Since 1997, our government’s central objective has been to promote opportunity and security for all. Successive budgets have sought to champion on the one hand, competition, innovation, and the enterprise economy, and on the other hand, the New Deal, tax credits and public service reform as the routes to an efficient and fair Britain in which individuals can realise their potential.
As we push forward with all the radical long-term reforms necessary to enhance productivity and to improve public services, we must have the strength to face up to fundamental questions about the role and limits of government and markets. Indeed, in almost every area of current controversy the central question
is: what is the best relationship between individuals, communities, markets and government to advance the public interest?
Agreeing on where markets have an enhanced role and where market failure has to be addressed is absolutely central
to the next stage of the New Labour project. To hold to discredited dogmas about what should remain in the public sector and how the public sector operates, or to confuse the public interest with producer interests, makes no sense for a reforming party, risks sclerosis as expectations and technologies change,
and makes it impossible to realise our enduring goals.
Equally, to fail to put the case for a reformed public sector where the case is strong leads directly to the allegation from our opponents that New Labour merely imitates old conservatism, risks giving the impression that the only kind of reform that is valuable is a form of privatisation, and makes it impossible to achieve the efficient and equitable outcomes we seek.
The role of markets and of the public sector has been the greatest dividing line between left and right in the postwar period. For the left, markets are too often seen as leading to inequality, insecurity and injustice. The left’s remedy has been seen to lie in relegating the impact and scope
of the market – through greater public ownership, regulation and state intervention.
For the right, it is the absence rather than the prevalence of markets that is to blame. This neo-liberal view of benign markets sees them as sufficient to produce a combination of liberty, equality, efficiency and prosperity, and recommends the same prescription on every occasion: deregulation, marketisation and the withdrawal of the state.
These views – too much market on the one hand, too little market on the other – defined the terms of political debate after 1945. The challenge for New Labour at the start of the 21st century is to develop a more discriminating case: that markets are part of advancing the public interest, and the old left was wrong to
say that they are not; but also that markets are not always in the public interest, and the right is wrong to automatically equate the two.
How can we make this case? First, we must show how a progressive government seeking a strong economy and a fair society must not only support but positively enhance markets where they are in the public interest. So we must embrace and extend both competition and an entrepreneurial culture; we must welcome free trade and resist protectionism; where markets deliver insufficient investment and short-termism we must enable markets to work better, not look to the state to take over responsibility; we should reduce regulation where it does not serve the public interest; our industrial policy should create a level playing field for
all, not support special interests; and we should aim to deliver higher growth and jobs in every region through a new decentralising regional policy. And through this approach – strengthening markets and tackling market failures –
a new agenda opens up that helps markets work better and delivers opportunity and security for all.
Second, our clear and robust defence of markets must be combined with the courage to recognise where markets do not work. Take the case of healthcare. The Tory free-market position, which would lead us to privatised hospitals, vouchers and extra payments for treatments, starts by viewing healthcare
as akin to a commodity to be bought and sold like any other through the price mechanism. But in healthcare we know that the consumer is not sovereign: use of healthcare is unpredictable and can never be planned by consumers in the way that weekly food consumption can.
When, last year, the government examined the funding of healthcare we concluded that, with uncertainty about risk, insurers often have poor information on which to base their risk assessment of the customer; and that as a result of these uncertainties – and with many citizens considered too high a risk, too expensive and therefore excluded from coverage – there are serious inefficiencies in private pricing and purchasing.
Yet the very same reasoning that leads us to the case for the public funding of healthcare on efficiency as well as equity grounds also leads us to the case for public provision of healthcare. The market for healthcare is dominated by
the combination of, on the one hand, chronically imperfect and asymmetric information, and, on the other, the necessity of local clusters of medical and surgical specialisms. This means that while in a conventional well-functioning market the price set by the producer is the most efficient, in healthcare a free market will not produce the most efficient price for its services or a fair deal for its consumers.
And if these market failures were to be combined with a policy that put profit maximisation by hospitals at the centre
of healthcare, the patient would be at greatest risk of being overcharged, given inappropriate treatments for financial rather than medical reasons, and offered care not on the basis of clinical need but on the basis of ability to pay. In short, it
is then that a two-tier healthcare system would be most likely to develop.
Third, we must set out how we can avoid the trap of simply replacing market failure with state failure, and achieve equity, efficiency and diversity by reforming and modernising the public realm for the decades ahead – in particular through devolution, transparency and accountability. For example, even where healthcare is not organised on market principles, it is in the public interest to have devolution from the centre and to champion decentralised means of delivery.
This opens up a challenging area for modernisation and reform: a more radical devolution of responsibilities as we give the role of Whitehall a sharper focus; and greater attention to encouraging a stronger localism in service delivery, combined with increased transparency, proper audit and new incentives. One way forward is that local communities should have the freedom to agree for each service their own local performance standards. Accountability would be enhanced, with local and national performance indicators published and tracked, enabling local managers to monitor continuously and learn from their performance, with real-time feedback on progress.
And we have also got to get the balance right between responsiveness to choice, efficiency and equity. Local autonomy without national standards may lead to increased inequality between people and regions and the return of postcode lotteries. The modern challenge is to move beyond old assumptions under which equity was seen to go hand in hand with uniformity, or diversity appeared to lead inevitably to inequality. Instead, we should seek the maximum amount of diversity consistent with equity.
So today and in the future, our mission must be relentless: to strengthen markets to maximise efficiency; and, in those areas where market failures are chronic, to step up our efforts to pioneer more decentralised systems of public service delivery.
Some continents are defined to the world as beacons of enterprise but at the cost of fairness: others as beacons of fairness or social cohesion at the cost of efficiency. In our time, Britain under New Labour can be a beacon for a world where enterprise and fairness march forward together.