Ian Mulheirn says in his blog that those who are cautious about the use of market forces in public services are ‘flat-earthers’.  Can I return the friendly insult by asking him to take off his rose-tinted spectacles?

I don’t think anyone writing here believes that public services should be completely immune to market forces. After all, governments and local authorities of all political shades have used the market to buy construction services, procure office supplies, for consultancy and for many, many other reasons.  It is not the use of the market itself that is in dispute, but whether it is the best way to deliver services across the board, and especially those services aimed at vulnerable parts of the population.

Let’s take an extreme example with which I happen to be familiar.  In many developing countries, services like electricity and water have been privatised, almost invariably meaning that international companies have come in and displaced the state provider.  There have been many problems about controlling this privatisation. These have included lax government contracting procedures, poor regulatory systems, and international firms getting World Bank backing so that governments that threaten to end their contracts face a severe financial penalty.

In this open market place, have the private operators delivered a better service?  In one region – the small countries of Central America – electricity has been privatised across the board.  The one exception is Costa Rica.  Which country has the lowest consumer prices, the highest proportion of the population served by electricity, and the highest proportion of energy needs met by renewables? – Costa Rica.  Which country has the highest energy costs and a very high percentage of electricity wasted? – the poorest country, Nicaragua, where the provider has been a major international company for the last decade.

So I think Ian Mulhern might agree that the market has its limits.  While he says that ‘market-based reform works to raise the quality and lower the cost of public services’, he might be persuaded that they can only do so with an adequate legal framework, good commissioning and diligent performance monitoring.  In other words, the market if left alone will often work to maximise profits and skimp on quality.

But the factor that he doesn’t seem to take into account is the vulnerability of many people dependent on public services. The poor of Central America and other developing regions are an extreme case, but doesn’t the experience of these countries suggest he should take off those tinted specs and consider how the poor and vulnerable in Britain will fare if their services are provided through the market place?

He mentions services to get unemployed people back into work, but has he looked at the rather patchy results achieved by private operators contracted to do just that under the old Incapacity Benefit?  Or what happens to rural post offices when ‘market-based reforms’ take place?  No doubt readers of this blog could provide many more examples.

It is easy to accuse those who have reservations about these ‘reforms’ as confusing the interests of service producers with service users.  It is less easy to show how their concerns – often not doctrinaire but based on experience of service delivery in market conditions – can be properly addressed.

The weakness in the Prime Minister’s argument, at least as presented in the Daily Telegraph, is that he appears to have his rose-tinted spectacles firmly in place.  Mulhern is confident that the reforms will deliver ‘better, cheaper services’. How can he be so sure?

As a ‘champion of public services’, shouldn’t he address some of the very real problems that are likely to emerge, rather than simply deriding those who draw attention to them as ‘flat-earthers’?

Original post and comments: Public Finance