Colin Crouch Commercialisation or Citizenship

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Commercialisation or CitizenshipEEdduuccaattiioonn ppoolliiccyy aanndd tthhee ffuuttuurree ooff ppuubblliicc sseerrvviicceess

Colin Crouch

Commercialisation orCitizenshipEEdduuccaattiioonn ppoolliiccyy aanndd tthheeffuuttuurree ooff ppuubblliicc sseerrvviicceessColin Crouch

Fabian ideas 606

Fabian ideas 606

ISBN 0 7163 0606 9ISSN 1469 0136

6.95

So far the argument over the role of private firms in the provision of publicservices has mainly been waged in terms of efficiency. Those in favour ofgreater involvement have focused on the improvements to service quality andthe cost-effectiveness offered by private sector providers; those opposed havequestioned the truth of these claims. Yet there is another debate about theimplications of private involvement for the character of public services whichdeserves attention.

In Commercialisation or Citizenship Colin Crouch looks at how this use of pri-vate business in public services changes the character of the services deliveredand the notions of citizenship which underpin them. He argues that publicservices were designed to provide entitlements or rights to education, healthand social care and that they did this through an equitable allocation ofresources on a universal basis. The role now being given to private business inthis field does not simply ignore this foundation, it actively undermines it.

Using education as his example, Crouch gives a comprehensive analysis ofprivate sector involvement showing how this threatens the citizenship basis ofeducation. He then offers a number of practical proposals for a strategy ofmodernising public services in a manner which is compatible with the conceptof the welfare state as a fundamental component of social citizenship.

Colin Crouch is Professor of Sociology at the European University Institute,Florence, and External Scientific member of the Max Planck Institute for SocietyResearch, Cologne. He is Chair of the editorial board of the PoliticalQuarterly, of which he was previously joint editor. His recent books includeIndustrial Relations and European State Traditions (1993), Are Skills theAnswer? (with David Finegold and Mari Sako, 1999), Social Change inWestern Europe (1999) and Coping with Post-Democracy (2000).

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The Fabian Society

The Fabian Society has played a central role for more than a century inthe development of political ideas and public policy on the left ofcentre. Analysing the key challenges facing the UK and the rest of theindustrialised world in a changing society and global economy, theSocietys programme aims to explore the political ideas and the policyreforms which will define progressive politics in the new century.

The Society is unique among think tanks in being a democratically-constituted membership organisation. It is affiliated to the Labour Partybut is editorially and organisationally independent. Through itspublications, seminars and conferences, the Society provides an arenafor open-minded public debate.

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Fabian Society11 Dartmouth StreetLondon SW1H 9BNwww.fabian-society.org.uk

Fabian ideasSeries editor: Ellie Levenson

First published March 2003

ISBN 0 7163 0606 9ISSN 1469 0136

This book, like all publications of the Fabian Society, represents not thecollective views of the Society but only the views of the author. Thispublication may not be reproduced without express permission of theFabian Society.

British Library Cataloguing in Publication data.A catalogue record for this book is available from the British Library.

Printed by Bell & Bain Limited, Glasgow

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Contents

1 | The clash between citizenship and 1

commercialisation

2 | The case of education 26

3 | Towards a redefinition of public service 58

References and bibliography 75

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About the authors

Colin Crouch is Professor of Sociology at the European UniversityInstitute, Florence, and External Scientific member of the Max PlanckInstitute for Society Reserach, Cologne. He is Chair of the editorialboard of the Political Quarterly, of which he was previously joint editor.He was Chair of the Fabian Society in 1976. His recent books includeIndustrial Relations and European State Traditions (1993), Are Skills theAnswer? (with David Finegold and Mari Sako, 1999), Social Change inWestern Europe (1999) and Coping with Post-democracy (2000).Coping with Post-democracy won the Jenny Jeger prize for best FabianSociety Publication in 2001.

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Since 1997 the Labour Government has made clear that itshighest priority in domestic policy is the improvement ofpublic services. It starts from the premise that public serv-

ices notably in education and health are in general under-perfoming. The centrepiece of its programme for reform hasbeen and is the use of the private sector to provide various kindsof public services. The use of private provision was introducedby previous Conservative Governments, but has been extendedin important ways by New Labour.

Argument over the role of private firms in the provision ofpublic services has mainly been waged in terms of efficiency. Isthe Government right that, because they have been tried andtested in the competitive market, private businesses will gener-ally provide a superior and more cost-effective service thanpublic organisations? Do the Private Finance Initiative (PFI) andother forms of Public-Private Partnerships (PPP) give bettervalue for money than their purely public equivalents? A numberof studies have examined the evidence on these questions, mostof them in fact concluding that use of the private sector does notlead to greater efficiency.1

Governments and their advisers believe that private firms willnecessarily bring increased efficiency to public services, because

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1 | The clash between citizenshipand commercialisation

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they have been tested in the market; an inefficient private firmdisappears under the impact of competitive pressure, so thesurvivors are known to be efficient. There is no similar mecha-nism in public service, it is argued. If the private firms are smalland selling successfully in an almost perfect market to ultimateconsumers, the argument is a strong one. However, as we moveaway from these conditions towards those more typical of muchof the area of contracted-out public services, its power weakens.

First, the primary duty of a private firm is to maximise share-holder value. This coincides with meeting customers needs effi-ciently in a near-perfect market, because a firm which ignoresthis need will lose business. However, where competition isimperfect or where contracts can be won by insider lobbyingrather than by demonstrating superior performance, the linkbetween shareholders profits and efficiency for the customer isweakened. This is frequently the case with public-servicecontracts, as shown at several points below.

Second, the superior efficiency argument depends heavily onthe dogmatic assumption that abstract general managementskills are more important than those specific to the activityconcerned. Since the specific knowledge relevant to most publicservices is a virtual monopoly of the public sector, firms biddingfor these contracts usually come from other parts of the economy.For example, when a road construction company enters the busi-ness of running primary schools, it has to be believed that thegain that comes from its knowledge of general managementoutweighs the inefficiency loss that flows from its inexperience ofeducation.

Third, most of the managers and other staff who work in aprivate firm do not themselves have a direct stake in the firmsprofits. Analogues of this stake are constructed for them by topmanagement to give them incentives to maximise performance.Their own motivation is similar to that of persons working in a

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public service organisation; they respond to the incentive struc-ture established by top management. If the top political level isitself committed to maximising efficiency, it is able to use tech-niques derived from the private sector to convert this motive intoincentives for middle management, as the ConservativeGovernments of the 1980s did in several areas. It is not necessaryto use private contractors themselves to achieve this.

Fourth, and as will again be discussed in more detail below,many of the techniques important to private service managers inachieving efficiency are not available in the public service. Forexample, an important skill of private management lies in iden-tifying the firms target market, who does it want to be itscustomers? This skill cannot be transferred to a national educa-tion system unless it is considered acceptable that some childrenshould be offered no school at all.

Finally, also addressed in detail below, in public servicecontracts efficiency for the customer does not necessarily coin-cide with satisfaction for the ultimate consumer. The customer isa government department, not the actual user of a service, and itis possible to imagine many situations where the interests ofgovernment and citizens are not identical.

These last two points take us beyond a simple value for moneyapproach to efficiency, and raise the question of efficiency forwhom? This brings us to the central issue that I want to addressin this pamphlet: how does use of the private sector to deliverpublic services affect, not the efficiency, but the very character ofsuch services?

Post-industrial capitalismAttempts at marrying what have until now been primarily publicservices with capitalist practices take a variety of forms: marketswithin public ownership; privatisation with or without fully freemarkets; contracting out both capital projects and service

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delivery, sometimes without either privatisation or markets. Therelationship of the market to private ownership is moreambiguous than is often assumed. Certainly perfect marketsalongside private ownership of economic resources provide theconditions for the capitalism of economics text-books, and thetwo criteria fit together well. It is however entirely possible tohave markets without private ownership: an authority owningcollective resources can decide to use a system of prices to makea market through which to allocate these resources within apublic or charitable service. This idea informed manyConservative reforms of the 1980s. Government departmentsand service units were required to trade services with other unitsas though they were in a market relationship, abandoning theprofessional colleague model that had previously governed theirinteractions. A major example was the internal market intro-duced into the National Health Service. It has largely fallen toNew Labour to take the further step of introducing privateprofit-making firms into what had been, under theConservatives, still public service though often this paradoxi-cally takes the form of private provision without true markets.

The generic term which will be used here for all these practicesis commercialisation, because each is premised on the assump-tion that the quality of public services will be improved if theexisting practices and ethos of public service are replaced bythose typical of commercial practice. This concept is more accu-rate than that of marketisation, for some of the processes nowbeing introduced involve distortions of the market rather than itspurification. And it is more general than privatisation, whichstrictly speaking refers only to the transfer of ownership ofassets.

Although capitalism originated in post-medival Europe inservices sectors which have again become fundamental to it mainly banking it fully took wing with industrialisation. The

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greatly enlarged production of material goods which this madepossible released the spiral of investment in plant and equip-ment, production and sale of a good, and further investment ofthe proceeds from these sales which became the great engine of19th and 20th century wealth and prosperity. But capitalismexpands its scope, not just by developing new goods and produc-tion methods, but also by pulling more and more areas of lifewithin the spiral. Services which might have been rendered as,say, a community or family obligation are transformed into wagelabour and sold. Much of the political conflict of the last twocenturies concerned the boundaries which a great diversity ofother interests for example, churches and the working class sought to erect around this rampaging force.2

Various compromises were eventually established. Sundaysand other religious holidays were more or less protected fromthe grasp of the working week; family life remained uncommod-ified, mainly through the withdrawal of the majority of marriedwomen from the labour market; various limits were imposed onthe exploitation of labour; and by the mid-20th century a series ofbasic services were at least partly removed from the reach ofcapitalism, because their provision was considered too impor-tant. As T H Marshall memorably argued, people acquired rightsto these goods and services, mainly the latter, by virtue of theirstatus as citizens, and not because they were able to buy them inthe market.3 Just as it became a mark of democracy that the rightto vote or to a fair trial were not available for market purchase,so with entitlement to certain services; provision of them throughmarket means would demean their citizenship quality. Theywere not necessarily delivered free of charge, but any chargeswere notional, and designed explicitly not to be used as rationingor allocation devices.

The list of items included in what we can call citizenship serv-ices has varied across societies and over time, but usually

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includes entitlement to certain levels of education, health serv-ices, certain forms of care service in case of need, financialsupport in old age and in the event of temporary or permanentloss of earning capacity through unemployment, ill health orinjury.

Although conflicts over these exclusions from the reach of themarket were often intense, the task of those trying to achievethem was made easier by the fact that for most of the period thebest opportunities for profit and extending the scope of themarket lay in industrial production. This was particularly true inthe years around the Second World War, when the exigencies ofincreasingly technological warfare stimulated invention,research and development in many fields, with manifold subse-quent peacetime uses. Important compromises over labour rightsand the welfare state were negotiated as western capitalism wasrelaxing into enjoying these possibilities. By the late 1960s andearly 1970s this process had peaked. While innovations in theproduction of goods have continued apace, major new develop-ments have required increasingly costly research and large-scaleinvestment. At the same time many new opportunities began toopen in the provision to an increasingly wealthy population ofservices rather than goods: new forms of distribution, increasingtravel, new forms of financial and other business services,growing use of restaurants and other food outlets, more interestin taking advantage of health, education, legal and other profes-sional services. Increasingly capitalist firms have sought theirprofits in these sectors as well as, and gradually instead of,manufacturing.

But this has raised a problem. Some services provided by thewelfare state are potentially very profitable but are protectedfrom private ownership and the market as part of the mid-century citizenship package. So long as the welfare statesurvives, potential areas of profit-making are excluded from

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capitals reach. Post-industrial capitalism has therefore started totry to undo the deals made by its industrial predecessor. It is nowbeing aided in this by the World Trade Organisation (WTO),which has been charged by the governments of the worlds mostpowerful countries with liberalising the international exchangeof goods and services. It has no other responsibilities and recog-nises no other priorities. The only right it protects against opencompetition is the right of patent. In addition to liberalisingexisting markets, the WTO is now trying to introduce them intofields which have previously been governed by different princi-ples. It has in particular identified the welfare state, includingstate education and health services, as areas which should beopened up to markets, or to privatisation.

But is opposition to this not just a knee-jerk reaction, based onoutmoded prejudices? Markets and capitalist producers provideus reasonably efficiently with toothpaste, motor vehicles andbanking facilities; why not let them do the same with schools andhospitals? That is what we must now investigate.

Citizenship and marketsAn essential starting point for a critique of commercialisation isthe observation that the maximisation of markets and privateownership can conflict with other social goals. While the WTOhas not been given the mandate to consider these, individualgovernments, organisations and private persons are free to placemarkets into perspective and to debate whether they should beaccepted uncritically as the sole criterion to govern our affairs.Almost no-one except a tiny number of extreme libertarianswould disagree with this in principle. For example, virtually no-one believes that sexual relationships, or those between parentsand children, should be forced into a market frame; or thatnational political sovereignty should be capable of being tradedin the market; or that the ability of people to change their resi-

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dence from country to country should be governed only bylabour-market opportunities and not by state immigrationpolicy.

The market is not capable of being an absolute principle, sinceit is a means for achieving ends and not an end in itself. The casefor the market is that if we follow its rules we shall make alloca-tion decisions that better reach our goals, whatever these are.Other means of making allocations always remain open to thedoubt that they do not provide as efficient a means of calculatingcosts, including opportunity costs, as the actual market. But thisdoes not dispose of two principal points: that the market can failto register all relevant elements of a choice of good; and that itsuse can itself change negatively the quality of a good. The formercriticism is of major practical importance, but it is at least capableof being remedied by improving the quality of the market itself,rather than by suppressing it. For example, if the price of a goodfails to represent the costs of pollution created in its production,it is possible to impose a tax reflecting the cost of the pollution,which will then be reflected in the price.

The second objection, that use of the market per se negativelychanges the sought good itself, is more fundamental. Forexample, most people consider that sexual relationships offeredunder conditions of prostitution are inherently inferior to non-marketed ones. Prostitution could doubtless be improved if itsmarket were made more perfect; for example, if it were subject tono legal prohibitions, the level of exploitation it involved and itssordid conditions of service delivery would be alleviated. Butthat is not the main point of the objection, which relates to anabsolute judgement of quality.

Can objections of this kind be considered to apply in the fieldof citizenship services? The issue turns on two principal prob-lems that can be caused by the application of commercial princi-ples: distortion and residualisation.

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DistortionProviding goods or services through markets involves an elabo-rate procedure of creating barriers of access so that we cannot getthem without payment. Sometimes the character of a good itselfhas to be changed to do this. We accept these distortions or mostgoods and services would not be provided at all; most obviously,traders would not be willing to set up shops if we did not acceptcash desks and the whole procedure of money exchange. Thereare instances however where the extent of distortion required sodamages the quality of the good in question or erects barriers soartificial that one may reasonably doubt whether the gains fromany efficiency improvement are worth the losses incurred: forexample when entrepreneurs are allowed to fence off pieces ofcoastline and charge for access to beaches or cliff walks.

Another form of distortion occurs when artificial attempts aremade to provide indicators that can serve as analogues of prices.Where markets are virtual and goods and services are not reallytraded, as with the NHS internal market, there is a strong temp-tation to use as an indicator those elements which can be easilymeasured, rather than the qualities of the good or service reallyat stake. Service providers are likely to concentrate on thoseaspects of their work which are included in the indicators,neglecting others, not because they are intrinsically less impor-tant but because they are less measurable. The LabourGovernments attempts to benchmark reduction of certainwaiting lists for medical treatment have produced several suchdistortions; health service managers and professionals concen-trate resources on those items being assessed and made politi-cally prominent by drawing off resources from other, less easilyobserved, parts of the service. The apparent efficiency gains ofthis kind of targeting can become quite illusory; if, as may wellbe the case, the easily measured items are not in fact the mostimportant, there may even be a loss of real effectiveness. This can

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be tackled by increasing the number of indicators, but that even-tually leads to measurement overload and excessive complexity.

The value of an indicator depends on its ability to measureaccurately the quality that the customer is seeking, and this canbe in doubt, even in real markets. Stock-exchange evaluations ofcompanies often present biased and distorted estimates of afirms long-term worth; the exchange rates of currencies oftenbear only a poor relationship to their respective purchasingpower; relative incomes are not the only legitimate means ofcomparing the value of two occupations. The problem intensifiesin the case of shadow or artificial markets, as in public serviceapplications. Here the indicator is typically chosen by a politicalor administrative authority and not by users, with the result thatit is likely to suit political or managerial criteria rather than theclient sensitivity which is in principle a major objective of theexercise. In the stock-exchange-led form of capitalism thatbecame dominant by the end of the 20th century, this problem ofindicators ceased to be a matter of concern. As was seen with alarge number of information technology firms, which had veryhigh share values before they ever sold a product to a customer,the value of a firms shares can become self-justifying: if enoughpeople believe that the share value is an indicator of somethingimportant, they will buy the shares and the value will have justi-fied itself. It is not acceptable for democratic welfare policy todevelop in this way.

Degradation and residualisationThe market is often depicted as a realm of consumer sovereignty:firms can sell their goods and services only if we choose to buythem. But it is providers who initially choose their customers, bydeciding on which segments of the market they wish to targettheir products. There can be no obligation on a firm to try to meeteveryones needs. Citizen services differ fundamentally from this

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in that they must be universally provided to the defined categoryof citizens. Where Public-Private Partnerships allow privateproviders to chose the segments they want, while the publicservice guarantees provision for those in whom the private sectorhas no interest, such provision becomes residual. We know bothin theory and in practice from the works of scholars like AlbertHirschman4 and Richard Titmuss,5 that residual public servicesbecomes services of poor quality, because only the poor andpolitically ineffective have to make use of them.

Matters become even worse when citizenship services arerequired to have residual status and degraded quality becausegovernment is deliberately making space for commercial provi-sion. Such services are then excluded from the realms of bothmarkets and citizenship. Public services of this kind cannot bedescribed as citizenship: access to them is more a penalty thana right; and the essential citizenship mechanism of voice mustnot be made available to residual recipients or they might seekimprovements that would break the rule of no competition withmarket provision. An important example may be taken from theworld of employment placement and unemployment assistance.The logic of a neo-liberal market regime is to privatise as muchemployment placement as possible, leaving a public service todeal with the hard-to-place, the unemployed. They are thenplaced into a special, stigmatised form of employment serviceisolated from everyone else.

The current British debate, which does not envisage the use ofmarket prices to ultimate consumers of education and health,limits the risk of residualisation, though as we shall see in thefollowing chapter it does not entirely exclude it. But it fullyenvisages the use of pricing and markets in relation to interme-diate customers and suppliers within the service provision chain,and we see how this can produce residualisation on a wide scale.

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The degradation of marketsIt has already been pointed out that there can be resort to privateownership or a contribution from private providers withoutmarketisation of the service concerned, especially if by marketwe understand the pure market of the economics text-books. Thisrequires a very large number (tending to infinity) of competingproducers and customers, with low barriers to entry by newproducers. The regulatory system must also confine itself tomaintaining the conditions of perfect competition, and mustoffer absolutely no favours or privileges to individual producersor customers. These stringent conditions fulfil two purposes.First, they ensure the lowest possible prices consistent withkeeping producers in the market. Under perfect competitionevery producer is a price taker; no-one is in a position to fix oreven influence prices by their individual action. Second, thecondition of anonymity that this condition and the requirementof no privileged access to the regulatory authority impose meansthat there can be no political interference to favour individualproducers over others. Indeed, in neo-classical economics there isno scope for lobbying the regulatory authority on behalf ofproducer interests at all.

There are many goods and services where something like theseconditions are fulfilled, but it is obviously not true of someothers, where it is difficult to sustain large numbers of firms.Recent economic theory has compromised with the unrealisticnature of these conditions for oligopolistic sectors. It has beennoted that very small numbers of giant firms can in fact competevery keenly indeed with each other on price; therefore oligopolyin sectors like petrol, and sheer monopoly in computer software,are not considered to offend against anti-trust regulations.However, this assumes that only price is of interest. It completelyignores the important political concerns about privilegedlobbying of political authorities which the conditions of the pure

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market were also intended to address. For 18th century politicaleconomists, in particular Adam Smith, as well as such 20thcentury successors as Friedrich von Hayek, the guarantee ofanonymity and the incapacity of any individual producer toaffect the market alone were also important for political reasons,to avoid privileged insider lobbying.

This becomes of fundamental importance when we addressprivatisation and major exercises in public-service sub-contracting, for here lobbying and the development of specialrelationships with politicians and civil servants of the kind whichvery large, far from anonymous, firms can carry out, becomeacutely relevant. Securing the privatisation contract, establishingits terms, and planning its eventual renewal, have become occa-sions for intensive interaction between very small numbers ofindividuals representing corporations (often former ministersand civil servants), and current ministers and civil servants. Evenif unwitting, there are clear risks to the maintenance of properstandards in public life in such exchanges. In the case of fullprivatisation, the fact that the firms involved are not perfectmarket agents is frequently recognised by the establishment ofregulatory authorities to monitor the subsequent behaviour ofthe industry. There are then grounds for concern over the rela-tionship between the regulator and the lobbyists. The claim madefor privatisation that it would depoliticise an industry or serviceand prevent corruption was simply untrue.

A central part of the case for bringing private providers intopublic provision is that this will bring increased diversity. Themarket ensures diversity and innovation when a large number offirms is trying to find new ways to make a profit. Many of theideas they produce fail, but some succeed, and new products andservices appear. This works very well in markets where there ismuch scope for diversity and novelty, where there are manyfirms, and where there are no serious overall consequences if

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individual firms fail. Private markets within the welfare statelack these characteristics. The number of producers is very small.The number of risks that can be taken with how schools andhospitals are run has to be low.

This does not mean that oligopolistic firms cannot providediversity. Such firms are well equipped for making innovationsprovided their managers have a strong incentive to do so and cangive further incentives to those lower down their hierarchies.Here private firms are in the same position as government organ-isations themselves, which can also, if they choose to do so, findincentives to encourage innovation among their staff despite thelack of competitive pressure. Outside pure markets there is littleto distinguish oligopolies in the private sector from public bodiesor charitable foundations.

Not only is the number of suppliers small, but so is the numberof customers. Although the rhetoric of commercialisation invari-ably speaks of the users or clients of public services ascustomers, the term is falsely applied. A customer chooses agood or service in exchange for paying the demanded marketprice. The users of contracted-out public services are very rarelyin this position: the customer is the government or other publicauthority which places the contract to provide the service. Theultimate user or consumer of the service may have little choice inthe matter, and has no direct relationship with the provider, allof whose attention in winning custom is directed at representa-tives of the public authority concerned.

The market for public services is therefore one in which oligop-olistic providers make deals with monopsonist customers. Mostof the characteristics normally intended by the idea of the marketare missing from such arrangements.

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Privatising or contracting out?The distinction between privatisation and contracting outrequires further analysis. Under the former, ownership of apreviously public resource is transferred to private firms. Underthe latter, ownership remains with the public sector, but theperformance of individual parts of the service is provided byprofit-seeking firms, on contracts of varying length. There isclearly a difference. For example, in privatising the railwaysgovernment could have retained ownership of the railwaynetwork and contracted out just the provision of train, station,and goods handling services a solution it was forced to intro-duce following the failure of Railtrack in 2001.

This distinction is very important to the Labour Government,since its strategy towards health and education involves partner-ships between public and private finance and sub-contractingservice delivery, not privatisation. However, while theseprocesses avoid loss of public ownership and of ultimate controlof a public asset, they not only share but in fact intensify one ofthe most disturbing aspects of privatisation: privileged lobbyingand access to ministers and civil servants the monopsonistcustomers by individual corporations. Precisely because thereis no final transfer of assets in public private financial partner-ships and contracting out, the relationship between publicauthority and private provider becomes a continuing one, andtherefore the lobbying and temptations of mutual exchanges offavours becomes permanent. Both forms necessarily featurecontracts of long duration. In the case of privately financedcapital projects, like a hospital or large school, contracts have tobe very long indeed, often over 30 years. Given the short lifespanof contemporary political and organisational arrangements,these are more than lifetime contracts. When only services arecontracted out there is not the need for such very lengthyperiods, but there are still certain sunk costs and also a lengthy

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learning curve for the private contractor. Contracts of five toseven years are normal.

During contracts of both these typical lengths, the principalbecomes very dependent on the agent for the quality of delivery.There may be penalty clauses for non-delivery, but these andperformance targets can be specified only for currently foreseenneeds and objectives. Contracts are legally binding documentswhich cannot be easily amended to take account of change; long-term contracts are a curiously rigid and inflexible instrument tobe adopting during a period which is normally seen as onerequiring particularly rapid adaptability and flexibility.

In the case of the shorter-term service contracts, firms have tostart thinking about contract renewal after a fairly short period.This certainly gives them incentives to perform well on theexisting contract, but cultivating good relations with a decision-makers can also help.

It is particularly interesting to observe, as discussed in moredetail in the next chapter, how a number of firms are emergingwho are specialists in the general art of government contracting,and pursue contracts across a wide diversity of sectors to takethe real example of Serco, a firm that builds missile warningsystems and inspects schools. Clearly such firms have no initialexpertise and therefore no particular substantive value added tooffer within a new field like education when they first enter it.Indeed, it is notable that they almost always recruit their profes-sional staff from the very public authorities such as inspec-torates and local education authorities to which they thencontract back their services. What they possess rather is aspecialist skill in winning and possibly managing governmentcontracts from politicians and civil servants. This is not neces-sarily a skill which passes value added and service quality to theultimate consumers. After all, the need for the skill could havebeen avoided simply by not bringing in the private agent at all.

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Loss of the concept of public authority Governments behaviour in relation to actual and potentialprivate contractors, and uncritical acceptance of their participa-tion in making the public policies from which they will benefit,draws attention to another loss involved in commercialisation:that of the meaning of public authority and public service itself.It is useful here to remember that public service was originally aVictorian, rather than a social democratic, concept. In otherwords, it was developed during the heyday of what we nowoften see as unrestrained capitalism. The explanation of theparadox is that, precisely because they were staking out the liber-ties of capitalism, and frequently encountering the points wherethese clashed with other values and interests, late 19th centuryreformers took seriously Adam Smiths concern that the businessworld could corrupt politics just as much as politics couldcorrupt business. Politicians and civil servants therefore neededan ethic of their own, which demanded from them conductdifferent from, though not hostile to, that of the business world.They frequently failed to live up to these ideals, which is why weoften see the Victorian age as hypocritical, but the ideals werethere. Public officials were expected to be very careful in theirdealings with persons who represented concentrations of busi-ness power. They were also expected to maintain a sense of thepublic interest which was more than the sum of individual busi-ness ambitions. This idea developed out of the concept of thesuperior interests of the monarch, but it adapted itself to bour-geois life, and then reached its apogee in the social democraticideal of the state as the servant of the universal citizen.

One of the changes introduced by new public managementduring the 1980s was a redefinition of the boundary betweengovernment and private interests as a semi-permeable one. It is aone-sided interpretation of the political teaching of classicaleconomics, and in practice represents an unprincipled adapta-

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tion to the realities of business lobbying power and theincreasing contribution of business funding to political parties.The intellectual rationalisation it uses is a combination ofrational expectations and public choice theory, which combineto assert the essential wisdom of firms and the essential folly ofgovernment. This argument, which for right-wing theorists is animportant motive for bringing private firms into public service,is the following. Competitive success in a perfect marketdepends in part on having the best possible knowledge, forincorrect knowledge will lead to errors of strategy and eventualbankruptcy. Therefore successful firms can be assumed to havethe best possible knowledge, which includes the capacity toanticipate the actions of all other market actors. This is anaxiomatic assumption, since it is assumed that in the long run themarket ensures the survival of only the fittest in this case, thefirms with the best capacity for acquiring knowledge. No suchassumptions can be made about government. It does not exist ina state of perfect competition and therefore has no incentive toact competently. Therefore its knowledge is deeply suspect.

This thesis is used by its more extreme advocates to argueagainst all government intervention in the economy; if firms inthe market necessarily have superior knowledge to government,anything government tries to persuade them to do will be lessefficient than what they are doing already. In fact, given theircapacity for perfect anticipation, firms will have already workedout what government will be trying to achieve by its interventionand taken evasive action. This perfect knowledge is seen asresiding in particular in firms which have achieved successfulsurvival in the financial markets, who deal specifically ineconomic knowledge, and whose judgement is therefore notopen to challenge.

The argument has three practical weaknesses. First, since verymany markets are far from perfect, it cannot be assumed that

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even the most successful firms have honed their knowledge gath-ering capacities to the highest possible degree. Second, in arapidly changing world, we cannot ever specify what will actu-ally constitute perfect knowledge after the immediate future;since knowledge acquisition takes time, we cannot assume thatany firm has enough knowledge to deal with the longer-termfuture. During the extended stock-market boom of the 1990smany normally thoughtful people came to believe that somehowthe information technology sector had finally solved all suchproblems. The collapse of that boom during 2000 should serve asa valuable reminder that the knowledge embedded in stockexchanges can be less than perfect.

Both these points suggest that the market does not have auto-matic superiority over public planning. The third point isstronger: certain forms of knowledge are peculiarly available tocentrally located agents (i.e. governments), who are able toacquire knowledge from outside the market process. In otherwords, while firms may have advantages over governments insome kinds of knowledge acquisition, governments may havethe edge in certain other kinds.

Though in practice absurd, this theory has nevertheless exerteda powerful implicit grip over public policy thinking in recentyears, to the extent that chronic lack of self-confidence hasaffected public authorities at all levels. To sustain their self-respect and give themselves any legitimacy at all, they respondby trying to make themselves as much like private firms aspossible (e.g. through internal marketisation), by bringing inexpertise, consultants and actual service delivery from theprivate sector, and by privatising to it and generally exposing asmuch of government (or former government) services as possibleto the judgement of the financial markets. Former distinctionsbetween the ethic of public service and that of private profit-making business are necessarily cast aside in such a process. If

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the wisdom of firms is always superior to that of government, theidea of a proper limit of business influence on governmentbecomes absurd. While these processes were already firmly inplace during the Conservative Governments of the 1980s andearly 1990s, they have reached a certain climax with NewLabour, which, in view of its partys past, feels a particular needto demonstrate its business friendliness. One of the most startlingexamples of this is the decision to allow individual corporationsto place staff members on temporary secondment to ministries.Equally significant is the way in which government has so muchlost confidence in its own distinctive contribution that it hasallowed even some regulatory activities to be privatised, as weshall see in the following chapter.

This process becomes self-fulfilling. As government contractsout an increasing range of its activities, its employees really dolose competence in the areas being covered by the contractors,areas within which public servants have until now had unri-valled expertise. As they become mere brokers between publicprincipals and private agents, so professional and technicalknowledge pass to the latter. Before long it will become an argu-ment in favour of private contractors that only they have the rele-vant expertise.

In the process of trying to make themselves as similar aspossible to private firms, public authorities also have to divestthemselves of an intrinsic aspect of their role: the fact that theyare authorities, in the sense that they must regulate, and occa-sionally make decisions which admonish. This loss does notextend to the political centre of national government itself. Infact, far from achieving the disappearance of state powerdreamed of by libertarians, the privatising state concentratespower into a tight central nucleus, which deals predominantlywith its peer elites in private business. This happens in thefollowing way. Lower and intermediate authorities, in particular

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local government, have to transform their activities into thepurchaser/provider model given by the market. The authorityrole is therefore sucked out of them. Central government alsoprivatises many of its own functions to consultants and suppliersof various kinds. But there is an irreducible political core whichconstitutes the elected part of capitalist democracy, which cannotbe sold off (though it can be compromised to lobbyists), andwhich wields the ultimate authority, at least over decisions howand whether to privatise and contract out. This core becomesever smaller as privatisation progresses, but it cannot be elimi-nated altogether without a collapse of the concept of both thestate and democracy. The more that there is privatisation and amarketisation model for public service delivery, particularly atlocal level, the more a Jacobin model of centralised democracyand a citizenship without intermediate levels of political actionhas to be imposed.

The loss of citizenship capacityThere are further, more direct problems for citizens rights in themodels of both privatisation and contracting out. Freedland hasdrawn attention to the triangular relationship: government,citizen, privatised supplier of services.6 The citizen has a link,through the electoral and political system, to government(national or local). Government has a link, through the law ofcontract, with the privatised supplier. But the citizen has no link,neither of market nor of citizenship, to the supplier; as we havenoted, service users are not technically customers. And followingprivatisation they can no longer raise questions of servicedelivery with government, because it has contracted suchdelivery away. Henceforth government is responsible only forpolicy, not for operations.

Freedland wrote before the various railway crises of 2000 and2001, which demonstrated a further aspect: the sub-contracting

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chain. Following either privatisation or contracting out, firmsfurther sub-contract elements of their task, and the service moveseven further away from citizens reach. One of the main difficul-ties in establishing responsibility for railway failure has been thecapacity of different sub-contractors in an ever-lengthening chainto lose responsibility in the legal labyrinth of contract termswhich links them. A question over service delivery can be untan-gled only, if at all, in complex litigation.

An important argument in support of contracting out certainelements of health and education provision is that privatecontractors are already used quite uncontroversially by publicservice (e.g. government offices buy their stationery in thenormal way). This argument becomes particularly strong whenlinked to contemporary business theory about the value of firmsconcentrating on their core business and contracting out fringeactivities. The general concept of core business is valid andimportant, and must in fact be used by those who want to insiston the distinctive place of citizenship in the services we arediscussing. The citizenship component constitutes the core, andthere clearly are fringe components which can be safely hivedoff without damaging this. The important issue is how the coreshould be defined. There are two rival approaches: (a) define thecore extensively, with a policy priority being to safeguard theneeds of public authority and service which as we have seenincludes safeguarding the need for detailed knowledge of theconduct of services by those publicly responsible for them; or (b)maximise privatisation opportunities by defining the core asnarrowly as possible. This disregards the needs set out in (a),producing some of the negative results we have been discussing.By committing itself so fully to the attractions of commercialisa-tion, Labour has been effectively adopting option (b).

During the late 1990s and early 2000s many firms decided thattheir earlier enthusiasm for minimising their definition of the

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core business, down-sizing and de-layering, had gone too far.They had become dependent on external suppliers who, oncethey had won a long-term contract, were not always concernedabout maximising efficiency. Also, the contracting-out routecontradicts another aspect of good business practice: the impor-tance of developing a corporate culture and staff commitment.This is, ironically, particularly important in services rather thanmanufacturing, there often being little distinction between thepersonnel and the product in service delivery. Can an organisa-tional ethos be fully maintained if the personnel concerned arethe employees of a sub-sub-sub-contractor?

There are therefore major risks in following the contracting outroute. Indeed, if we follow the logic of commercialisation to itsconclusion, one can envisage the emergence of a quite differentidea of politics. By distancing itself from service delivery throughlengthy contract chains, government could imitate a discovery ofthe really smart firms of the 1990s: get rid of the core businessitself. Companies found that if all the work of making a productwere contracted out, the firm itself could concentrate on the soletask of developing its brand image. The role of the successfulfirm, liberated from any substantive tasks, became just thedevelopment of the brand and its association with fashionableideas and celebrities and this, rather than intrinsic productquality, became the key to its sales. This process has been skil-fully exposed by Naomi Klein in her book No Logo.7 How mucheasier would the work of governments be if they needed to culti-vate only their brand and image, and were not directly respon-sible for the actual quality of their policy products!

This leads us in turn to the final answer to the puzzle of whatit is that private firms might offer which cannot be provided fromwithin the public service itself: presentation. Public serviceprofessionals tend to neglect presentation to a fault; their distinc-tive ethic tells them to concentrate on the quality of the service

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itself. Politicians themselves, although they are part of the publicsector, inhabit a world far closer to that of the private sector, asthey are constantly having to sell themselves and increasingly doso through packaging and media spin rather than by ensuringsubstantive quality. It is a small step to the realisation that thegrowth of the presentation approach within these services couldremove the public gaze from their actual quality and focus it onthe advertising schemes that private firms bring with them.

The logical conclusion to this process would then be a fullyspun political world where health, education and other serviceswould continue to be central to political debate, but where thatdebate took the form of rival efforts at branding, just as most tele-vision advertisements refer somewhere to a product but areprimarily concerned with associating that product with certainimages that have nothing to do with its intrinsic qualities.Electoral competition in such a context would no doubt continueto be intense and creative, as rival parties sought to associatethemselves with winning imagery but it would be a competi-tion detached from the awkward facts of real life.

I am not suggesting that such a world is the aim of todayspoliticians, but it can be seen as the ultimate destination towardswhich the processes of commercialisation are leading. Oncegovernments have sub-contracted their services to elongatedsupply chains of private firms, they will no more be responsiblefor their production than Nike is for making the shoes it brands.If one runs this scenario through the Freedland triangle, one seesthat citizens would lose virtually all capacity to translate theirconcerns into political action. Elections would then becomegames around brands, rather than opportunities for citizens totalk back to politicians about the quality of services. Extremethough this might seem, it is only an extension of a process withwhich we have become so familiar that we no longer even noticeit: the approximation of the democratic electoral process, the

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highest expression of citizenship rights, to a marketing campaignbased quite openly on the manipulative techniques used to sellproducts.

In fact the alarm bells should be ringing well before that finalstage is reached. For once public services are treated in mostrespects as commodities just like any other, how much longerwill it be possible to defend their being subsidised and notbought and sold in the market like other commodities too? Howlong will the current taboo on full privatisation then last? ThePrime Minister has recently suggested that the next stage ofreform is co-payment for public services that is, privateconsumer fees.8 It seems that we may already be on that path.

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School-level education has been a policy field where thecontradictions between citizenship and commercialisationapproaches have been particularly clear in government

policy. The concept of citizenship entitlement is highly devel-oped in education. Partly because so much of its provision iscompulsory, partly because in a democracy all political partiesare required to advocate opportunities for social mobility, thereis an almost universal expectation that education should beavailable as a right, not needing to be purchased in the market though in practice in the UK and some other countries this idealhas always been heavily compromised by the existence of fee-paying schools to which many wealthy people send their chil-dren.

The strong element of compulsion exists because, if havingtheir children educated was voluntary, many parents would failto do so. This would create problems of social order and mightweaken the eventual economic capacity of these children. It istherefore difficult to apply one fundamental attribute of themarket, freedom of consumer choice. It would be even moredifficult to apply the other fundamental attribute: the payment ofprices which reflect the production costs of the good or serviceoffered. If this were applied, even fewer parents would have

2 | The case of education

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The case of education

their children educated, or they would buy very cheap and inad-equate schooling. In principle compulsory consumption could becombined with all other attributes of the market: parents couldbe left free to choose from a range of private school suppliers,and to pay fees. There would however be severe political objec-tions to enforced payment of private consumption. Educationpresents particularly difficult problems for a full application ofmarket logic which would mean treating it like any other good,offered for sale according to supply and demand withoutdistorting and degrading the service provided.

Markets and private firms therefore hover on the margins ofthe compulsory education system, in two main forms: the intro-duction of market analogues without privatisation into theschool admissions system; and the contracting out of educationalservices, including increasingly the teaching of subjects inschools, to firms. Both will be explored below.

Making markets in educationFor parents and their children, the choice of school which a childwill attend is the most market-like aspect of the educationsystem. Governments eager to introduce elements of the markethave therefore concentrated attention on extending parentsfreedom of choice in this field. However, for the reasons outlinedabove, they have had to do this without use of the price mecha-nism. This limits heavily the degree of marketisation that can beintroduced, as it eliminates two fundamental roles of pricewithin a true market: as a unitary indicator which is consideredto summarise all relevant qualities of an item of the good in ques-tion, enabling it to be compared with rivals and facilitatingchoice; and as a rationing device for distribution. Governmentshave found solutions to these deficiencies. However, the resulthas been, not a happy compromise creating something newbetween citizenship and markets, but a dysfunctional stalemate.

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The problem of the absence of price as a quality indicator can inprinciple be tackled by constructing analogues to guidecustomers, and doing this has been a major element of policy.The main solution found by the Conservative Government andcontinued by Labour has been the introduction of official tests ofpupils performance, administered at ages seven, eleven, four-teen and sixteen. The results of these are published and used torank and compare schools. Parents are encouraged to use themas indicators of quality when choosing schools for their children.At the same time, schools performances in the annual GCSE andA Level GCE examinations are calculated, ranked and widelypublished in the press. All this facilitates a market-like process,but it has two principal defects which may distort educationalprovision.

First, partial indicators encourage schools to maximiseperformance on those items reflected in the indicators alone. Ifsuccess in certain examinations is measured and published, therational school will concentrate on those at the expense of otheractivities. There have been many examples of this, leading todemands that government adjust the indicators used so that theycover all relevant areas, and government has been responsive tothese pleas. But there are two limitations to this strategy. First, ifindicators multiply, they become too complex, and people findthem difficult to appraise. As Onora ONeill observed in the thirdof her 2002 BBC Reith Lectures, as targets become more and moretechnical and complex, and are changed with increasingfrequency, the public ceases to be able to understand them atall.9 The new accountability is not to the public at all, but just tothe political centre. Second, as she also observed, the vast volumeof work involved in record keeping and target-making meansthat the attention of professionals is increasingly focussed onthese, giving them less time for genuine engagement with thereal public, their clients.

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A second and highly contentious issue has been the use ofpupils performance as a judgement on school quality, when it iswell known that childrens academic achievements dependheavily on their social background. The Labour Governmentinitiated a system of baseline testing to reflect this: children aretested on entry to a school; subsequent test performances canthen be compared with their initial achievements to assess thevalue added by the school. The White Paper that eventuallybecame the Education Act 2002 announced that indicators basedon these baseline results will eventually be published alongside but not instead of the raw data. But many parents may bemore interested in the raw data. They want to know both whatthe school achieves and the quality of its raw material, for in thisway they can select schools with suitable fellow pupils for theirchildren. The indicator system sends signals which can be usedto reinforce social segregation. In any case, as Brighouse haspointed out, general school measures tell parents very little aboutthe particular balance of characteristics that they seek for theirchild.10

Test scores have not been the only forms of quality signaldeveloped by governments to make markets for school choice.Further indicators are provided by the reports of Ofsted, theOffice for Standards in Education, introduced by theConservatives to give more impetus to change and higher publicprominence to school inspection than the school visits of HMInspectorate of Schools. Ofsted grades schools into various cate-gories, including the highly negative ones of having seriousweaknesses, or requiring special measures to improve them.

A further technique has been the development of differenttypes of school. In some parts of the country the old 1944 systemof a distinction between grammar schools and residual schoolswas never abolished, and New Labour has no objection to thissituation continuing. The Conservative Education Reform Act

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1988 had provided for the establishment of Grant MaintainedSchools (GMS). To encourage schools to become GMSs theGovernment introduced certain inducements, such as generouscapital and other grants which were not available to LEA schools.GMSs were permitted to select up to 15 per cent of their pupilsfrom outside their catchment areas, using whatever criteria theyliked. GMS status therefore served as a signal to parents that thiswas a school in favoured financial circumstances and to someextent able to recruit pupils of its choice a strong market signal.

In practice the implications of this policy were limited: notmany GMSs were introduced; their distribution through thecountry was very uneven. Their contribution to increased choiceand to a market in schools was therefore small, arbitrary andsometimes negative. Further extensions of this experiment werestopped by the Labour Government of 1997, which also changedthe status of existing GMSs to that of foundation schools; formany purposes, including the crucial question of admissions,they were brought back under LEA responsibility.

However, at secondary level Labour also embarked on an alter-native policy of its own for inserting new forms of school withinthe state system but possessing attractive qualities which wouldmark them out from ordinary schools. The 2001 White Paperproposed a major expansion of the existing experimental policyof specialist schools. These seek to develop expertise in certainparticular kinds of education such as technology, arts, sports,business studies. To help them fulfil their particular mission,they will be able to select up to 10 per cent of their pupils basedon ability within their chosen specialisms. The Governmentintends that 40 per cent of all secondary schools in Englandshould be specialist by 2005, with a further group in the cate-gory of working towards specialist status. (The Governmenthas now said that ultimately it wants all schools to have somekind of specialism.) In addition to LEAs, voluntary bodies, reli-

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gious organisations and private firms can apply for the right toestablish them. In addition to their limited selection right,specialist schools will have the right to pay teachers more thanother schools. Schools which have been successful specialistschools for five years will have the chance to become advancedspecialist schools, receiving more funding than those aroundthem but also having some responsibilities to develop materialsand training and provide services for these others.

The Government argues that specialist schools do not mark areturn to selection, because a diversity of specialisms will berecognised, not just general academic ability, and no school isprohibited from working towards specialist status. It is in factmore concerned to make markets than intensify selection, theemphasis of the arguments of the White Paper being onexpanding diversity in order to increase choice. However, sincesuperior funding and privileges are to be a mark of specialistschools, it is clear that they are being marked out as more desir-able, and not just diverse.

The White Paper introduced a further distinction amongschools in its concept of the successful school, formal criteria fordefining which will be devised. Under certain conditionssuccessful schools might be permitted: to pay higher salaries totheir teachers; to be exempted for teaching parts of the NationalCurriculum; and to expand their size irrespective of local admis-sions and school size policies.

The Conservative Education Reform Act 1988, which intro-duced the tests and the Ofsted model, concomitantly gaveparents increased rights to choose individual schools within theirlocal authority, rather than being allocated to their neighbouringschool. Schools were then given incentives to attract parents, asthey were rewarded financially if they could compete success-fully with their neighbours in recruiting pupils. Labour retainedall these policies and, as we have seen above, is strengthening

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some of the mechanisms which divert pupils numbers andresources to certain schools.

Together all these policies over the 1988 to 2001 period haveput in place a powerful market analogue whereby customers(parents) are equipped with information to find the mostsuccessful schools, and providers (schools) have strong incen-tives to attract customers. This might seem to be a highly desir-able situation, but it has a number of negative consequences. If,as the 2001 White Paper implies, all that is happening is thatdiversity is being expanded so that customers with differenttastes can find providers to match, there would be little to worryabout, apart from a large number of minor frictions when supplyand demand for particular school characteristics did not match incertain areas. In reality however it is not a question of a widediversity, but a ranking of good and bad schools. Test andexamination results, Ofsted reports, the eventual designations ofsuccessful schools all point in the same direction. In theoryspecialist schools will cover a wider range of attributes, but manyof them will be specialising in those areas of the curriculumwhich deliver the high test scores. Clearly, demand for these willexceed supply. In a true market the price of good schools wouldrise to bring demand and supply into equilibrium. But thissecond, controversial role of price as a means of rationing is ruledout by the citizenship principles of the national educationsystem.

The market approach therefore has to operate without substan-tive prices. In doing this however it does not produce a compro-mise, but continues to violate citizenship principles. As good orpopular schools use their additional resources to expand, poorschools, starved of both pupils and resources, will necessarilydecline, and will either eventually close or be left with aresiduum of children whose parents do not care. Alternatively,poor schools, shaken out of their complacency as the spiral of

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decline envelops them, will make determined attempts toimprove. In doing this they have an uphill task, as resources andpupils continue to haemorrhage from them.

If nearly all pupils end up in the successful schools while thepoor schools decline, there are further negative components. It isa long, slow process. Schools cannot expand quickly, and duringthat period whole cohorts of children will pass through help-lessly declining schools. It is also possible for schools to grow toobig to continue with their current regimes; a successful schoolmight be undermined by its very expansion. Further, in manyparts of the country the closure of some schools and the removalof pupils to a different one imposes high transport costs on chil-dren, which government is already reluctant to meet.

But more insidious than these problems is a perverse analogueof a school fee which emerges when elements of the market areintroduced into a theoretically non-selective system. If thesupply of places in good schools cannot rise to meet demand,there is competition among parents. This competition is resolvedin ways which cannot be reconciled with the citizenship model.Schools achievements are determined by two factors: the initialcultural capital that pupils bring with them (the quality of theraw materials) and the quality of the education which the schoolprovides (the schools added value). While parents arecustomers, their children are the raw materials which are fash-ioned by the school to produce the end product. The customersthus make their own contribution to their childrens schoolsperformance, and hence to the schools ability to acquireresources. Schools therefore have an incentive to admit childrenfrom parents likely to contribute strong social capital and toreject those who lack cultural capital. Childrens educationalpotential therefore serves as a curious analogue of a school feewithin the new price analogue system; the higher the ability of achild, the better chances its parents have of acquiring the school

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place they wanted; and the higher the subsequent profits of theschool. If this process proceeds unchecked, inequalities ofachievement between schools which attract the best pupilsbecause of their own past record, and those which are unable todo so, will spiral. The quality of education of those in unfavouredschools will deteriorate. Any role which schools might play aschannels of social mobility will be completely undermined.

The citizenship approach to these problems first limits schoolsability to choose their pupils in order to reduce the onset of thespiral of inequality; and second and more important takes directaction of various kinds to improve education quality in poorschools. The market and citizenship approaches are here mutu-ally incompatible. The former works by using parental choice toencourage inequalities between schools to accumulate, and thenredistributes resources from poor to successful schools. The citi-zenship approach tries to limit the destabilising effects onschools of parental choice, redistributes resources to poorschools, and takes many direct action measures to improve theirperformance.

Contradictory though they are, the Labour Government seeksto honour simultaneously the citizenship model and the newmarketisation strategy. Since 1997 it has undertaken many meas-ures for directly improving poor schools, and Schools AchievingSuccess set out further strong and imaginative new policies fordoing the same. The 2002 Green Paper proposed a number ofmeasures for recognising vocational forms of education along-side academic ones though in doing so it threatened even morecomplex indicators and measures of performance. But the 2001White Paper had sustained and even reinforced all elements ofthe market analogue approach which constantly undermine theefforts of these schools to improve by encouraging parents withstrong cultural capital to avoid them. Additional resources willbe steered towards both successful schools and those experi-

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encing particular difficulties; both specialist schools and those inareas of deprivation will be able to offer higher pay to help themrecruit the best teachers. Every help offered to schools with prob-lems is counteracted by an equivalent help offered to the privi-leged. There is little to prevent many of the former becomingresidual schools for children unable to find a place in either aspecialist school of some kind or a residentially favouredcomprehensive; and somewhere in the middle there will beschools excluded from both contradictory redistributive flows.The solution held out by the White Paper for resolving thesedilemmas was to increase the number of specialist schools andaspirants to that status, in order to ensure that they are not just asmall elite. But the more that this is done, the more extreme is theghetto to which the residual schools are consigned.

In many policy areas, in particular those concerned with thedistribution of income, it has been made clear that New Laboursconcept of egalitarianism means trying to move the lowestpercentiles of the population closer to the median, whileremaining unconcerned that the distance between the medianand the top percentiles is increasing. The schools policy of the2001 White Paper is a perfect example of this philosophy: it isconcerned to ensure that the lowest percentiles achieve higherstandards than they do at present, while creating mechanisms forensuring that the upper percentiles move even further ahead. Asa policy for increasing the all-round educational performance ofthe national workforce, this is entirely coherent. However, as apolicy for securing equality of opportunity it cannot escape itsinternal contradictions. To the extent that competition for goodjobs is a zero-sum game, the mechanisms of parental and schoolchoice analysed above ensure that improving further the qualityof schools available to those with most cultural capital wipes outany compensatory measures taken to help poor schools.

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The distortion and residualisation of LEAsThe market analogue model and the prominence of league tablesgives even schools which do not have official selection possibili-ties strong incentives to try to get the best children, and equallyto avoid the worst. There are numerous ways in which they cando this, such as trying to dissuade parents of poorly performingchildren from choosing them, or by excluding children withbehaviour problems and passing them on to neighbouringschools. Schools admissions and catchment area practices haveto be strongly policed if this kind of black market in schoolplaces is to be avoided, a policing which becomes more necessaryas marketisation grows. However, Conservative and LabourGovernments have instead weakened the available policingmechanisms, mainly through the weakening of local educationauthorities which has itself been a major aspect of the marketisa-tion strategy. Indeed, in 2001 a consultation document issuedalongside Schools Achieving Success, acknowledged explicitlythat a free market in admissions was simply not working, andthat LEAs would in future play a stronger co-ordinating role.Once again the Governments citizenship agenda had clashedwith its marketisation one. There was not however a clear changeback to the former; again the Government is simultaneouslypursuing contradictory approaches. Stressing the co-ordinatingrole of LEAs runs alongside, but does not replace, the recenthistory of their general disempowerment.

First, both Conservative and Labour Governments have marke-tised LEAs relationship to schools, changing it from one of amonitoring authority to that of a supplier of commercial services.Second, and consequent on this, Labour has sought to replacethem at as many points as possible by private firms. These poli-cies in themselves threaten major distortions and an eventualresidualisation of LEAs.

An initial major requirement for transforming relations

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between schools and LEAs into market analogues was a distor-tion of the organisational character of schools themselves.Producers in markets are firms, who have to buy the labour andraw materials they use to make their products. To fit this, schoolshave had to be changed from their historical model as organisa-tions sui generis, to increasingly resemble small firms.

First, the Education Act 1986 (No 2) introduced the localmanagement of schools (LMS) system, which granted increaseddecision-making powers to schools. Then the Education ReformAct 1988 removed schools earlier autonomy over the curriculumthrough the introduction of a National Curriculum, replacingthis with new autonomy in finance and management. Schools,and especially their heads, lost professional autonomy butacquired financial autonomy, encouraging them to see this busi-ness-type, non-educational role as their primary self-definition.Head teachers were further encouraged to see themselves asmanagers, distinct from the teachers who work for them ratherthan primi inter pares within a teaching profession, by the intro-duction of performance-related pay for classroom teachers by theLabour Government in 2000. Heads have the job, with externalcommercial assessors, of deciding on the allocation of perform-ance increments to their staff. They have also been forced tobecome managers and bureaucrats instead of education profes-sionals by the extraordinary number of short-term, soft-moneyopportunities which government offers schools as it attempts tosustain a high public profile with more and more initiatives.11

In 2001 the Government initiated a policy of encouragingtakeovers of unpopular schools by a more popular neighbour asan approach to the problem of inequalities between schools.Significantly it did not use normal professional or local govern-ment mechanisms for this such as the administrative amalga-mations already in place and often used by LEAs needing toreduce the number of schools in an area but the model of the

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corporate takeover: the acquiring school acts through a commer-cial acquisition of assets.

While schools have in these ways been persuaded to conceiveof themselves as firms, the relationship between them and LEAshas become one of purchasers and providers of educationalsupport services, with LEAs gradually becoming just one amonga number of potential providers. This policy was initiated by theConservatives, but in general during that period LEAs weresuccessful in retaining their role. The main difficulties they facedwere that if a school chose to become a GMS, it movedcompletely outside the LEAs sphere, and funds notionally allo-cated to the LEA for its administrative support were transferredto the school. Head teachers were therefore able to use the threatof encouraging their governors to consider going GMS as adeterrent to any attempts by an authority to express disagree-ment with whatever heads were doing.

While the Labour Government had abolished the GMS possi-bility, it never acknowledged how the existence of GMSs haddestroyed LEAs authority, but took advantage of that weaknessto accuse them of not having asserted authority, and used that tojustify undermining it even further. During the first two yearsafter 1997 the Government seemed to contemplate abolishingLEAs. This in itself encouraged some head teachers to regardthem as of no consequence. But more important have been theGovernments substantive policies for further weakening LEAsauthority.

These have been motivated by the exceptional priority that ithas placed on moving private sector suppliers into public serv-ices. At first, Labours dominant rhetoric was solely that of LEAfailure; it was taken as axiomatic that, while public organisationswere likely to fail, private firms delivered consistent success.Certain authorities were deemed to have failed, and private firmsgiven the contract to do their job. This happened to Hackney,

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Islington, Liverpool, Sheffield, Leeds, Rotherham, WalthamForest and Bradford. In all but one case, private firms (ratherthan action within the public sector) were the solution sought,though in one of these the private intervention itself later failedand was replaced by renewed public involvement. In November1999 the then schools minister, Estelle Morris, predicted that afurther fifteen LEAs would be found to have failed, leading tosuspicions that the Government had a privatisation target.12 Inthe event the longer list never materialised.

The failure model was also applied to individual schools. TheConservative-controlled Surrey County Council began this in1998, when it offered the contract to manage a failing school to aprivate firm. Contrary to widespread expectations that theGovernment would oppose such a policy, it applauded it. TheEducation Act 2002 extended the Surrey model by giving theSecretary of State the right to require a local authority to offer afailing school to a private company.

However, private education firms were not interested in beingconfined to a role of rescuing failures, which can be a difficulttask, but wanted chances to run profitable services. The ability tocherry-pick, to spot where the profitable options are, is funda-mental to the entrepreneurial skill of firms who bid for govern-ment contracts.

Government responded to the lobbying, but this required achange of policy towards LEAs and a different rhetoric from thatof privatisation in the case of their failure. A kind of halfwayhouse had been the policy of Education Action Zones (EAZs),which retained the idea of private firms helping with areas ofsocial difficulty, but in co-operation with LEAs. Government waswilling to invest additional resources in areas with specifiedsocial problems, provided LEAs found partners from privatebusiness to join them, who would be willing to provide 25 percent of total funding and contribute some form of expertise. The

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management of schools within an EAZ ceases to be accountableto the LEA, and the business partners are able to influence thecurriculum. A similar policy has been the city academieswhereby private sponsors can establish schools with innovativecurricula freed from some of the constraints of the nationalcurriculum. This might or might not be done in conjunction withthe LEA. These experiments have been less confrontationaltowards LEAs, but maintained the ideology that the privatesector held the answer to poor educational performance.

By 2000 Labour was developing from this a completely new,positive strategy of using LEAs themselves as active participantsin the search for opportunities for commercialisation. Authoritieswhich co-operated in this were held up for praise; additionalfinance was made available if they would participate in experi-ments that might lead to hiving off some of their services. Thecriteria applied by Ofsted in its inspections of LEAs rewardedthose which had structured themselves in a way amenable topiecemeal commercialisation. (Ofsted inspectors often work forfirms who will be seeking privatisation contracts.) Then, duringthe 2001 general election campaign the Prime Minister turned therhetoric up a further notch: bringing private contractors into thepublic education and health services became an indicator indeed, the indicator of commitment to modernisation. In hissubsequent statements on public service reform, modernisationhas become a virtual synonym for bringing in the private sector.

LEAs were now in a full Catch-22; failure to succeed madethem vulnerable to privatisation; they could demonstrate theircommitment to success by being willing to privatise. TheEducation department invented a new term to describe the newprocess. LEAs were to be the brokers of services to schools, withthe responsibility of creating open markets for these services.13

The Conservatives had initiated a policy of compulsorycompetitive tendering, whereby many services provided directly

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by local government, such as street cleaning and refuse collec-tion, had to be offered to private contractors, and could beretained by the public service only if it succeeded in under-bidding the competition usually by worsening the terms ofemployment of employees. None of this concerned LEAs corebusiness. This was finally hit through Labours policy of BestValue reviews. Council departments are required to comparetheir own structure of service provision throughout the range ofactivities with those of other authorities, with an emphasis onseeking opportunities for bringing in commercial suppliers. Afurther instrument has been the New Models project underwhich government established eleven partnerships betweenLEAs and a small number of private firms. Some projectscomprised consortia of a number of LEAs and a firm, othersmatched individual LEAs and firms. One, which involved a part-nership between an LEA and a book shop chain, giving the latterprivileged rights to disseminate schools information in the area,collapsed early. In the other experiments, in principle the author-ities and the private firm discuss how the LEAs services areorganised and carried out. This might facilitate subsequent bidsby the firm to take over certain services; it certainly puts it in avery privileged place with important inside knowledge.

Converting the services which LEAs provide to schools intocommercial ones does not necessarily distort them; there is noreason to regard the cutting of grass in school playing fields orthe purchase of exercise books as any different from equivalenttransactions by any other organisation. Distortions appear if thecharacter of the service offered is adversely changed by beingforced into a commercial mould. This does happen where thedistinctive position of LEAs work as the exercise of publicauthority and professional judgement is concerned, and yet thiskind of work has in no way been excluded from the govern-ment's privatisation attempts. The Best Value reviews and New

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Models experiments provide strong examples of this. Theseoperate by redefining the LEA activities concerned as thoughthey were indistinguishable from any kind of service providedfor customers by a firm. This is necessary, because if LEA func-tions are viewed in their actually existing form as the exercise ofprofessional monitoring authority on behalf of a public interest,it would be LEAs who would appear as having the superiorexperience and capacity.

Some of the resulting distortions are merely silly as whentargets for customer satisfaction are sought in the number ofparental preferences in school choice met, or in reductions in thenumber of appeals made over school admissions decisions.These outcomes depend heavily on the behaviour of individualschools and, in many cases, the character of the areas in whichschools are located, rather than in any deliberate actions by LEAstaff. More important is the way in which treating admissionsservices as a marketable customer service ignores the issuesdiscussed above: conflict between schools, their desire toimprove their pupil base, to try exclude children from difficultestates, and to pass disruptive pupils on to rivals through exclu-sions. Dealing with these and similar issues requires a policingrather than a service-supplier role.

Initially the positive arguments for contracting out had usedthe core business argument, but this changed. For some yearsthe Government had acknowledged the non-commercialisablecharacter of many core decisions made by LEA staff, and there-fore limited hiving off to routine tasks only; but this changed asits

Documents

Colin Crouch Commercialisation or Citizenship