Choice is the basis of privatisation and is being suggested as a way of raising standards in Health and Education. Though it often works wonders in free markets, it is often not appropriate in national and public functions...One of the arguments for privatisation of and/or competition between public services is as follows:
Give consumers a choice and they will choose the best product. Other local providers will have to raise their standards to compete. This results in a permanent upward pressure on quality, improving the standard of life for everyone.
This works very well in many consumer markets and I believe it is this mechanism that has contributed to the huge developments in low-cost, high-technology products over recent decades.
However, there are a number of potential flaws which, if present, will stop this mechanism working:
(To keep the main gist as concise as possible, extra notes about these are at the bottom of this blog)
- Lack of duplication For a true choice there must be more than one local source of the goods or service. For example, outside the largest cities most people have only one local train station (therefore line) and often only one 'choice' of train operator. This means that rail users have to use that service regardless of quality of service or value.
- Cost not included in choice Where the service is free 'at point of use' people are likely to always take the more expensive option. This results in ever-increasing costs or requires a reduction in real choice.*
- Choice given at wrong point in system This is often related to point 1. since many services have been privatised or split so there is competition only in the 'sales' side and there is not actually any competition in the provision. This means that competition is only in customer service, not in finding ingenious ways of providing a better infrastructure. Examples include rail, fixed telecoms (though there is competition from cable services in cities), electricity, gas and water.
- Lack of information on which to choose It is very difficult for an infrequent user to be reliably and well informed about a large service. How does one know whether a hospital is good or bad in a particular field? My wife occasionally visits schools which have incredibly able and dynamic teaching, but have very poor results and reputations due to social demographics, and vice versa.
- Too much choice Many financial services come into this section, which overlaps with 4. in some respects. When the choice is too great it is not worth most people's time reading the small print and finding the optimum product for their situation. I can't think of any public sector examples at the moment but I'm sure there are some out there!
This all leads me to just one conclusion: For national services which have one of these flaws, it is essential that the government runs that service, at least at the level in which the 'flaw' occurs.
The difficulty with this is that successive governments have proved to be not very good when it comes to running these monopolies. Despite this - if one can imagine a government running like a private business - publicly run services are the only simple and logical answer. So the next step is to ask how these services can be run in an efficient, business-like manner. The subject for a number of future blogs I feel.
For the following reasons free commercial markets do not suffer from most of the potential flaws mentioned earlier (numbers refer to the points above): 1. People always try to enter successful markets even when they are dominated by one player (e.g. bagless vacuum cleaners - other companies quickly entered that market even though it was dominated by Dyson who no doubt had strong patents and lots of lawyers); 2. cost (therefore value) is always an issue; 3. the product or service is usually a complete package that does not rely on a monopolised third party product; and 5. too many players in a market usually results in weaker ones failing or being bought up. It is only when the service is complicated (such as financial products above) that this works less well.
*This leads to fudges (I mean 'proposals') such as money following patients/pupils. Surely this gives more money to the services that spend most money? That doesn't exactly encourage value for money, does it?! Though it may be possible to get round these problems with complicated legislation, I will argue in later blogs that simplicity is, in the end, a better answer.