When I say ‘maximise the private sector’ the meaning is clear. However when I say ‘minimise the public sector’ I have several things in mind. First is to transfer some activities (for instance running trains or airplanes or electricity) from the public sector. That is sometimes straightforward. I also want to do away with many unnecessary or inefficiently done or counter-productive activities within the public sector (such as excessive regulation, excessive education – see previous articles on my website). However I also advocate a technique that will enable full private operation in spheres like school education where it may not otherwise seem feasible. I will concentrate in this Bulletin on that way to extend the private sector.
Indeed I not only reject the failed notion of a completely (or predominantly) state controlled system but I also reject the fashionable (and majority view in Western countries) of ‘a mixed economy’, mixed between privately run and publicly run. As the private sectors in economies are more customer orientated (without customers they wouldn’t survive) and better run than publicly run sectors it should be only common sense to have as much of the economy as practicable privately rather than publicly run.
We only reach the natural limits of the free-market when one reaches the barrier of what cannot properly nor sensibly be competitive between operators. For instance it is essential for governments to have a monopoly over the use of force, be it in the army, navy, air-force and police though there should be democratic accountability. That also applies to the top Civil Service and to the judicial system. However contrary to the view of many Judges, Judges should be accountable to democratic institutions (such as ‘government’ or Referendums) and not the other way round. Public ownership and public operation should not extend much beyond the abovementioned spheres.
In most cases ownership and operation can quite easily be transferred from the public to the private sector. However some things that states operate cannot be run with any or much prospect of making a profit, at least not without some public payment for operating them.
MY PROPOSED ‘PUBLICLY FUNDED, PRIVATELY OPERATED’ MODEL
There are some ‘services’ that most people think need to be in the public sector because however inefficiently they may be run, most people simply cannot afford to pay for them except through general taxation. School education is such a service and in most countries ‘health’ is another such service to name the two biggest and most significant such services.
Most people with children and all the extra expenditure that entails simply cannot afford to pay to educate their children out of their income, even apart from those parents who are unemployed or disabled.
However though I agree most schools need to be publicly funded out of taxpayers’ money, they need not be publicly run nor publicly operated. They can be run by private individuals or private organisations competing with each other over value for money even if publicly funded. Decades ago certain politicians in Britain suggested and argued for a different system that would facilitate that. They proposed a state ‘education voucher’ system. In that system parents of school age children would receive a termly voucher for a certain amount of money that could only be encashed by the school which they choose to send their child to.
That would have many advantages over the predominant present system of publicly funded, publicly run schools. First, parents would then be much likelier to take a serious interest in how good or how bad their local schools are at educating children. Second, as parents could choose to move their child along with the voucher money away from a failing school, schools would be much more engaged in achieving a good standard of education, good examination results and the kind of education parents (and even older children) want. Third, in a privately run school, a private owner could make money for himself if he could cut out wasteful or unnecessary expenditure while retaining customer satisfaction over the quality of education in the school. So with competition for custom between schools and focus on more value for less money, even though educational standards would surely increase the cost of the vouchers could soon be lower than present schooling costs. Furthermore this system would be largely self-regulating and self-adjusting and generally based on the reputation of the schools. So enormous costs could be saved on (out of school) administrative, advisory and supervisory expenditure of most public authorities running an education system. So such a ‘voucher’ system would be a ‘win-win’ for everybody important, that is parents, school children and taxpayers.
Now, briefly to health services. There are particular problems with citizens funding or even negotiating their own healthcare as the need people have over their lives for health treatments, some of them very costly, is largely unpredictable. It ranges from the negligible to the enormous. Mostly Western countries have made healthcare predominantly a public service. That suffers from all the inherent inefficiencies of a public sector activity such as lack of real competition, customer choice or value for money. Yet privately run systems (as in the U.S.A.) in the case of health are also generally unsatisfactorily expensive. Probably ill people who lack medical knowledge and time (illnesses are debilitating and often need rapid remedies) to ‘shop around’ are usually in effect not in the position of ‘genuine customers’.
So I say two fundamental reforms are required to greatly improve value for money from healthcare. The first is the introduction of real competition (foreign as well as domestic) into the mass market. The second reform is customers, especially their funders, have a requirement for expert negotiation with health providers, especially hospitals. It is inadvisable to fund (whether publicly or privately) a major treatment in hospital without a specialist negotiator to help settle on a treatment and its price. So though I say most healthcare should be publicly funded while being privately operated, the state should also provide expert negotiators (or better still arrange from private sector negotiators) to protect health customers and taxpayers from excessive costs, over-medication, poor service and poor value for money. It seems largely due to a lack of advisers with real expertise and real leverage that the privately run and privately funded system is failing in value for money terms in the U.S.A.
CONCLUSION
So when people say an activity should be publicly run or privately run, I say there is a third alternative which is ‘privately operated and publicly funded’. I contend most activities should be ‘privately run and privately financed’. Yet for some important things private financing is impractical for most people. So I say even if an essential activity should then be publicly funded, people should usually nevertheless get the advantage (in terms of customer choice and efficiency) of its being privately operated. So let us change so far as we reasonably can in what for general affordability reasons is ‘publicly operated, publicly financed’ into something ‘privately operated, publicly financed’.
Geoffrey Berg – The Guru Of Rational Politics