What I wrote at Lib Dem Voice

February 12, 2006

What is an Orange Booker?

That was the fair question asked of my by James Graham in his comment to my posting below criticising the leadership contest for treading water. My reply was too long for a comment box, so I thought I'd give it an airing here:

You're right of course the 'Orange Book' is a mixed bag - I was using the term as a commonly understood short-hand to refer to an emphasis on using market-based economics to deliver liberal public policy goals. ...

My point here was not to complain that any one candidate has not been pro-OB. The point is that the party is ignoring this debate, which denies the opportunity both to those who are OB-ers and those who are not, to make their respective case to the party's membership. A leadership contest should enable such a debate, not ignore it.

Ming, Chris and Simon have all (rightly) emphasised the fact that good quality public services require local accountability anddecent funding.

But none of them have addressed the bigger issue, which is more awkward: what to do when a bad decision is made locally, and what to do when the funding is insufficient (as it inevitably will be)? This is where markets are essential because they give you a robust evidential basis to make your decisions, and enable you to prioritise scarce resources to best effect.

So how can we as liberals establish markets? How can we correct the market failures there will inevitably be? And how can we make these markets work to deliver real social justice?

Those are the kind of questions a leadership debate should open up. We can all sign up to localism and decent funding. Let's also have the courage to debate what we disagree on as well. This contest hasn't provided that debate. That's why it's disappointed me.


Joe Otten said...

Can I refer you to this post and the subsequent discussion?

Can you explain why a market solution will necessarily be the best one in every case?

Also can you explain how a "created" market necessarily captures the benefits of a free market - of a large number of consumers buying with their own money for their own use from a large number of suppliers?

If these questions can be answered satisfactorily in respect of any particular policy, then I will support it. My problem with Laws in the Orange Book is that he didn't seem to think these questions mattered.

I do agree that the party should demonstrate in its policy support for free markets. If this means using the second best value provision of any given service it may still be worthwhile if the difference in value were not that great - because commercial confidence adds value. Right?

Liberal Neil said...

I think you have far too much faith in the ability of market mechanisms to deliver public services and underestimate the impact genuine local accountability could have.

Markets work well where people are excercising a genuine choice - leisure services for example - where a good dose of market discipline can generate massive improvements in public services. (Oxford could do with a dose of this IMHO!)

However I am less convinced they work in something like health which is often based on need, not choice. For example there will always be a limited number of people requiring treatment for ovarian cancer. There is agood case that the effective way to deliver this treatment is through a monopoly service given the limited number of people needing it, the level of specialist knowledge involved etc.

That is not to say that 'choice' is not important. One of the ironies of the current NHS is that the attempts to introduce a false 'market' within the system seems to be leading to maternity units closing - thus offering women less choice.

In contrast it would be quite possible to offer women a wide choice of maternity services through a monopoly NHS IF there is strong local accountability.

Stephen Tall said...

Joe - thanks for the link. I'll try and briefly 'answer' both you and Neil. Inverted commas there because I don't pretend to have definitive answers.

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.

Neil, '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, and why I think those markets are the engine of social justice.

(Sorry, longer than I intended.)

Anonymous said...

liberal neil said: "I think you have far too much faith in the ability of market mechanisms to deliver public services..."

And I think that way too many Lib Dems believe in the omnipotence and infallibility of the state in solving these problems."

Tristan said...

I tend to agree.

And it is incumbant upon us as liberals to create the best conditions for markets where they are possible (it is also necessary for us to realise where they aren't). Markets and competition are necessary (but not sufficient) for freedom.

I think we tend to err on the side of caution, and dare I say it statism, too much, partly because of the dominance of socialist ideology and the damage done to the liberal economics by Thatcher.