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Eight Examples Of How The Government Experiment With The Market Has Failed

31/05/2017 12:54 BST | Updated 31/05/2017 12:54 BST

For over thirty years it has a been a central assumption among UK politicians that, if you can include markets and private companies in public provision, it will produce better results. This started with Margaret Thatcher's government but has continued under both Labour and Conservatives.

The method has ranged from full-scale privatisation to outsourcing of public services to private companies and the introduction of market-based competition. It has been assumed throughout that this will obviously improve services. However where is the evidence? Where are the examples of market-based success?

In contrast, it is very easy to find examples of market-based failure, many which have been catastrophic in their results.

Housing: In the 1970s, 55% of all new homes were built by the public sector. Thatcher believed that housing provision would be better provided by the market and banned councils from borrowing to build houses - a ban that has remained for 35 years.

The result: A shortage of housing, unaffordable prices and sky-high rents.

Railways: The result of rail privatisation has been that we have the unique combination of the highest level of subsidy and the highest prices of any country in Europe. A clear majority in opinion polls supports the bringing back of the railways into public ownership.

Railtrack: The rail infrastructure was initially privatised. However the profit-focus led to it paying more attention to raising money from retail opportunities at stations than core issues like safety. After the Hatfield crash, Railtrack collapsed and was brought back into public ownership. The British rail system now has a strong record of safety over the last fifteen years.

Pensions: It was John Major, as a Junior Minister, who is said to have steered through the legislation to encourage people to opt out of state pensions. The idea was simple, that they would do better by relying on competitive private providers. What could go wrong?

As the Daily Telegraph commented last year, quoting pension experts Hargreaves Lansdown, "most people who had been contracted out ended up being worse off". Or, as the Independent put it back in 1994, quoting accountants Coopers & Lybrand, "out of the six million who left SERPS for the private pension train, 2.4 million were taken for a ride .. with inappropriate pensions products"

Energy: No political party seems happy with the results of privatisation of energy suppliers. There is no longer any suggestion that it should be left to the market. The debate is whether they should be regulated by market caps or nationalised.

Schools: Schools cannot be run for profit but it was the idea of competition and market mechanisms that drove Gove's massive expansion of academies and the introduction of free schools.

The House of Commons Education Select Committee concluded that there was no evidence that academies performed better than other state schools. The DfE's own analysis goes further, finding that Multi Academy Trusts underperform compared to other schools.

PFI: It is of course not only Tories that have turned to private provision. Gordon Brown used the Private Finance Initiative to keep the debt of new Public building off the government balance sheets. And surely by shifting both the risk and the responsibility to the private sector, it would be a more cost effective solution.

Schools and hospitals are still bearing the massive cost of the PFI experiment and will continue to do so for decades.

Outsourcing: Public sector organisations have always bought from the private sector and it clearly makes sense to do so for a huge range of products and services. However the last thirty years have seen widespread outsourcing of services previously provided by the public sector, ranging from back-office functions like IT to public facing functions.

There may be cases where a small entrepreneurial company could, or does, provide an innovative service. And there have been successes where parts of the public sector have become social enterprises - run for a purpose rather than for-profit.

However the standard government procurement approach leads to most contracts going to the likes of Serco, Capita, G4S or ATOS. And it is hard to think of anybody happy with their service. Consultants who work for those companies, whatever their wishes, find themselves focused by their companies on delivering the minimum that the contract promises at the lowest cost to them.

One DWP Director told me, when they sourced their IT from EDS: "We are their 2nd biggest client worldwide and they treat us like s**t". With a 25 year contract EDS saw little need to focus on customer satisfaction.

Innovation: The assumption is that only the private sector innovates. Where would we be now without penicillin, laser technologies, the internet, the world wide web, graphene and the like? Except all of these, responsible for some of the biggest change of the last 100 years, came out of the public sector. Even Google's search engine resulted from research at a university, not from private sector funding (for which Stanford University received shares which they eventually sold for $336 million).

The market clearly does bring benefits in retail markets, whether its an amazing supply of food in the local supermarket or great value technology. And there are one or two examples of public services that seem to manage to be well provided by private providers, such as local rubbish collection.

But why should markets bring benefit to, for instance, the housing sector? A market will balance supply and demand at a specific price. But there is nothing in the nature of markets to provide products or services to all. For those who can't afford the price of food in a famine, or those who can't afford the current price of a house, the market offers no solution at all.

The assumption of private-good, public-bad has led to some disastrous consequences for public services. Anybody arguing for markets or competition in public services needs to give examples of where it has worked and why it will be different from what has gone before.

This election should bring a change, with even the Conservatives arguing for a positive role for the state. However it is only Labour that is promising an end to the market-led disasters that the public sector has subjected itself over the last four decades. At last we may have a triumph of common sense over ideology.

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