Fascinating to see those giants David Lipsey and Julian Le Grand arguing in Prospect on the issue of choice in public services. Lipsey gave us the theoretical case against choice: users lack information, choice requires extra capacity, it produces inequality, most people don't actually want choice, and it is not really choice for most of us, once the best schools and hospitals are full.
Le Grand squashes the first three of these arguments on the basis of real evidence gleaned from his Downing Street years. First, the existence of private health and education shows that some people can and do make use of information in making choices in these areas. Ideas like patient advisers extend this choice to all. Second, the no-choice system actually underuses capacity – three quarters of us live within an hour's travel of 500 unoccupied hospital beds – so there is no need for more. And third, the middle classes already do best in the no-choice system, so choice is not responsible for inequality.
What both of these big beasts miss, though, is the simple calculus of why choice works. First, choice works because people are different. Choice is a way of delivering better public services to rich and poor alike, but it is also a good in itself, allowing people to select what they want, not the package which some authority thinks is right for them. The Mori polls in the Adam Smith Institute's recent report "The Wrong Package" show that the public's priorities in education, policing and local government are quite different – often the opposite – to what was actually being delivered. Increased centralism is making that gap even larger.
People value different things. My neighbours have flashier cars and nattier clothes than I do, but I probably spend more on books and travel. There is no standard package that can satisfy our divergent tastes. We only get to express an opinion every four or five years on the package of public services the government provides us with – and then it is part of an even bigger package including defence, housing, transport and so on.
The second reason choice works is because, obviously, it implies that there are alternatives. When a monopoly delivers you a poor or inappropriate service, there is no escape. But introducing an element of choice means you don't have to lump it because you can go to another provider.
It also means that providers can diversify. They can specialise to serve divergent tastes among different people, who then get services more tailored to their individual needs than the no-choice alternative.
Competition spurs producers to innovate, bringing in new ideas that they hope will appeal more to the public. The no-choice system, with captive customers, has no incentive to do that. And as competitors vie for custom, they strive to raise quality and cut cost. As Le Grand suggests, the choice system actually requires less capacity than the no-choice system because it makes its capacity work harder in order to shave costs. That is why, when you contract out any state monopoly anywhere in the world, you can expect to save 20-40 per cent for the same level of service.
Lipsey makes the point that a system in which the best schools are hugely oversubscribed hardly offers real "choice." If that happened in a commercial market, lots of new suppliers would come in to mop up this unsatisfied demand. But under the current system there is no incentive for a really excellent school to expand and plenty of barriers to the creation of new schools. It's an evolutionary system: you want producers to do more of what works, what people actually want. The challenge for the choice agenda is to introduce those incentives in services where the customers themselves aren't expected to pay.
There is another point about capacity that the choice critics often overlook. Even if only one producer actually exists, the mere threat that a competitor could arise can be enough to sharpen the performance of the incumbent. It is important, then, to keep the incumbents looking over their shoulder by making it easy for new providers to come in.
The third reason choice works is that "exit" speaks a lot louder than "voice." You can set up all the user liaison panels you like, but why should a monopoly producer listen? Such panels cannot represent divergent views, and, inevitably, their voice is modulated through the professionals themselves. No wonder that people don't engage: what difference does it make?
Lipsey is right that choice requires information. But the fact that information on schools or hospitals is currently limited to some paltry league tables does not mean that it would be so under a choice system. The newspapers are full of reviews of cars, restaurants, shows, cosmetics and everything else. If we had proper choice in public services, they would be full of reviews of schools and hospitals too. And he's right that many people are scared of choice: they want professionals like their doctor to advise them. Fine. But the point is that there need to be alternatives between which the experts can recommend.
The fourth reason choice works is that it empowers the poorest. No longer must they remain trapped in substandard services. They can escape to another provider, or even create their own new provision – as many poor neighbourhoods have done in the US by setting up charter schools, which are government-financed but locally and independently run.
That sort of mechanism, where public money follows the choices made by service users, gives even the poorest the same market power that only the rich can afford today. We don't have a public monopoly of grocers or clothes shops: we let competition provide and give needy families the money to shop for themselves. So why keep monopoly provision in health or education?
