Come on, Mr Blair, make the case for the profit motive in public services

Tony Blair's timidity on the need for market disciplines in the public sector has so far produced little but fudge and confusion. Few understand and even fewer support the Government's plans for a public-private partnership to run London's Tube network. The privatisation of the air traffic control service is almost universally opposed. People increasingly blame Labour for the failings of Railtrack rather than the Conservatives who privatised it. And, at the general election, the voters of Kidderminster delivered a sharp kicking to a Government which they blamed for the partial closure of their local hospital in the name of the private finance initiative.

As Mr Blair's second term begins, however, with delivery of public service reform the judge and jury of its success, the Prime Minister can no longer afford to dodge the issue of the role of the private sector in health, education, transport and justice. Last week's gesture by Unison at its conference, threatening a "review" of its financial support for the Labour Party, was a portent of trouble to come from the public sector trade unions.

This is not just an internal Labour movement squabble, however. Due in no small part to the incompetence of the management of Railtrack and the badly designed way in which that company was sold off, with safety only an afterthought, the wider public is deeply unhappy about the involvement of the private sector in delivering any public services.

The Thatcher revolution never went so deep that the case for the profit motive does not have to be made and made again. Now it falls to Mr Blair to show a bit of ideological leadership. He has established that his Government is committed to improving universal public services, and to spending more taxpayers' money on them. He now needs to be more aggressive in saying that no one should care who the providers are, so long as the taxpayer's money is well spent and the consumer gets better services.

There may be great advantages in private companies providing public services: if the contracts are designed correctly, they have an incentive to provide better, more convenient or innovative services; they can be sacked if they fail to come up to scratch; and they can take on some of the risk of long-term projects from the public sector.

As an Institute for Public Policy Research study has found, the results of the private finance initiative (PFI) have been disappointing to date. But this could be because it has not gone far enough. The use of private-sector management teams to build several hospitals barely scratches the surface of the potential for greater efficiency and responsiveness to patient needs in the health service. Labour's manifesto opens the possibility that clinical services could be wholly managed by the private sector on behalf of the NHS. As Professor Julian Le Grand argues on page 4, the fact that a quarter of the publicly funded hospitals are privately run in France, which enjoys one of the best health-care systems in the world, suggests that more private-sector management could make a big contribution.

The lesson of the election of Dr Richard Taylor in Wyre Forest is not that the principle of PFI is wrong, but that state planning of health services in the area has failed. One of the first disciplines of the market is that the customer is always right, and if the closure of Kidderminster A&E does not make sense to local people, then it does not make sense.

Mr Blair does not need to take on the public-sector unions for the sake of presenting himself as a "strong leader", but he does need to win the argument and convince them – and the rest of us – that there is nothing to fear and everything to gain from aggressive pragmatism in the public services.