Public Administration in Britain

3: Is the public sector a business?

BS1032: Public Administration in Britain 3: Is the public sector a business?

Traditional phase (1945-1980)

- Government ran large nationalised industries (electricity,gas,water, telecommunications, oil, airlines, nuclear power)

- the private sector (after WW2) could not afford levels of investment in bankrupt industries

BS1032: Public Administration in Britain 3: Is the public sector a business?

The resurgence of the market (1980-1997)

- Many of the utilities sold off, giving enormous sums to the Treasury of £60 billion (although some maintain they were sold off too cheaply)

- An ideology that government should be run ‘like a business’ I.e. with private sector concepts and techniques such as TQM, cost-centres, budgetary controls

BS1032: Public Administration in Britain 3: Is the public sector a business?

The ‘middle way’ (1997-)

- A greater balance between government approach to industry but still:

- basically ‘hands-off’ e.g. Railtrack

- government likes to get ‘close’ (some would argue too close) to big business

BS1032: Public Administration in Britain 3: Is the public sector a business?

Classical ‘stakeholder theory’ of the firm

BS1032: Public Administration in Britain 3: Is the public sector a business?

In the classical ‘stakeholder theory’ of the firm, Managers ‘hold the ring’ between contending forces:

• shareholders/workers

• customers/suppliers

• senior management/ junior management

• government/ ‘society at large’

BS1032: Public Administration in Britain 3: Is the public sector a business?

Criticisms of this approach include:

• It fails to explain how each stakeholder can be treated in an equitable fashion (e.g. who should suffer in a recession

• the shareholders through dividends

• The workers through a factory closure )

• in the last analysis, it depends on the relative power of the stakeholders who are anything but equal

BS1032: Public Administration in Britain 3: Is the public sector a business?

Applying ‘stakeholder’ theory to the government:

• Governments role is to ensure a ‘level playing field’ in which competition may occur (e.g. through legislation)

• Governments reserve the right to intervene on behalf of the social interest/society at large but in practice may be reluctant to do so

• Government itself becomes ‘just another stakeholder’ e.g. regulation of the tobacco industry

BS1032: Public Administration in Britain 3: Is the public sector a business?

‘New Labour’ and stakeholder theory…

The Blair government was concerned that the de-industrialisation of the 1980’s had produced a ‘dual economy’

• some in secure, well paid jobs

• weakened unions and a ‘flexible’ labour force had created many part-time and temporary jobs without worker protections

BS1032: Public Administration in Britain 3: Is the public sector a business?

The ‘stakeholder society’ was one in which…

• business and financial communities accept social obligations towards their employees and society at large as well as their shareholders

• hence reverse EU Social Chapter opt-out, legislation for a minimum wage but

• tight restraints on public spending means no change ?

• Welfare-to-Work scheme reminiscent of 1834 Poor Law ?

BS1032: Public Administration in Britain 3: Is the public sector a business?

A level playing field ?

• Industry (and the political parties) demand a ‘level playing field’ i.e. conditions under which competition is deemed to be ‘fair’

• However, definition of ‘fairness’ is often a one- sided one as interested parties only complain of factors when they consider themselves disadvantaged, not the reverse…

BS1032: Public Administration in Britain 3: Is the public sector a business?

BS1032: Public Administration in Britain 3: Is the public sector a business?

Imagine the scenario…

• Central London is brought to a stand-still by hauliers protesting because…

• Continental lorry drivers pay so much more in payroll-tax, making them uncompetitive with British hauliers

• So the British demand a ‘level playing field’ as they would not wish to have an unfair advantage vis-à-vis other European hauliers…

BS1032: Public Administration in Britain 3: Is the public sector a business?

Current competition mechanisms…

• Competition Policy Directorate advises the Secretary of State for Trade and Industry

• OFT (Office of Fair Trading) headed by the Director General of Fair Trading keeps watch on UK,EC and international monopolies,mergers,restrictive agreements

• Competition Commission investigates and reports

• European Commission has exclusive powers to act on certain large mergers with a European dimension

BS1032: Public Administration in Britain 3: Is the public sector a business?

Extract from a Competition Commission Report

“Taking the May 1999 survey (the most recent available at the time of our report), for 58 of the 71 models we analysed the UK price was at least 20 per cent higher than in the cheapest country even when the three countries with the highest levels of car tax (Denmark, Finland and Greece) were excluded from the comparison. When those three countries were included, the UK price was at least 40 per cent higher for 49 of the 71 models analysed. In sum, prices in the UK have been higher on a long-term basis and a wide gap has developed—and persisted—over the last few years.”

http://www.competition-commission.gov.uk/439.htm

BS1032: Public Administration in Britain 3: Is the public sector a business?

Privatisations

took place in three stages (HM Treasury)

• Initial commercial phase (British Airways, BritOil)

• Utilities phase (BT, British Gas, Water companies)

• Third phase, involving companies that still require some subsidy from government for socially desirable purposes (Railtrack)

BS1032: Public Administration in Britain 3: Is the public sector a business?

BS1032: Public Administration in Britain 3: Is the public sector a business?

Regulators currently…OFGEM Office of Gas and Electricity

Markets

OFWAT Office of Water Services

OFTEL Office of Telecommunications

ORR Office of the Rail Regulator

OFREG Office for Reg. Of Elec and Gas - NI

BS1032: Public Administration in Britain 3: Is the public sector a business?

Who regulates the regulators ?

(Quis custodet custodes ipsos – who guards the guards ?)

The dilemma is for a government to leave the market to itself but also to have a degree of control when necessary (Railtrack)

BS1032: Public Administration in Britain 3: Is the public sector a business?

Who shaves the barber?

Consider a town where there is a barber, and the barber shaves. The barber shaves all - and only - those people who do not shave themselves. Now, who shaves the barber?

If the barber shaves himself, that can't be right because the rule is, 'The barber shaves all - and only - those people who do not shave themselves.

...but, if someone else shaves the barber that can't be right either because the rule is, The barber shaves all - and only - those people who do not shave themselves.

BS1032: Public Administration in Britain 3: Is the public sector a business?

BS1032: Public Administration in Britain 3: Is the public sector a business?

But note the following paper…

Giulietti, Price and Waterson(2000) ‘Competition and Consumer Choice in the Residential Energy Markets’

Warwick Business School

Centre for Management under Regulation

http://www.wbs.warwick.ac.uk/cmur