It's not that public ownership is always the right answer. The trick is the mix, and effective regulation and accountability
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David Cameron at PMQs this week. Photograph: PA
"The great thing about America," a British ex-pat friend once explained, "is that it shows so clearly the limits of what the free market can do." That was 20 years ago. Nowadays we could say the same about Britain and the boundaries between private and public services.
The UK private sector has had another bad week, but some people are so much happier beating themselves up over rampant privatisation – real or imaginary – that they don't want to notice. Where do I start ? The NHS? Education? Railways? Now that's a good one.
In the Commons yesterday I watched Patrick McLoughlin, the new transport secretary, and his team struggling to explain why the west coast franchise fiasco shouldn't result in the line returning to public ownership – as the east coast line did after its franchise shambles, so far with great success. It even makes money.
We saw that sort of choice on the London Underground a few years ago when Gordon Brown, then at the Treasury, insisted on three private contractors doing the infrastructure modernisation – it's what's also belatedly being done to our creaking railways. Mayor Ken wanted it done in-house, which is where much of it has ended up when the private options ploughed it.
It's not that public ownership is always the right answer. Often it's the wrong one, defended for the wrong reasons, including producer capture by managers – and unions – who want to run things as much for their own convenience. But the same applies to private sector panaceas. The trick is the mix, choice, contestability, competition, all subject to effective regulation and accountability.
Regulation? The Financial Services Authority, another flawed Gordon Brown project (but let's not just blame him), get another kicking today for failing to prevent RBS's fatal acquisition of the Dutch bank ABN Amro just before the big crash in 2007. That's no excuse for not trying, just for trying harder to get the structures right – George Osborne's new model is criticised too – and not skimping on quality.
The list goes on. This week the Guardian's Robert Booth reported on how the Tory leader of Cornwall county council, Alec Robertson, was forced to resign after a council vote (63 to 49) of no confidence in his plans for mega-outsourcing of council services. Patrick Butler's accompanying analysis recalled the Thatcherite fantasy of local councils "meeting once a year to hand out the contracts".
Cornwall is interesting, not just because it's my home patch. It's poor, it's an isolated peninsular except in the holiday months, and it's a monopoly local authority. That's right, the only one left after the last merger of five district councils, all folded into a unitary authority. Regulation and accountability is hard, though Felicity Lawrence's articles – here – about Serco's patchy and manipulated record with its GP out-of-hours contract shows it can be done.
Don't get me wrong. The mighty NHS has long been too much of a top-down monolith, directed as well as funded from Whitehall, too big to fail and too big to drive from the centre. I favour greater contestability and choice – more private and voluntary providers to improve the mix, promote innovation and efficiency, generally raise the service's game. Jeremy Hunt is announcing competence/revalidation checks for doctors today. Good.
But I assume the private sector's bluff will be called in many ways and quickly called even in non-acute services they seek to cherry-pick. They don't do A&E very well, for example. That's why Saudi princes who suffer heart attacks in Harley St are safer in NHS hospitals, which are used to such events. There's a stinker of a story about private hospital horrors in this week's Private Eye, by the way, but that doesn't invalidate their existence any more than an NHS horror story.
This week James O'Shaughnessy, a former Cameroon No 10 policy director, wrote a pamphlet for Policy Exchange suggesting that the private sector – in the shape of profit-making chains of academies – should be allowed to take over a swathe of failing state schools whose governance is so poor that it leaves no other choice if mediocrity is to be swept aide and poor kids given better life chances.
Well, I'm all for better life chances. It's what Alan Milburn, a poor boy who got lucky, is saying again this week about social mobility and our collective failure. But the state school system didn't grow up the way it did because Whitehall – busy running a world empire at the time – had nothing else to do. It did so because the private and voluntary (often religious) sectors were failing huge swathes of hard-to-reach kids.
Things are much better today, but it's still not good enough in a world where Chinese and Japanese kids are working harder and smarter, and where brains and skills matter more than ever. Markets may rescue clever poor kids – they do that well at Harvard – but they can't and won't do enough for most of them. Why not? Money isn't everything, but it does help. There isn't enough of it to go round to give everyone the Etonian education David Cameron says he wants them to have.
So we're discovering proper boundaries all the time, just as they did in the US all those years ago. Americans have been persuaded by rich corporations and their client politicians that socialised healthcare threatens their fragile sense of liberty. It costs citizens and the US economy enormous sums, much of which go to profits and salaries, not to better healthcare.
We can do better in Europe because we have stronger traditions, religious and secular, of social solidarity. We'll have to do better because the money is running out to fund even what we have. Across the EU we've been spending – and promising – more on public services, from health to pensions, that we've been able to raise in taxes without piling them on to middling earners.
The Scandinavians managed to do it, but their system is creaking too under the wider strains of global development, the have-nots finally getting their act together without the kind of welfare state Europe built over the past century. To keep afloat we'll all have to raise our game, Cameron's Tory conference speech got that bit right. But it won't be simply about adopting market remedies, as even he's begun to notice.
Today's battleground is another market failure. The privatised energy industry has delivered a lot of gains – including investment capital, always a problem for the public sector – but is widely seen as a six-party cartel acting against the interest of the consumer and the public interest. Surprise, surprise! Energy utilities have long been hated in the US.
In a throwaway remark to Labour's Chris Williamson at PMQs this week, Cameron carelessly promised to get everyone on the lowest tariff. Tweeting away, I missed its significance, but so did most MPs, too busy shouting, I expect. No 10 has been on the back foot ever since. Like Labour before it, it has dithered over its complex energy options, as Simon Jenkins explains again here. Last night Downing St was in retreat.
But the energy regulator has stepped in this morning, forcing the energy giants to reveal their lowest tariffs. Regulators are as vulnerable to producer capture as anyone else, and the struggle won't stop here. But it's a step in the right direction. Let's not take crap from these people just because they have a flashy logo and expensive lawyers. Market economy OK, market society not OK.
