Markets, public services and social justice

by Stephen Tall on February 13, 2006

Sorry, I keep doing this – replying to people’s comments in articles at such great length that I then feel compelled to publish them as new posts. Both Joe Otten and Neil Fawcett asked me some very good questions in response to my What is an Orange Booker? article. As I have said in my reply, but edited out below, I don’t have definitive answers: this is thinking in progress, and offered up to those who want to read it very much in that spirit…

I think a lot turns on our answer to ‘what is a market?’ When I use the term I don’t mean a purely cash transactional economy. I mean a market in its most basic sense: the most efficient mechanism for allocating scarce reources.

As it happens, I therefore think markets are not only wholly appropriate for (eg) health and education – but that they are absolutely essential. ‘Need’ (however defined) in the NHS will always exceed the resources society has available. So how these scarce resources are allocated most efficiently – ie, how a finite pot of cash can help the most people – is crucial.

Markets give us the tools to make the tough choices we know need to be made. Those choices will need to be made, whether power is held at local or national level (though the more local the better, as far as I’m concerned).

The currency in a market does not always have to be cash. I’m interested in how we can get beyond the idea that markets are simply about fitting a number to anything that moves – because if you measure quality, it comes out as quantity.

I would also accept the point that various parts of all public services are natural monopolies, not least because of imperfect knowledge (eg, a doctor will know far more about overian cancer and how to treat it than will the patient). But, even there, we accept that there has to be a form of market – we might want a team of specialist cancer units in every major town in the country, but know we can’t as a society afford it or staff it.

The decision as to how many specialists, and where they are based, has to be taken by managers / politicians somewhere. To make that choice of how to allocate those scarce resources they need to work out how they can spend money to best effect.

Perhaps they can develop a specialist unit in one area of cancer treatment because the next-door town specialises in another form? In which case the two hospitals will, through healthy competition, become greater than the sum of their parts.

Ultimately my belief (I’d try not be as theological as to term it faith) in markets is based on my conviction that healthy competition raises standards. I don’t mean dog-eat-dog competition. But competition in which each service provider works out what can be its point of competitive advantage; how it can best serve the wider public good.

That is what I mean by liberal market delivery of public policy goals, and why I think those markets are the engine of social justice.