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                                                                              RADIO 4
CURRENT AFFAIRS     



ANALYSIS  
GOING PRIVATE

TRANSCRIPT OF A RECORDED DOCUMENTARY

Presenter: Frances Cairncross
Producer:  Zareer Masani
Editor:  Nicola Meyrick


BBC 
White City
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020 8752 6252



Broadcast Date:  16.08.01
Repeat Date:  19.08.01
Tape Number: TLN133/01VT1033
Duration:  


Taking part in order of appearance:


John Monks
General Secretary of the Trades Union Congress

Charles Clark, M.P.
Minister at the Cabinet Office & Chair of the Labour Party 

Gwyneth Dunwoody, MP
Chairman of the Commons Select Committee on Transport

John Kay
Economist 

David Green
Director of Civitas, the Institute for the Study of Civil Society

Prue Leith 
Chairman of "3 Es" and former restaurateur

Martin Taylor
Chairman of W.H. Smith & Chair of IPPR Commission on Public-
Private Partnerships

Professor Allyson Pollock
Head of Health Policy and Research at  University College, 
London




CAIRNCROSS		If you're tired of waiting for that hip replacement, or  
worried about your child's failing school, or fed up with cancelled rail services, 
you may be hopeful about New Labour's promise that reviving public services is 
at the heart of its agenda for its second term. Ministers know that it will be 
difficult to sustain a revival of the old-fashioned kind, fed with bucket-loads of 
public money.  For all sorts of reasons, the private sector needs to be involved. 
But does the Government have a strategy that will produce measurable results?  
And is it prepared to take on those whom Tony Blair calls "the forces of 
conservatism"? 

MONKS			I think it's a huge issue.  I think it's one in which the 
Labour party will find itself embroiled above all others - not just an issue of 
managing the public services but an issue of managing their own party as well.  
This is an issue that gets the emotions racing very, very quickly.

CAIRNCROSS		John Monks, General Secretary of the Trades Union 
Congress.

MONKS			There is a strong sense within many public sector 
workers of a public sector ethos, and the admiration for all things private which 
can pervade some government statements, I think completely ignores that and is 
in danger of confronting it.  And so, from the union perspective, we're left with a 
feeling that the private sector could do little wrong and the public sector can do 
little right.

CAIRNCROSS		The hostility of public sector unions to more private 
involvement maybe predictable.  But is the government being a bit naïve about 
the virtues of going private?Charles Clark, chair of the Labour Party, is also the 
Minister responsible for co-ordinating policy on this issue. 

CLARKE			There isn't an issue of fanaticism of the convert.  The 
Labour party's been arguing this for a long period of time.  What does the private 
sector offer?  In some cases experience, in some cases good quality 
management, in some cases a wide range of commercial practice which can 
help the public sector.  It depends entirely on a balance of judgement at any 
particular service in a particular area as to what kind of assistance there can be.  
The areas where private sector involvement can help in the health service, for 
example, are different to where they could help in transport, are different to 
where they could help in schools.

CAIRNCROSS		That sounds more like nervous pragmatism than a 
clear view of what the private sector can or can't do. The government has high 
hopes of having the best of both worlds through various sorts of public-private 
partnerships. For example, with private finance initiatives, private contractors 
borrow money to finance construction of new hospitals or transport projects, 
taking their payment from revenues or from government subsidies. But do the 
policy-makers have a clear idea of what to expect from such deals?

DUNWOODY			No, I'm very sorry to say I don't think they 
have.  I think that this was an idea that was originally thought of because they 
thought when they got into government they were going to have great difficulty 
raising sufficient sums of money to modernise very old systems that had been 
neglected - in some cases for up to 50 years or more.

CAIRNCROSS		The veteran Labour M.P., Gwyneth Dunwoody, Chair 
of the Commons Select Committee on Transport, has built a reputation for 
forthright independence.

DUNWOODY		It seemed an easy solution to say, 'well we'll go into 
private-public partnership because they will produce the results without costing 
the tax payer the extra amount of money'.  Unfortunately, a number of studies 
since that time have shown that that is not the case.  But, in the interim, the 
government seem to have wobbled slightly but not clarified their own views.  So 
that they are sticking to what I can only call an ideological commitment to private 
finance initiatives against a lot of sensible advice and evidence.

CAIRNCROSS		There are lots of other ways aren't there in which the 
government might or has talked about fusing the public and the private?  Do you 
think they're just being pragmatic and that they've got a number of different ideas 
they're trying out?

DUNWOODY		If it were pragmatism I would be delighted, but the 
reality is the evidence of what has happened under private finance initiatives.  
We were told the railway industry would be able to raise vast sums of money 
because of it's public-private finance initiatives.  It would have vast numbers of 
companies coming in, providing much higher standards because they would 
understand the effects of competition.  And the evidence points all the other way.  
It's all very well talking about the initiative and the entrepreneurship and the 
superb imagination and clarity of private industry.  I have to say, there is not a 
great deal of evidence of it in those industries where they've moved in.

CAIRNCROSS		Certainly the example of Britain's privatised railways 
has been a dire advertisement for private ownership of former public services. 
But other privatised companies, such as British Telecom or British Gas, have 
done much better. To focus on the rail debacle is to lose sight of a bigger issue: 
the compelling need to get not only private money but private management 
strengths into the public sector. Does the economist John Kay, who has written 
extensively about this issue, believe that is possible?

KAY				If we ask why do competitive markets work well, then 
I think it's because of three A's in a sense.  There's autonomy, there's audit and 
then there's accountability - these are the real competitive market private sector 
virtues.  And the real challenge for us in the public sector is to introduce all of 
these - autonomy, audit, accountability.  Now we're doing bits of that.  We've 
created an endless number of audit mechanisms in the public sector over the 
last few years, and most of that is to the good.  But it's not really to the good 
unless it's accompanied by the two other things, which are you actually give 
people autonomy to make decisions and then there's real accountability in which, 
if people are shown to have failed to achieve the kind of things we want from 
them, they actually have to suffer the consequences.

CAIRNCROSS		But importing that kind of autonomy and 
accountability into state-owned public services is clearly not easy. The 
government sometimes has broader political aims that clash with the principle of 
autonomy – for instance, it may want to keep open an underused school in a 
marginal constituency. And accountability, in the sense of getting rid of people 
who do their job badly, is a great deal harder in the public sector with its tradition 
of jobs for life.  

Certainly the virtues of the private sector will not be acquired simply by 
subcontracting a few peripheral services. David Green, Director of Civitas, the 
Institute for the Study of Civil Society, argues that the Government is shirking the 
far more radical issue of injecting into the National Health Service the true private 
competition that it needs.

GREEN			They've accepted that the National Health Service 
should continue to be a public sector monopoly, and they plan to ensure 
consumer choice - a comprehensive service of high standard care - within a 
public sector monopoly, and they plan to use private organisations as a means to 
these central ends.  And I think that that simply misunderstands the best way in 
which private organisations can be used.  It's better to treat private organisations 
not as if they were sub-contractors meeting central targets but as, if you like, 
explorers finding better ways of meeting consumers' needs.  And if you don't 
have that mechanism, then you're simply not using the private sector in it's best 
capacity.  This, I think, has been obvious since the 80s when the Tories 
introduced compulsory tendering for cleaning, catering and laundry within the 
NHS hospitals.  And what they did was, they set the targets saying "right, you've 
got to provide this standard of service and then you compete on the price".  So 
there was no competition really in respect of the manner in which the service 
was provided or the degree of consumer responsiveness.  And what happened 
was prices tended to be driven down very low.  In many cases, cleaning, for 
example, and catering had got worse because the private contractors had to 
meet certain specifications at the lowest possible price.  When that happens, 
you're just not getting the best that can be obtained from the private sector.

CAIRNCROSS		Perhaps private-sector tendering would be regarded 
with more enthusiasm if the government did things the other way around: fixed 
the price, and then let bidders compete on quality and innovation. Instead, the 
ways that the government has used private contractors to deliver public services 
have reinforced all the deep-rooted prejudices of British voters that profit-making 
companies are interested only in cutting corners and costs. It will not be easy to 
persuade people that Microsoft, say, could really be trusted to run schools or 
Glaxo Smith Kline to operate hospitals in ways that both served the public 
interest and made commercial profits.  

But what about the not-for-profit sector? There are now some successful 
examples of private management turning around failing local-authority schools. 
Three Es, a small not-for-profit company, recently won the contracts for running 
two state schools in Surrey.  At its helm is the former restaurateur, Prue Leith. 

LEITH				The freedoms that are essential in the contract are 
the really important things - the freedom to hire and fire the teachers, the 
freedom to set the curriculum, the school day, do deals with other bits of the 
private sector, to get sponsorship money, most importantly, to have the majority 
on the governing body.  I don't think there's any difference between turning 
round a school that's having trouble and turning round a company.  If you want to 
change the ethos and the culture of a company to make it behave better to it's 
customers - which is what I regard children in school as - then you have to work 
on everybody.  You have to work on the children, you have to work on the staff.  I 
mean, it's exactly the same as catering management as far as I'm concerned.  
There's no magic bullet.  It's not just about having no long lunch-hour or just 
about painting the corridors, or just about changing the curriculum.  It's a million 
little things.  

CAIRNCROSS		Well, with a bit of political will of course the 
government could give all school governors the powers that you have had - the 
powers to fire teachers much more easily and to hire whoever they wanted.  
Would that not make it easier for the public sector to do what you have managed 
to do?

LEITH				I think it would.  I think you must worry a bit though 
about the competence of governing bodies.  You have to have some quite 
powerful people on the governing body.  I mean, you need to be able to walk into 
boardrooms and get money; you need to be able to inspire the local art centre to 
collaborate with you so that they can do your ballet classes; you need to be able 
to talk to the local university about sharing IT for the science lessons in the sixth 
form; you need to be able to engage all sorts of other people than the school; 
and I think that's tough for some governing bodies.

CAIRNCROSS		One striking lesson from Prue Leith's experience is 
that a few capable and experienced professionals, who really understand an 
operation, can make all the difference to the way it works. Another lesson is the 
value of keeping an open mind about the ownership of bodies that can manage 
public services capably.  For all the talk of a "public service ethos", a well-run 
not-for-profit business can also deliver good service – as, indeed, do lots of 
profit-making companies. All this makes people such as Martin Taylor wonder 
about the rigidity of the divide between public and private in Britain. Not only is 
he the chairman of W.H. Smith and the former head of Barclays Bank; he also 
headed a Commission on Public Private Partnerships set up by the Institute for 
Public Policy Research, a think-tank with strong ties to New Labour.

TAYLOR			What seemed to us strange was the very arbitrary line 
drawn in the public services between areas where the private sector was allowed 
and areas where it was taboo; and we couldn't get any sensible explanation for 
this.  And people would say, 'it's intolerable to profit from illness'; but, you know, 
you might as well say it's intolerable to profit from the provision of vegetables.

CAIRNCROSS		Why have we in Britain become so hung up on this 
division?  Where does this come from that we feel that some things are properly 
done by the private and some by the public sectors.

TAYLOR			My personal view is that the problem is mostly with 
the National Health Service where some things can barely be spoken about.  
And we found in some of the meetings we had that, you know, when you 
mentioned the introduction of any private provision of any kind, when you 
mentioned the outsourcing of services, or when you mentioned that you might 
use private hospitals more widely, somebody would stand up and blow a whistle 
and scream "privatisation!" as if that brought the debate to an end; that it was 
literally unthinkable and unsayable.  We have got ourselves into an extraordinary 
position about the NHS, because on the one hand the public thinks that it is a 
marvellous thing to have a service which promises so much and, on the other, it 
thinks it's frightful that in many cases it doesn't deliver.  And I don't know how 
long we, as a nation, can go on carrying these two thoughts around in our heads 
simultaneously.

CAIRNCROSS		Is what you're really saying, that there is a spectrum 
of different ways to provide and that our approach makes it impossible for us to 
think fluidly, as it were, along this spectrum?

TAYLOR			That's what I'm saying.  It's interesting that places 
where the authorities have gone a very, very long way towards private provision 
are in mental hospitals and failing schools.  And the treatment of mental patients 
is not as visible to the public as hospitals in general and this doesn't seem to be 
controversial.  The results, as far as we can ascertain, are reasonably good.  It's 
bizarre, equally, that it should be okay to bring the private sector into a failing 
school but then boot it out as soon as the school has turned round.  If the private 
sector is good enough to rescue a failing school, why can't it make a good one 
better?

CAIRNCROSS		The government's tendency to hand over its worst 
failures to private contractors does no good to the cause of promoting more 
public-private partnerships. Far better would be to get companies, both for-profit 
and not-for-profit, to run mediocre schools, prisons and hospitals and see 
whether they can do a better job for the same budget than public-sector 
managements. 

Such experiments might be politically sensitive, but not as much as an even 
more taboo issue: whether people should pay directly for more of the public 
services they receive. Of course, people already pay for lots of publicly provided 
services – for dentistry and swimming pools, for school music lessons and for 
medical  prescriptions, and of course for public transport.  But mention the idea 
of extending consumer choice and charges further into health or education, and 
the response from Ministers is stern. Charles Clarke.

CLARKE			If you're talking about buying a hospital bed at BUPA 
or if you're talking about buying a place for your son to go to Eton, that clearly is 
privatisation.  It's something we don't want to go down; our political opponents do 
- they say we should be going down that course.  We believe in contrast that 
good quality education in your local community, or a hospital bed if you need it, 
is something you deserve as of right without paying for it.  We're therefore not in 
favour of privatisation.  What we are saying is if we can enhance the quality of 
that service in a hospital, in a school, at your GP or whatever by using the skills 
and …. of the private sector, then we should do so. Our political opponents to 
the right say, 'no, no, no, allow people to buy it more - go down a voucher system 
or whatever'.  We don't think that's the right approach.  We think the freedom at 
point of use is a terribly important principle which is fundamental to our ambitions 
for social justice.  Paying for some things is fine, paying for other things is not.  If 
you take health, people may pay to go to a chiropractor or something to solve 
their back or some other therapy.  On the other hand, I think if you have an 
accident and your leg is broken, it shouldn't be a requirement that you have paid 
in order to be able to get it fixed.  The American health system is a classic 
example of the terrible problems that can hit families if there's a requirement to 
be insured,  to have paid,  before being able to get a service.

CAIRNCROSS		But America is not the only country in which people 
contribute directly to the cost of their health care. They do so to some degree in 
almost every other country in the world. It is Britain that is odd-man-out here. In 
most of Europe, health care is financed by a mixture of social insurance 
(sometimes provided by private companies) and direct charges.  So is the British 
objection to paying directly for health care simply a hangover from the heyday of 
the welfare state?

POLLOCK			The minute that you introduce user charges, you 
introduce a regressive element to the funding of health care and you create a 
market where you have winners and losers.

CAIRNCROSS		Professor Allyson Pollock is head of health policy and 
research at  University College, London.

POLLOCK			You create the ability for people who can afford to 
pay to opt out - a) to opt out of the risk-pool, but b) then to actually opt into a 
market where they can gain access to services on the basis of ability to pay and 
not need.  And one of the problems in France is that they're actually struggling at 
the moment with the regressive elements of user charges especially in the 
ambulatory care sector where there are mainly for-profit private providers.

CAIRNCROSS		But isn't the danger of this fixation with preventing 
winners and losers that you end up with a service of low quality and that the 
middle classes just vote with their feet, a growing number of them opt out of the 
service and the service gets caught in a downward spiral?

POLLOCK			The danger is when governments refuse to invest in 
their services.  This is a political decision about where we put our money.  One of 
the big problems is the UK's capacity - you won't be able to get any choice 
whether you're in a private or a public system because we have insufficient beds, 
supply, doctors and nurses.  And all you do, is if you opt out for the private 
system, you take the same doctors and nurses that work in the NHS there with 
you.  So, in order to really build choice, you have to build investment, and 
investment is not just money; investment is your labour force; because, after all, 
60 to 80% of the NHS budget is spent on the labour force.

CAIRNCROSS		But surely it's utopian to imagine that any government 
could afford through taxation alone to restore the NHS to its former glories. 
Indeed, with an economic slowdown about to cut into tax revenues, the 
government will find it hard to keep even its existing promises. Yet, as Martin 
Taylor points out, the demands for and costs of health care are bound to grow 
dramatically.

TAYLOR			I think these issues are going to become explosive in 
the next 10 years. We're going to hit this very quickly with the results of the 
biotech revolution in the next 10 years.  Some techniques and therapies are 
going to become available which will be transforming; and they will be, to begin 
with, very expensive; and to offer them "free" on the NHS is going to put 
enormous strains on the public budget.  As I understand the legal framework of 
the NHS, at the moment the service has no choice but to offer these things when 
they get past a certain stage; and the only way that it can save money is to make 
people wait indefinitely for them - which is just another way of charging.  You 
know, we have two ways of charging, one is to ask people to pay, the other is to 
ask people to wait.  We have confused moral views about these things.  We 
think that asking people to wait is fairer, because we think that somebody there 
can judge exactly how long the queue should be and who should be in it, in 
which order and who should jump the queue and who shouldn't; and it doesn't 
depend on how much money you have.  But we know very well that people with 
money can jump the queue in any case, because they can take themselves 
private.

CAIRNCROSS		So the question is not whether we have a two-tier 
system, but whether we create more ways to pay top-up charges for rather better 
treatment. David Green of Civitas thinks there is no reason to assume that this 
would necessarily harm the poor.

GREEN			The challenge is to ensure, as a matter of public 
policy, that the lowest standard available is an acceptable standard.  People 
sometimes use the phrase 'two tier system'.  If you had a separate system for 
the poor and the poor alone - let's say like the American Medicaid - there's 
always a danger that that will become a kind of second class standard, which is 
beneath what most ordinary people would expect to have if they were paying 
with their own money.  But if you follow the social insurance models which are 
prevalent on the Continent, then it doesn't mean that the poor are locked into a 
distinct set of services only for them - they're using the same doctors and the 
same hospitals.  They have been empowered with a choice.

CAIRNCROSS		If the public services collected more of their funding 
directly from the people who used them, there would be further advantages. 
They would almost certainly become more responsive to the demands of their 
clientele. And they would have greater freedom to experiment. For with 
government funding all too often goes the iron grip of government control. And, 
as economist John Kay points out, the proliferation of directives and targets 
today suggests that Mr. Blair is as keen on centralised planning as any old-style 
Socialist.

KAY				If someone in the centre telling people what to do and 
then seeing if they've done it worked, Russia would have worked.  And the 
reason it didn't work is that the people at the centre couldn't possibly have had 
the information to prescribe clearly what needed to be done; and in the attempt 
to do so they actually destroyed the authority, the pride in the job, the flexibility of 
people who were working for them.  That's the system which we're actually now 
in danger of reproducing in the UK as we have more and more specific directives 
and targets being sent out to tell people in public services what to do.  So when 
we're talking about blending the private and public sector, it's not a matter of 
trying to write very complicated contracts, which is more or less bound to fail.

CAIRNCROSS		Now, in a great many public services there's an 
element of all or nothing - you either have comprehensive education or you don't 
have comprehensive education; there is no middle ground.  And that seems to 
me to be a big problem of consumer choice.

KAY				Well, there is too much uniformity in what the public 
sector offers at the moment, but there doesn't actually need to be.  The case of 
comprehensive education is a good example, because it was quite sensible to 
experiment with comprehensive education.  As it has turned out, it was an 
experiment that didn't work.  But the big mistake that was made was that 
comprehensive education was introduced on a nation-wide basis, and then there 
was no real review of how it was doing until a very long time after it was obvious 
to almost everyone that the experiment had been unsuccessful.  In terms of my 
requirements of autonomy, audit and accountability, there was actually none of 
these.  It would have happened in a private market but it could happen and 
should happen in a properly managed public system.  You have experiments 
with new systems of education, you have rather careful review of the results of 
these experiments and people who engage in successful innovation get 
rewarded and people who engage in unsuccessful innovation don't.  That's the 
way private competitive markets work.  

CAIRNCROSS		According to this analysis, New Labour, desperate to 
improve public services without attracting too much political flak, is developing 
exactly the wrong sort of mechanisms. The results are not just accident-prone 
but often counter-productive. Look at the way that some hospitals now meet their 
waiting-list targets by dealing first with those who are easiest to cure rather than 
with those who most need treatment.  

Why is the government so reluctant to devolve more responsibility for running 
local services, especially when Charles Clarke says he agrees entirely with John 
Kay?

CLARKE			He's absolutely right that all the evidence is that 
where you have a decentralised approach it works best.  There is, however, a 
problem.  There are examples of areas which are decentralised, without any 
central ownership or accountability, where things have gone very seriously 
wrong, where national government is accountable, where schools have gone 
wrong or hospitals have gone wrong or whatever it might be.  And I don't think 
we can completely ignore that.  But the fundamental point he makes that we 
mustn't be over-prescriptive and must encourage entrepreneurship, creativity in 
particular localities is right; and to do that we need more decentralisation is right.  
But, obviously, the balance of how you do it is not always easy to get right.  The 
distinction between regulation and bureaucratic paperwork is a nice one, if I can 
put it like that.

CAIRNCROSS		In other words, we know what we ought to do but we 
are frightened of facing the political consequences when experiments fail. Mr 
Clarke's timidity is not just a sign of weakness. It reflects a genuine ambivalence 
among voters. They want better services and might welcome innovation – but 
they also want to be able to savage a politician whenever innovation backfires. In 
addition, as long as the taxpayer foots the whole bill, the government has good 
reason to be afraid of runaway costs. Martin Taylor.

TAYLOR			 There is this terror of course.  The public sector is 
driven not by profit but by cost.  It's driven by half of the capitalist equation, and 
so everything is about controlling money, and the fear of decentralisation is the 
fear of losing control.  We need a different kind of control and a different kind of 
cost-benefit analysis.  The thing that business gives you is that you see very 
quickly, if you're running a business and you're reducing costs, what is a proper 
cost reduction and what's a false economy.  If you're running an operation where 
you have no customer feedback in terms of whether people choose to come 
back or not, you may never find out.

CAIRNCROSS		State-owned hospitals and schools know that their 
paymasters are civil servants and politicians, not their patients or pupils. Yet, 
even without a price mechanism, public services might be more responsive to 
local needs if their middle management had more freedom to experiment. The 
trouble is, that would also bring more diverse levels of provision. Just how much 
variation does John Kay think  the British public would be willing to accept in 
public services?  

KAY				Well, I suspect in both health and education we do 
want to impose a greater uniformity on what people get out of the system than 
we have in relation to, you know, food-shopping or wine-shopping.  That is, we 
don't want there to be huge inequalities of provision.  A major part of the reason 
why most people in this country want health and education to go on being 
publicly provided is that there is a strong desire for general solidarity about being 
part of, you know,  a single system.  But there doesn't have to be complete 
uniformity within the provision within that single system, either geographically or 
in terms of what people actually take out of the system.  What we want to do is to 
have variety, innovation, flexibility in terms of the local provision of public 
services, combined with both high standards of provision and adequate 
standards of provision for everyone.  We've got accept some mistakes as part of 
the price of this kind of system; but actually finding ways of rapidly identifying 
mistakes, holding people accountable for mistakes and for putting them right.

CAIRNCROSS		But ultimately, new management, whether public or 
private, cannot solve the problems created by years of under-investment. That 
requires money. And if we are not prepared to pay through high taxes, then 
many more of us will have to pay directly.  That would ensure that public services 
were both better financed and more responsive to those who use them.  And 
public providers might then start to teach private companies a thing or two about 
good management and customer service.
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