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ppp Thursday, 6 September, 2001, 10:09 GMT 11:09 UK
The grip of the state
There is nothing new in governments allowing private companies to run public services - until World War I, it was pretty much the norm. BBC News Online looks at the history of public services, and traces how the state has slowly increased its role over the last two hundred years -until recently.

Much of the controversy surrounding the government's plans for public-private partnerships springs from the assumption that public services are the sole preserve of the state.

Over the last two decades, Britons have become accustomed - albeit at times reluctanctly - to paying private firms for their water, electricity or telephone calls.

Yet most still feel that allowing profit-making companies to run services such as healthcare, education, prisons and so on - all firmly at the heart of New Labour's private finance initiative - would be a dangerously radical step.

But looked at in the broader historical context, there's nothing radical about public-private services at all.

Indeed, it's only in comparatively recent years that the British government has taken public services under its wing.

Private beginnings

Of course, for much of its history, Britain's rulers did not have the money or the leisure to provide universal services to their subjects.

Most of the services we take for granted today evolved out of private initiative.

Fire-fighting services, for example, were started by early insurance companies, which wanted to safeguard the houses they covered.

Most of the sketchy healthcare and education was provided at parish level by charitable individuals or the church.

The laisser-faire revolution

But by the end of the 18th century, what had begun as government negligence had crystallised into definite policy.

The publication in 1776 of a book called "An inquiry into the nature and causes of the wealth of nations" by Edinburgh economist Adam Smith refined the laisser-faire theory, and dominated government thinking for more than a century.

Adam Smith's underlying principle - the essence of what was yet to be called capitalism - was that the pursuit of individual self-interest was the quickest route to the improvement of collective welfare.

Smith meant to argue merely that business people should be allowed to get on with their work unencumbered by bureaucratic interference.

But the over-enthusiastic reception of his work, and that of his many followers, resulted in the firm belief that any sort of government intervention - even most kinds of charity for the poor - would harm society as a whole.

Small Victorian government

Throughout the 19th century, Adam Smith was king, and governments remained determinedly small.

Largely thanks to the work of a few campaigners, reforms were made here and there.

The Poor Law of 1834 was the first hesitant move towards a state welfare system, and access to education was widened in the 1870s - after the electoral franchise was widened.

And the fear of water-borne diseases like typhoid led the building of sewers and waterworks by local governments.

But Britain ended the century much as she began it - with a tiny government, few civil servants, unfettered capitalism and most utility services in private hands.

The turning point

Things started to change in the 20th century.

Local government, not national government, was the driving force for futher state involvement up to the First World War.

Transport systems, gas and electricity and even banking services were municipalised.

But the first real step towards today's big government came in 1911, when Britain introduced a swathe of welfare measures, including the world's first unemployment benefit.

Eight years later, the ministry of health was created.

The moves came some 30 years after Germany had introduced the first social security system.

In Germany, the move was largely aimed at keeping the potentially restive working classes quiet.

In Britain, however, the motives were more complex.

On the one hand, governments were keen to defend themselves against the threat of socialist revolution, and were certainly under more democratic pressure as more people were given the vote.

But at the same time, there was also pressure from a growing sense of altruism - something that ran counter to the Adam Smith philosophy - and the softer line pushed by economists such as John Maynard Keynes.

Keynes, who believed that governments could and should control economy and society, was the dominating figure of mid-20th century policymaking.

Learning to intervene

But it still took two world wars and a depression to push Britain towards the sort of state-driven model we have today.

During World War I, some industries were nationalised, but most passed back into private hands during the 1920s.

The Tory governments that fought World War II were determined to intervene as little as was possible.

It was only after the war, under the Labour government of Clement Atlee, that serious moves were made.

The Bank of England, and the transport, water and energy industries were nationalised in the late 1940s, and steel was put in state hands a few years later.

In 1948, the National Health Service was set up, and saw its budget double in the first 10 years.

The swollen state

Although a few later governments - notably the Heath administration of the early 1970s - paid lip service to rolling back the state, the government kept on growing.

By 1976, the civil service had reached its all-time peak, with over three-quarters of a million employees.

All in all, the huge inflation in state services paved the way for the severe Thatcherite reforms of the 1980s.

But some economists argue that the Thatcher revolution really did little to diminish the state's role.

Some companies were privatised, but that move represented little more than the reversal of the nationalisation policy of the 1940s, rather than any more thoroughgoing restructuring of the way Britain's government functions.

Certainly, although the number of civil servants has fallen by around one-third from its 1976 peak, the big ministries remained powerful engines of economic and social policy throughout the 1980s and 1990s.

It remains to be seen whether New Labour's plans to cut back the government's role in core services, means that a genuinely revolutionary reform on the cards.


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