August 25, 2003
True and false privatisation

Here is a story which illustrates the difference.

The first private company to take over the running of an entire education authority is to be fined yet again for failing to meet its targets for improving GCSE and national test results.

CEA@Islington will lose half of the £908,480 fee that it was due to receive for overseeing Islington Council's schools this year, despite achieving its best ever GCSE grades.

Provisional GCSE results released by the north London borough yesterday show that 37.5 per cent of its pupils achieved at least five top A* to C grades, compared to 32.9 per cent last year. However, it failed to reach the target of 39 per cent, the figure agreed when the company won the Islington contract three years ago. The figures compare with a national average of 51.6 per cent last summer. The latest fine means that the company has been penalised three years running.

Both the council and CEA@Islington welcomed the rise in results, but recognised that more needed to be done.

CEA@Islington may in some sense be a private sector enterprise, but it is not operating in the private sector. It has one customer: the local authority. And it would appear that it has only one definition of results, namely exam success. In the private sector it would have lots of customers, and they would decided, individually, in accordance with their many and various ideas of what educational quality consisted of, whether they thought CEA@Islington was doing a good job for them. The aggregate of those decisions would determine CEA@Islingon's income.

This, on the other hand, is just an operation in churning the public sector up, and getting the people who work in it to accept payment by "results", instead of just salaries for showing up, which may be a good idea, but which may not (see above). In this story shows, the process of arguing that the contract between CEA@Islington and Islington Council should not be stuck to in the future has already begun. ("… despite achieving its best ever GCSE grades"). When the time comes for contract renewal, there will be a lapse back to public sector business as usual. Potential rivals will be wary of plunging into such a difficult and hazardous "market". This time the "contractor" will have a far better idea of what it can expect to achieve, and thus what to demand in its wage negotiations. Because wage negotiations is what it will be, with the company's management merely replacing the union as the negotiator. Very soon the company will become a mere part of the problem it was originally hired to solve.

When an apparently dramatic change is made in the public sector, the initial results as often quite good, but then they lapse back towards mediocrity again, when the underlying interests of the parties involved assert themselves.

In contrast, a move towards a genuinely free market often starts with chaos, only gradually followed by real and continuing improvement.

Which is just one more reason why privatising things, for real, can be so very difficult. After all, chaos can erupt in the public sector for all kinds of reasons, and how do you know that this chaos is good chaos, chaos with a future, or just chaos chaos?

Have a nice week.

Posted by Brian Micklethwait at 01:58 PM
Category: Free market reforms