Promises, promises, promises

Most of us feel that private sector businesses make a good job of delivering the goods and services we want. We shop at Tesco, we take the quality and reliability of modern cars for granted, we are amazed by consumer electronics. But we don't feel the same about the goods and services delivered by the public sector.

Dissatisfaction with health and education services is the central issue in British politics. We are fed up with dirty streets and lousy public transport.

The private sector is driven by the profit motive, and the public sector by an ethos of public service. To some politicians and most businesses the answer is to replace the ethos of public service with the profit motive.

But people who work in public services are overwhelmingly opposed. So are their customers. Most of us want to be treated by doctors who care, and see our children taught by people who are interested in education as well as a pay packet.

The stand-off splits the Labour Party and marginalises the Conservatives. Tony Blair's commitment to "what works" is set against instinctive revulsion at the prospect of schools and hospitals with Visa and MasterCard stickers on their doors. We want the private sector's efficiency but we don't want its values.

But what if both proponents and opponents of the market economy had misrepresented those values? What if it weren't true that the success of the market economy was based on lust for profit? What if it were true that most people who work in the private sector, like those in the public sector, want to take home enough to enjoy a good standard of living, and to feel their work is valued?

What if it were true that the people who run companies were driven primarily by the desire to build successful businesses, and only secondarily by material rewards? What if it were true that one of the most important motivations to work was the wish to do a good job?

This is the reality of our market economy. The assertion that greed is not only our dominant economic motivation but even an admirable value has not led to universal prosperity but to corporate theft and corruption.

Yet the true dynamic of the market economy is not the jingle of cash registers. Market economies meet our needs because they give scope for experiment and initiative, which is absent in centralised, politicised environments. Markets are effective not because materialistic motivations are so much more powerful than idealistic ones, but because unsuccessful projects are quickly abandoned and successful ones rapidly imitated.

Health care is a good example of this disciplined pluralism. Drugs companies compete aggressively, motivated by profit and disciplined by the regulation of the safety and effectiveness of their products.

Surgery and treatment regimes are organised quite differently. They are subject to the publication and peer review of scholarly research. Kudos and promotion are the spur rather than money: the discipline comes not from the prospect of bankruptcy but professional scrutiny. Both these mechanisms of disciplined pluralism work: it isn't medical technology that we complain about.

The private sector economy develops through innovation in organisation and technology. But the problem in the health service is that its technology advances while its organisation does not.

Directed, centralised structures of the kind running the health system are the opposite of disciplined pluralism. Often they do not change at all; when they do, they lurch from one big idea to the next. Feedback is always poor because people who run centralised systems do not want bad news. Mistakes are acknowledged reluctantly and much time is devoted to avoiding responsibility for them.

These features are equally true of badly run private sector businesses; but they either change or decline.

If the merits of disciplined pluralism are so clear, why isn't there more of it? One reason, common to the public and private sector, is that many leaders of public businesses and government departments derive pleasure from holding power rather than from the outcome of their effort. Centralised control is not a means to an end: it is an objective in its own right.

But a more fundamental issue is that the public sector is designed for the exercise of authority rather than the delivery of services. With good reason. The traditional function of government was to collect taxes, enforce the law and wage war on the enemies of the king. Legitimacy of process is critical to all these activities. We want tax inspectors to follow the tax code, not to experiment with innovative and creative ways of extracting revenue from citizens. We want the police and judiciary to implement and enforce the law; we want soldiers to obey orders.

Yet we do want teachers, and doctors, too, to display exactly the initiative and enterprise that we cannot allow to judges or the people who issue driving licences. If we are having medical treatment, what we care about is the result, not whether the doctor followed the rules.

The basic problem is that we haven't adapted public administration to the changing nature of what it administers. The Government still collects taxes, arrests criminals and attacks foreign despots. But these are no longer its main activities: we now look to it to teach our children, cure our illnesses and organise our transport system.

The Government manages hospitals, schools and transport badly because it manages them in much the same way as it manages tax collection, criminal justice and the army: it emphasises process over outcome; it prefers to analyse options and implement the preferred solution on a universal basis rather than engage in any small-scale experimentation. Its accountability takes the form of "who told you you could do that?" rather than "did it work?".

The solution is not to hand over public services to private business. Business people are not more clever than bureaucrats. Nor is the solution to introduce mission statements, contracts or other reforms that have a superficial resemblance to the workings of private businesses.

The main aim should be to give the public sector the benefit of disciplined pluralism – autonomy with audit and accountability. The profit motive in a competitive market is one way of achieving this, but it is not the only one – and it is not appropriate for schools and hospitals.

This involves big changes in public sector culture. Ministerial responsibility for services needs to be replaced by the much looser responsibility the chief executive of Tesco has for what goes on in all the stores. The chief's principal function is to appoint good people and let them get on with the job.

This principle of delegation should be true at every level of management. Disciplined pluralism is open and honest about mistakes. It replaces an attitude which denies that mistakes have been made with one that acknowledges them, corrects them, apologises and moves on.

We need to abandon the language of "two-tier" services and "postcode lotteries". Insisting on uniformity of provision means that the quality of the service, uniformly provided, is low.

The principle that democratic election is the only source of legitimate authority must remain true for collecting taxes, policing the streets and fighting wars. But it is not appropriate for delivering services. Legitimacy can also be acquired by success in doing the job. That is what democracy and market economies have in common. And it is the real lesson public services need to learn from the private sector.

John Kay is the author of 'The Truth about Markets', published by Allen Lane/The Penguin Press. He is visiting professor at the London School of Economics