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The Conservatives must again make the case for private enterprise, profit, choice and competition

May 19th, 2018


1929 Conservative poster

The risk is an unwitting drift into a new left-of-centre consensus

Some revolutions are begun by small steps; others are revealed by them. Of itself, Chris Grayling’s announcement this week that the government was bringing the East Coast Mainline back into public ownership, was nothing unusual. It is, after all, the third time in the 20 years of the privatised era that the East Coast franchise has failed. Furthermore, for the government, the return to state-run operations is a purely pragmatic consequence of there not being another operator ready to take over, and of not wanting to hand an extension to a company which has already failed to deliver. So far, so logical.

What’s not a natural consequence of the Virgin-Stagecoach failure is the decision to change the delivery model from franchising to a partnership. That represents not just a substantial change in transport policy but a retreat from the principle that a competitive private sector – where such a market is possible – is the best means of assuring service delivery. Once a partnership is in place, it is likely to be there for the long run, without the need to worry about retendering for the franchise.

I have to say, I’m sceptical about such a model. Public-private partnerships don’t have a happy history. At least with franchising, the companies take on both the risk and the potential rewards. Too often with things like PFI contracts, the state ends up with a very poor deal.

That, however, is not the point politically. What was perhaps most significant was how quietly the change was made; how little defence there was of the previous system – and, consequently, how easily the whole system could be transformed. After all, once you have an organisation running the infrastructure as well as the trains, you’re well on the way to breaking up the system within which even quasi-competition can take place. Labour – with its commitment to return the railways (and, indeed, a good deal else) to full public ownership and operation – must be laughing.

And this is where the quiet revolution is occurring. The era of retreating state control has been over for at least a decade: the financial crisis not only brought some banks directly into partial or full state ownership but also undermined faith in the entire capitalist system. Ever since, advocates of a well-regulated market economy have been on the defensive. In Britain, that took a little time to work through: Labour was initially still wary of advocating what might be seen as post-war socialism, despite its instincts. Not now. Corbyn and McDonnell have never been shy of state ownership and are no doubt exultant at both the government’s change of tack and the polling on the issue.

An article in the New Statesman this week quoted a Populus poll from last year which showed that more than three-quarters of the public backed state ownership of water, electricity, gas and railways. That’s no doubt partially a consequence of some obvious problems in each of those markets.

Water, for one, doesn’t even really have a market and the argument for a private monopoly as against a public one is marginal and relies on the profit motive driving medium-term efficiency, and on private companies not being as subject to political whims as a state-run would be. Both arguments are contestable.

However, even if you can make a case that regulation can provide either a direct or indirect market for each of the services, the problem goes deeper and is that of a growing scepticism of profit as the legitimate return of successful enterprise – again, perhaps driven by a sense of injustice against cases where directors have paid themselves large sums out of businesses that have then gone bust – Carillion providing a prime recent example. Those cases might be high-profile but they’re not representative.

What all this amounts to is an assault, not even by stealth, on the post-1979 (and in particular, post-1987) economic settlement; one which the Conservatives are not meeting. Unless they do so, they will lose the philosophical argument by default. It shouldn’t be difficult but perhaps that consensus’ ascendency has lulled the party’s leadership into a sense of complacency. Or perhaps they just don’t particularly do philosophical argument, even when in government and doing so is setting the foundations for the policies being implemented.

Unless they do, though, they’ll find public support weak and susceptible to the sort of collapse seen at the last general election, when Corbyn’s simple solutions and slogans sound sufficiently attractive to win voters.

To prevent that, ministers need to make a sustained effort to explain why markets – when regulated effectively, a key caveat – tend to produce more choice and innovation, and better service. Those who remember the nationalised industries may well remember the kind of customer service that went with them. But fewer and fewer do remember those days, thirty years and more ago now. The Conservatives cannot assume that the public buy into their preferred model (to the extent that it still is), nor that they adequately understand all the steps that link from the policy to the customer outcome. They have four years to turn that round.

David Herdson