Public Services Management: Adam Smith's revolution: Paul Gosling examines the remarkable influence of one organisation in developing a radical government agenda

A RADICAL agenda has dominated the public services over two successive decades. Privatising the state monopolies; compulsory competitive tendering; the sale of council houses; an internal market and trust hospitals in the health service; GP fund-holding; grant-maintained schools; franchising British Rail; the poll tax; and the Citizen's Charter. Remarkably, one organisation has been at the forefront of proposing, arguing for and developing all these ideas, namely the Adam Smith Institute (ASI).

The Institute was established in 1977 by Dr Madsen Pirie and Dr Eamonn Butler, whose political ideas had been influenced by working in the United States. They appreciated the potential for leading intellectuals to have well-formed ideas awaiting an incoming government. They put forward the agenda, worked out the practicalities, and even drafted compulsory competitive tendering legislation.

The ASI are now political insiders, with enormous influence, and although they receive no government finance, the president, Dr Pirie, is employed as a civil servant advising on the implementation of the Citizen's Charter. Commerce has recognised the significance of the ASI, and of the Institute's pounds 350,000 yearly income, about half is business donations, with the rest from commercial activities.

The output of the Institute is prolific, producing one or more pamphlets a month advocating further revolution in Whitehall or local government. ASI contributors read like a roll call of the radical right - Michael Forsyth, Peter Lilley, John Redwood, David Howell, Sir Clive Sinclair, Sir James Goldsmith, Sir Paul Beresford and Kingsley Amis have all authored or contributed to ASI publications.

The connecting philosophy behind the proposals of the ASI is the theory of public choice: to take power away from officials, and give it instead to the individual as consumer.

This has involved privatising the state monopolies, creating an internal market as a transitional phase for services not capable of privatisation, and producing citizen's charters for those services which must remain in the public sector. A fourth stage of creating proper markets for the public services is now at the top of the agenda.

Dr Pirie explained how he saw the further transition of public services management. 'It's basically more of what has been happening in the recent past. Several features already common to private sector management will become dominant. Independence of local management, a much greater degree of local autonomy, instead of (officials) always referring things upwards, a greater degree of independence by managers at quite a local level, and control over their own budgets.

'Secondly, blurring of the distinction between the public and the private sector: increasingly private corporations will be called in to perform government work under contract, and increasingly organisations which are nominally government bodies such as (Next Step) agencies will be drawing a substantial part of their income from work they are doing on a commercial basis in the private sector.'

Other changes are needed to free the time of local management, Dr Pirie believes. Performance-related pay should be adopted more widely for officials. Organisations such as local authorities will need to be broken up further into autonomous business units, with power to sell within the private sector.

They could then finance themselves, without borrowing being counted against the Public Sector Borrowing Requirement (PSBR). The logic is that public services management will itself demand to break out of the constraints of the public sector.

Dr Pirie believes that civil service agencies will lead this movement. 'We expect some of these will elect to go private, preferring the status of an independent private body contracting with government, rather than the quasi-independent, nominally government body, controlled by a framework document renewable every three years. It doesn't differ substantially from a private firm under three year contract.'

Once this reality is more widely accepted then government, both central and local, can reduce its function down to a small central core. Dr Pirie spoke of his model for a future approach. 'The ultimate is the world-famous local authority in California County which meets once every six months to award contracts for all of its activities, including the monitoring and review of the contracts, to private sector firms, and then goes away for another six months. Central government's job is to ensure that certain things are done; it is not to do certain things - there is a crucial difference between the two.'

Some areas of the public sector should remain, Dr Pirie says, provided there is devolved management and that it enables more personal choice. One such area would be trust hospitals, which thus far have given greater choice to GPs - especially to fund- holders, who now account for over 60 per cent of patients.

An individual should be allowed to prefer, say, either an immediate operation away from their home, or one nearer to home after a delay. Dr Pirie stresses that the ASI does not support the privatisation of hospitals.

Dr Pirie says that the ASI's approach also cuts costs. He quotes the figure of 22 per cent as the saving achieved worldwide for contracting out - considerably more optimistic than the 7 per cent used by the Department of the Environment - as an illustration of the financial benefit alongside what the Institute calls the empowerment of the individual.

'We believe it ought to be the citizen who determines the shape of services, both local and national. At the heart of this are two views of society - whether we should do things collectively, or whether we should do them individually. The notion that the Adam Smith Institute takes is that modern technology makes it increasingly easier to have service output tailor-made to individual needs instead of us all having to take a standard product.'

The extension of this approach is the fourth stage of the public services management revolution: the transfer of choice from administrator down to the individual. Just as patients would choose between hospitals, so a householder could choose between refuse collectors. In the future, the Institute envisages, a council would accept the lowest two tenders for contracts such as refuse collection, and households could choose between the collecting contractors. A comparable ideological framework can be seen shaping the development of grant-maintained schools.

While the framework of change is now in place, the enthusiasm of the Institute is undiminished. Further, there are areas which the public services revolution has left almost untouched. There is a new agenda, created by the Institute, yet to be achieved: the gradual move toward road pricing; introducing competitive tendering into the fire service; and contracting out prisons. Given the revolution of the last 14 years, would anyone bet against these being achieved?

(Photograph omitted)