Saturday, October 11, 2014

The "Third Way" between the extremes of political ideologies is notjust desirable - it's the reality, and it's right!

The conventional way at looking at politics is that there are essentially two ideologies. On the Right there is a belief in the "Market" and on the Left there is reliance on the "State". So conservatives will naturally look to private enterprise to provide value while socialists will seek to have state ownership of assets to do the same thing. "Value" here means goods and services  which citizens need or want or must have. Individually, or collectively as a populace.

While the extremes of political differences can be sketched out as above this is almost entirely theoretical and academic. No country has ever been governed from either of these extremes. Arguably pre-industrial society was largely free market but in those times the economy was overwhelmingly rural with systems being developed locally in very small units. The Monarch did not "manage the economy" - it managed itself. He would impose taxes on the people to fund his court or foreign wars, but it was really only as a tax collector that he impinged on the lives of ordinary people. 

As societies got more complex and when industrialisation and urbanisation occurred governance could no longer be left to the vagaries and gross inequalities of free market systems. It took a while but during the latter part of the nineteenth century the State gradually intervened setting standards, regulations and providing services. And, of course, in the twentieth century this increased hugely as Governments provided free education, healthcare and a host of other essential services. And the private sector was increasingly circumscribed in what it was permitted to do. 

In the post-war period in Britain and most other "Western" economies we have created "mixed economies". In essence the model is that almost everywhere there is a mix between what private enterprise does and what the State does. Decision-making has not been ideology free. The post war Attlee Government was unashamedly socialist and pursued nationalisation as a goal. The Thatcher Government of the 1980s was strongly free market and privatised swathes of the British economy that had been publicly owned. Since then there have been a few more sales of public assets - most recently that of the Royal Mail. And there has been some movement in the other direction - notably when Railtrack so incompetently managed the fixed assets of our railway system that these assets had to be taken back into public ownership as Network Rail. And Government also had to rescue some banks after the banking failures at the time of the financial meltdown seven years ago.

Many of the decisions that Governments have to take are on the public/private margins. The National Health Service is one of the major battlegrounds. Labour claims that parts of the NHS are being "privatised" and that Tory free market ideology is the driver. Well it depends what you mean by "privatisation" I think. To me, others disagree, privatisation applies only when assets are sold. If you retain ownership of assets, but contract out their operation, I don't see that really as privatisation. The BBC is publicly owned and publicly accountable. But many television and radio programmes are made for the BBC by third parties. This happens across the public sector, including in the NHS. So where do you draw the line? Disposal of public assets is a serious matter and when it is NHS assets the more so. The sale of part of the Charing Cross Hospital estate has caused an uproar and on the face of it justifiably so. Even if public services will be maintained elsewhere as the Department of Health claims is it really a good thing to relinquish valued assets in this way? But putting out part of the Health Service's operations to private sector tender is different.

Part of the objection to the private sector providing public services is not so much ideological (though it may be that) but about power. This takes one back to the winter of 1973/74 and Prime Minister Heath's battle with the National Union of Mineworkers. He felt that the NUM had too much power and he held an election based on the question "Who runs Britain?" The premise was that the mining sector was publicly owned and therefore ultimately Government's responsibility. He felt that necessary changes - pit closures especially - were being hampered by the Union. The NUM saw a decline in the mining industry as reducing their (the Union's) power and the Trades Union Congress (TUC) saw it as reducing Union power more generally - potentially. They were both right. Although Heath lost in 1974 Margaret Thatcher's victory over the miners ten years later led to a rapid loss of power for the NUM which in turn led to the decimation (literally!) of the British mining industry as well as to its privatisation.  Deep-mined coal output fell from 93m tons in 1980 to 13m tons today. And Union power has declined generally over this period as well with today few Private Sector businesses having Unions strongly influencing their freedoms to act in any meaningful way. The same does not apply to the Public sector!

The workplace pensions story is a good illustration of the differences between the public and the private sector. In the latter final salary "Defined Benefit" (DB) pension schemes have virtually disappeared as an offer to new employees (they still exist, of course, in established schemes for existing employee and pensioner members - albeit with reduced benefits in some cases). In the public sector DB schemes remain the norm and although many now base benefits on "Career average" rather than "Final" salary they are still schemes giving a guaranteed, adequate and largely predictable retirement income. This is far from the case in the private sector's Defined Contribution schemes which in terms of value to the pensioner are pale imitations of what public sector employees can expect to enjoy. Why the disparity? The main reason has to be that public sector employee benefits are protected by the Unions of which they are members whereas the disappearance (or weakening of power) of Unions in the private sector means that these employees have no such protection. 

To return to the NHS. There are twin and often incompatible forces at work here. On the one hand we as citizens want good, "free" at point of use healthcare. And as taxpayers we want that healthcare to be efficient and good value. I would argue that it really doesn't matter whether the person providing the specific healthcare service we need is directly employed by the Health Service, or not. If a nurse is provided by a third party provider rather than being an NHS employee I personally as a patient don't mind - so long as that person is competent and caring. And if that provider costs less than an NHS "owned" alternative then I, as a taxpayer, should applaud. As I said earlier this is contentious and a battleground. Not least because every service that transfers from public to private provision is likely to reduce Union power. Remember the miners! I am a supporter of Trades Unionism and believe in collective bargaining. I regret the disappearance of such bargaining from much of the private sector. That said good employers should in their own interests be sensitive to their employees needs whether their employees have Unions to help them or not. And where this isn't the case it is the duty of Government to step in and legislate protections. The minimum wage is the classic example of this.

So is there a "Third Way" between the ideologically "Right" position often called "Thatcherite" which is pro free-enterprise, anti Union, libertarian and anti regulation (on the one hand). And the ideologically "Left" position which favours State ownership, supports Unions and which argues for tighter controls on the private sector and, to an extent, on individual freedoms (on the other)? The answer of course is "Yes" - indeed there is no alternative (to coin a phrase !) to this more central position. Tony Blair's "New Labour" may have adopted the "Third Way" as a slogan but there was nothing new in it being our political norm - the Thatcher years (partly) aside. We have, as we have had for 50 years or more,  a "mixed economy" but, I would argue, this must not be cast in stone. When around 15% of Government expenditure goes on the NHS it would be irresponsible not to seek efficiencies. And if in some areas that means contracting out following competitive tenders, then so be it so long as the NHS remains publicly owned and publicly accountable, and broadly "free". Ideology should not stand in the way of efficiencies - nor should the preservation, as a goal, of Union power. (The same, incidentally, applied to education which is another big ticket item costing around a half of what the NHS costs). But there are also areas where the private sector is failing us and a much more publicly accountable provision of services is desirable - especially Water, Energy and Transport.

Private enterprise, at its best, gives customer value through competition. If you are choosing, say, a mobile phone the competition between the providers of the hardware, the retailers and the phone networks gives you a wide range of choices. It's your call. However when the competition is artificial, as it is with domestic water, gas or electricity supply, then that "choice" is phoney. Over time energy suppliers sharing single distribution networks and with similar costs will not differentiate themselves much - at least in their core business of gas/electricity supply. These services should be much more publicly accountable - not least because of the subsidy element in their finances. As far as water supplies are concerned in England and Wales this is covered by the worst form of business model of all - a private sector monopoly - or "licence to print money" as it's also known. A return to public ownership is desirable for water, gas and electricity - albeit that the ideal operational model might include a substantial amount of public/private partnership and "contracting out". The same applies to the railways where all the evidence is that the privately owned (= profit driven) model has failed. Public services need to generate margins which can be reinvested. But they don't need to generate profits which go to investors. Water, Gas, Electricity and the Railways Need to be run in the public interest as efficient "Not For Profit" activities.

To summarise my firm conviction is that in a sophisticated modern State like Britain a quantum shift to Right or Left is not just undesirable but impossible. That there are those who argue for strong neo-liberalism on the one hand or for Socialism on the other is healthy to further the debate. But the idea that we could segue even as far as (say) the United States with its broadly free market system or as far the other way as, say, Scandinavia with their strong social market norms is unlikely. Not least because our membership of the European Union places us at the heart of what is broadly a social-democrat consensus. The debate about, say, taxation is healthy and there will be differences about (for example) the extent of the progressive nature of our tax raising systems. And the link between tax revenues and public expenditure will always be a live issue. But the mixed economy and the Welfare State (albeit one somewhat reduced) are broadly non-negotiable pillars of how we are as a nation. No party could gain power with a promise to privatise the NHS and it won't happen - though, as I argue above, further moves to contracting out and to public/private partnerships are likely if efficiencies can be made. 

The room for manoeuvre in Britain is limited. Big changes like the taking back into public ownership of Energy, Water and the Railways will not be uncontentious! But the case for such services being user-driven rather than profit/dividend driven is a powerful one. It will require some clever business constructs to be created and it is essential to avoid the inefficiencies of the past in these areas. Above all we should do this not for ideological but practical reasons. This is not in any way a return to Labour's old "Clause IV" moment! Similarly making the NHS more efficient and creating service standards to be met irrespective of who provides the services is not back door privatisation. If these changes and indeed all of the above are seen as a case for the "Third Way" then so be it. Forward together! 


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