Public v. Private

An interesting discussion has broken out after a recent post. A proponent of private enterprise is defending it against what s/he sees as the waste and inefficiency of the public sector. This is a huge area of debate, and I am neither an economist nor a politician; but it's worth setting out my beliefs on the subject, and later (possibly) relating the history of welfare-to-work as an illustration. There are, of course, many books on the subject which will reinforce whichever stance you take.

It is ironic that much of "nationalised" industry in the 20th century was forced on governments by the failure of private industries; coal-mining, railways and steel all came into public ownership that way. The NHS was the result of the failure of the private sector to provide universal cover. At the level of local government, council housing was necessary because the private sector couldn't house people adequately. In case we thought that nationalisation had had its day, we now own many of the banks because private enterprise failed.

Socialists take the view that most industries and undertakings should be publicly owned. That ideology gave way to the view that a mixed economy works best. But the pull to the right has been inexorable (the banks notwithstanding), and the prevailing orthodoxy is that markets provide the best mechanism for all industries and services. Profit is the best motivator. Public servants will always be underworked, overpaid and uncreative. The only actual evidence ever produced for this assertion is the catastrophic failure of the economies of communist countries, which has no relevance to modern, mixed economies.

Political parties took to promising to "reduce the size of the state". In practice, this means sacking civil servants and contracting out the services they delivered. At local government level, councils were, for example, forced to sell off housing and prevented from building more. They were forced to "deregulate" local transport, often resulting in a worse service. When the need for new services arose, it could often make sense to employ private companies to deliver them; "back-office" functions, heavily dependant on IT, could reasonably be contracted out. But often privatisation has been the result of government or local councils being unable to justify employing more people themselves. For instance, when government came up with the idea of direct payments for social care local councils had a choice; they could set up their own departments to deal with this, as most did; or they could find themselves bound by staff-cutting policies and fall back on private companies.

The only "market" in the delivery of public services is the competition between private companies to provide exactly what is required at the lowest possible price. It means that front-line civil servants, usually on very low wages but with job security, are replaced by even lower-paid people on short-term contracts. No entrepreneurship or creativity is involved, and hitting targets takes precedence over shaping an effective service. Large companies elbow out smaller ones, and a handful - Capita, Serco, A4e - come to dominate. Public monopolies rapidly give way to private monopolies.

That's where I stand. If you disagree, please give evidence.