loved; and because it is based on self-interest it doesn’t engender any feelings of gratitude. The public seems hard-wired to favour altruistic behaviour, however unrealistic.

Private, for-profit firms are consequently held to higher standards than the public sector. Any error from the former triggers rage and retribution; blunders by the latter are met with greater indulgence and even, in some cases, with resigned indifference. Self-interest in the private sector is emphasised when trying to understand the motivations behind a major failure – but self-interest in the public sector, which often manifests itself in different ways (empire building, power and ego trips, ideological decisions and so on) is downplayed. A scandal caused by greed is deemed worse than any other; and greed, in this nonsensical worldview, only exists in the private sector.

This helps to explain the massively divergent reaction to wrongdoing in the City, such as Libor, compared with a scandal like that in the NHS, where poor-performing hospitals have inflicted unnecessary deaths and much suffering. The former was rightly a major global story, and angered the world, even though nobody died; but while the latter’s impact is slowly building, and MPs clashed over the health service yesterday, it remains depressingly low key in comparison.

The reactions have been utterly disproportionate to the gravity of the issue. I’m not downplaying financial scandals, quite the contrary – people who commit fraud should be jailed, and the authorities must crack down on illegal behaviour. But it is others who are downplaying the NHS and other public sector scandals, a situation which I find unacceptable.

Fred Goodwin was stripped of his knighthood; NHS chiefs have escaped unscathed. Why? Imagine what the reaction would have been had a private hospital made hundreds of errors, acted negligently and incompetently, and large numbers of its patients had died. There would rightly have been hell to pay. Yet eleven NHS trusts have been placed into special measures, and there are no occupy-style demos, no MPs calling for jail terms, no epoch-defining fury, no mainstream demands for the total reform of the health system, no cross-party pledge to end “business as usual” in the NHS.

We should treat everybody equally, and react equally to all scandals, public or private. There should be no difference in the treatment of dodgy bankers and dodgy NHS chiefs, incompetent outsourcing firms (such as G4S during the Olympics) and incompetent government. It is wrong that some private train firms treat customers like cattle – and it is equally wrong that some state schools continue to ruin the chances of children because of poor practices. It’s time to end the double standards – and for all, public and private, to face the same degree of scrutiny and accountability.

allister.heath@cityam.com
Follow me on Twitter: @allisterheath