Most of us have ‘pet phrases’ that get rolled out a lot in our speech. One of my colleagues uses the phrase ‘in the real world’ when frequently comparing the public sector we work in to that of private sector. Normally, it’s in a sentence like “this is the sort of idiocy that doesn’t happen in the real world”. In some respects, this touches on one of the debates of modern time: should the public sector try to emulate the private sector? Ever since privatisation in the UK in the 1980s, where large then-public industries such as water and power utilities were sold-off, there has been a strong and continual push for public sector to be more like private. In an extreme form, this has led to what might almost be described as a ‘public sector bad, private sector good’ mentality in some areas.
The ‘real world’ represents sane, rational results, whereas in this case public sector may well be thought of as cloud-cuckoo land. I find at times – loathe perhaps as I might be to admit it – my colleague isn’t wrong. Sometimes there are things that do seem to make no sense. Be that as it may, though, I still think that ‘the real world’ is rather more complex than at first things appear.
To appreciate this, we have to consider that to some extent the public sector exists to complement the private sector: the capitalist, market driven economy is imperfect, and that imperfection is addressed – at least in part – by the public sector. The most common example of this are ‘public goods’, which are those that are needed, but that the market can’t effectively provide. The reasons for this vary, but relate to the good not being easily chargeable. The economics behind it (relating to excludability, the rival nature of consumption and so on) are a bit dull and boring, but the bottom line is its easy to know who has a chocolate bar and is eating it, and therefore who to charge. It is very difficult for the market to make that same judgement about footpaths, street lights, and parks, and it is impossible for it to make the judgement about things like ‘air’. These are goods we all can or do use, to whatever extent we like, and whenever we want.
If the market won’t provide them, then someone else has to, and that ‘someone’ is generally the government. We all pay for them via our taxes, regardless as to the extent we use them or indeed the extent we want to. The theory then goes that government takes this pot of cash and uses it to provide the things we all want or need, such as street lights, but also national security and welfare.
That the nature of public sector is partly to offset some of capitalism’s market failures also touches on an area where public sector differs from the private sector: its isolation from market forces. Private sector businesses are more directly exposed to changes to their environment than public sector is, and I don’t think it could be suggested as being otherwise. That there have been attempts, such as in the NHS, to introduce more in the way of markets and market forces into public sector might point to the limited exposure to market forces as being seen as a negative factor – almost taking us back to the ‘public sector bad, private sector good’ statement earlier – but again I don’t think it’s that simple. The limitation of market forces is necessary because – if taken to the extreme – market failure through public goods would mean public sector couldn’t practically exist: the sector is there to provide the things the market won’t, so market forces would act as a counter to constrain this and be inappropriate.
So public sector gets a bit of an easy ride? Not necessarily. The markets don’t consistently check the behaviour and delivery of public sector, which can and does lead to inefficiency, but public sector has a level of scrutiny applied to itself and its finances significantly more taxing than that of private sector, and indeed it should be. If a business isn’t efficiently using its resources, the market will generally apply pressure to sort that out. In public sector, that pressure comes from elected members and us, the public, who want every penny used as wisely as possible.
The rules for how public money is spent are complex, with many checks and balances to ensure transparency, accountability and good value for money. Whether they actually work or are counter-productive is a topic for another time! What is clear is that they present public sector significantly less flexibility than private sector: what it can do and how it can act is greatly constrained. A simple, but illustrative, example is that of staff suggestion schemes. Large companies have been known to offer substantial pay-outs to employees that save or make them money. (I seem to recall – but don’t quote me – that either HP or 3M saved over $300m in annual costs through the first year of its global staff ideas scheme, paying out about 10% of it.) It’s simple business: Bob finds a way of saving £500k a year, so we’ll give him £50k. Everyone’s happy. This would be very difficult – if not impossible – to do in public sector, which is a huge shame given the potential opportunity. The focus would be on the £50k Bob’s been paid, not the £450k he’s saved.
So we have a private sector operating more flexibly than the public, but with exposure to market forces and the unpredictability and change that that entails, and we have a public sector trying to pick some of the things up that are needed but that by the nature of market forces the private sector can't do effectively. I don't think that either scenario gets to be more 'real' than the other: just different. They are simply two perspectives looking at the same thing slightly differently, with different goals and different pressures. It is, then, hardly surprising they operate differently. I’m not suggesting public sector should divorce itself from some of the advances in management, procurement, etc developed in private sector, all of which – applied intelligently – can and will be useful for bettering public service delivery. What I am suggesting is that as with any two perspectives, any two ‘windows on the world’, both are inherently limited in their view and abilities, and it’s time to accept that public sector has much to offer private sector in terms of learning and effectiveness, just as vice versa.
If we want to catch a glimpse at the real world – whatever that may be – then it’s probably best we look through as many windows as we get chance to.
