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Public bodies are often immortal in a way that private ones rarely are

My latest column in The Times:

The latest report into Jimmy Savile’s astonishing freedom to roam the wards of Stoke Mandeville hospital will not lead to the end of the National Health Service. Nor will the forthcoming report that apparently finds a “systemic cover-up” of the unnecessary deaths of babies and mothers at University Hospitals of Morecambe Bay NHS Foundation Trust between 2004 and 2013. The NHS itself will survive these scandals, as it survived the Mid Staffordshire hospitals scandal of 2005-2008. The immortality of large public-sector monopolies is a given.

Likewise, although the Jimmy Savile affair has caused crises and resignations at the BBC, nobody for a moment believed that the BBC itself would close. But why not exactly? Private firms that get into this much trouble generally do vanish, by takeover or bankruptcy. Castlebeck, the company that ran the Winterbourne View care home where scandalous treatment was exposed in 2011, went into administration two years later. Pollypeck, Enron and Barings no longer exist.

Of course, neither the BBC nor the NHS deserve to be shut down because one criminal was allowed free rein by one set of managers in years past. There are plenty of good people in the NHS and the BBC who do not deserve punishment for the sins of others (though the same was true of Barings). But private companies know they have no guarantee that they will continue to exist — and it affects the way they behave.

Perhaps a form of mortality for public bodies would be a good idea. After all, knowing what we do about self-justification in public bodies, the NHS and the BBC might well be on course to last as long as the Church of England.

Indeed, as this analogy suggests, it is not just that public institutions survive scandals; they continue to be admired. The NHS is generally considered an object of devotion. We are touchingly grateful that it saves lives, even though that is what we pay it to do, through the nose. The terrible cruelty and chaos of the Mid Staffordshire and Jimmy Savile affairs does surprisingly little to tarnish the halo, as the coming election campaign will demonstrate.

The BBC, despite experiencing “a succession of disasters of its own making” remains “a widely admired and trusted institution”, in the words of John Whittingdale, chairman of the House of Commons culture, media and sport committee. His committee recommends continuing to pay for the BBC through a flat tax on televisions that hits the poor relatively harder, even though that is “becoming harder and harder to justify” in the internet age.

Amid plenty of dross, the BBC makes some fine programmes — but so it should with £4 billion a year in predictable income. The NHS provides some fine care and cure — but so it should with £100 billion a year in guaranteed income. Aldi, Morrisons and Waitrose reliably provide lots of remarkably affordable and often fine food without any guaranteed income but we don’t treat them with devotion. Quite the reverse: we moan about them.

Imagine if a large supermarket firm had maltreated, and sometimes killed, its customers in one of its stores the same way as the NHS had done in Mid Staffs and Morecambe Bay. That company would have lost its chief executive immediately, been deserted by its customers, found itself hammered on the stock market and then been taken over by its rivals — and rightly so. The best a grocery firm can hope for is to be taken for granted; it is never going to be celebrated at an Olympic opening ceremony.

Of the 100 firms that made up the FTSE 100 in 1999 when it last peaked at the current level, 22 no longer exist at all: including Allied Domecq, BAA, Corus, Cadbury Schweppes and EMI. The possibility of extinction by takeover or bankruptcy leads businesses to seek perpetual innovation and reform. This generates improving living standards for consumers.

Imagine if you are chief executive of either a private company or a public institution. In both cases you are faced with the choice of funking change or embarking on an exhausting and dangerous course of pushing people into new ways of doing things at some risk to your own job. In a private company, the possibility of corporate death nudges you towards the latter course. In a public institution, not so much.

That is one reason the internet, though its embryonic form was invented in the public sector, did not explode upon the world until private firms started using it. That is why post offices failed to invent mobile telephony, the BBC did not invent social media and the NHS does not develop most drugs. That is why private sector productivity has increased markedly in the past 15 years while public sector productivity has not budged an inch. (Parenthetically, I keep asking people how it is conceivably possible not to increase public-sector productivity in the age of the internet, and I have yet to hear a convincing answer.)

Mortal public institutions do sometimes exist. One of Margaret Thatcher’s best ideas was that of the urban development corporations — local planning monopolies with limited lifetimes charged with transforming city centres. Some were outstanding successes and it was the acute awareness of the roughly ten-year deadline that helped them to be so.

Conversely, there are also immortal private institutions, such as General Motors, or maybe HSBC — firms that are considered too big to fail and therefore know that they will persist whatever happens. These grow to resemble public institutions such as the BBC and the NHS in their gigantism, their lack of innovation and their tendency to block the process of creative destruction by which innovation spreads to the benefit of consumers.

As public sector bodies proliferate in number, some way of making them mortal is not a bad idea. If you were starting from scratch, and acting in the best interests of the taxpayer, you might award the franchise to run public broadcasting, national healthcare, perhaps even the defence of the realm, the civil service, the legal profession and the established church, to the best bidder every five or ten years, just as is done with rail franchises and the national lottery — or, for that matter, Ten Downing Street. Of course, the BBC and the NHS (and those other institutions) are much too big for that to be conceivable. Too big to fail, in a phrase.

By Matt Ridley | Tagged:  rational-optimist  the-times