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Public Sector • Reform • Management

The dangerous denigration of public sector management

Alexander Stevenson - 04 November 2013

The public sector is too easily dismissed as a costly barrier to economic recovery: it has a vital role to play in pioneering complex and far-reaching changes in regulation, infrastructure and innovation

The UK’s Coalition Government sometimes appears to measure the success of its economic policy by how many jobs it creates in the private sector and how many jobs it cuts in the public sector.  The private sector, we are told, will lead us out of recession.  The private sector will create the jobs required to fund the public services we need.  In family terms, the private sector is the favoured child who gets the finest cuts of meat, the best education and the new clothes.  The public sector makes do with the scraps.

It is easy to see the seductive line of thinking which has entrenched such a philosophy.  It is the thinking that follows directly from the view of the heavy hand of the state draining resources and constraining entrepreneurs.  And it follows from the (perfectly logical) view that the UK relies on business to create the exports which fund the services provided by the state.  

Yet, this is a dangerous seduction.  I have just written a book about public sector management.  Amongst other things the book analyses the following anomaly: on the one hand not only is public sector management harder to do well than private sector management but in most instances, it is more important for us that it is done well.  However, on the other hand the rewards of working in the public sector – both financial and status – are considerably lower.  This is an unpromising combination and the rhetoric and actions of the Coalition Government will do nothing to help rebalance it.  

It is particularly unhelpful in a time of austerity when we need high class, motivated public sector managers to create the environment in which the economy can flourish.  It is these managers, every bit as much as the entrepreneurs, who will lead us to the Elysium of economic recovery.  There are three particular areas in which we must rely on them.

The first area is regulation.  This comes in various forms.  There is, of course, financial regulation.  We are relying on public sector managers (and politicians) to develop a financial system which provides stability without stifling investment and innovation.  We need them to do this whilst taking account of the actions in other countries and the impact they may have on our competitiveness.  Similarly, we are relying on the public sector to produce tax frameworks which tread the wafer thin line between raising revenue but still attracting businesses and rich individuals to the UK.  Within these frameworks we shall want them to devise schemes, particularly in the present climate, which offer tax incentives to entrepreneurs, whilst demanding a simpler regime to make it easier to crack down on tax avoidance.

In addition to that, there are also broader areas of regulation – or legislation - to consider.  The decisions taken on how we regulate planning or immigration, for example could play significant roles in both the short and long term in determining how well the economy functions.  Every area requires careful thinking and execution.  The economic, and human, stakes of getting these decisions right are enormous but usually incalculable.  Lord Stern made a bold effort to do the calculations in his 2006 climate change report when he suggested that if the issues were not tackled then the world’s economy might shrink by 20%.  Similarly, it is estimated that the widely criticised Sarbanes-Oxley Act of 2002 which increased the accounting requirements placed on businesses may have cost the US economy one trillion dollars (without averting the credit crunch).  

The second area is infrastructure.  Debate about infrastructure typically focuses on Keynesian vs Monetarist theories.  Yet beyond the macro-economic theory, we need infrastructure for two practical reasons.  First of all to ensure that the economy can function day to day.  It is tempting for the private sector to consider government spending mainly from a cost point of view. Thus it is estimated that London’s businesses lose £48m for every day that the tube does not run.  We are quick to put values on the cost of this infrastructure breaking down but fail to consider the contribution it makes when it is functioning.  

The second reason is that in an increasingly global world the strength of our infrastructure will determine how attractive we are to businesses.  Our health service, our education (and thus the quality of potential employees we have), the safety of our streets, the quality of our law, our environment and the quality of cultural entertainment we offer will all play a part.

The third area, is – perhaps counter-intuitively for some - innovation.  In her excellent book ‘The Entrepreneurial State’ and earlier Policy Network paper, Mariana Mazzucato sets out the thesis that contrary to myth the public sector innovates and the private sector piggy backs.  My favourite example of Mazzucato’s  is the iPhone.  She explains that most of the major features in the iPhone – the internet, GPS, the touch screen and Siri – were all developed by the public sector.  Her concern is that by failing to understand the large scale innovation that the public sector, and sometimes only the public sector, can produce, we will not invest in it as much as we should, particularly when there are pressures on budgets.

In each of these areas, the onward march of globalisation makes the need for high quality and well supported public sector management even more compelling.  In every area – regulation, infrastructure and innovation – the competition is more immediate and the ramifications of the decisions more complex and far-reaching.  Has any private sector manager ever been charged with taking the decisions as challenging, complex or important as those made at the Copenhagen climate change negotiations?

Of course we must support the private sector too and ensure that it continues to attract and retain excellent people.  Nevertheless, in doing so politicians must not ignore or denigrate the contribution that the public sector can make.  Public sector employees can help achieve this balance too.  Part of the reason that the Coalition can talk so blithely of the need to cut the public sector and the primacy of the private sector leading us out of recession is because the public sector has not made its case as strongly as it should have done.  In some instances this is because public servants often do not see the link between what they do and growth in the economy.  This needs to change.  Every public sector manager should have a clear sense as to how their role – whether as a planner, a police officer, or indeed a financial regulator – contributes either directly or indirectly to the economy.  

This will help politicians and public alike take a more nuanced and appropriate view of the role that public policy and public servants have to play in stimulating the economy and ensure that we reach the sunny economic uplands more quickly and more harmoniously.

Alexander Stevenson has worked as a private sector manager, as an entrepreneur and as an advisor to senior public sector managers. He was the co-founder of RSe Consulting. He is author of The Public Sector: managing the unmanageable.

This is a contribution to Policy Network's work on Globalisation and Governance.

Tags: Alexander Stevenson , Managing the unmanageable , Opinion , Mariana Mazzucato , William Lazonick , Risk-Reward Nexus , Private Sector , Public Sector , Innovation , Economy , Accountability , Democratic Accountability , Democracy , Trust , UK , Conservative Party , Tory , Tories , Cons , Lib Dem , Lib Dems , Liberal Democrat , Liberal Democrat Party , Labour , Lab , Labour Party , David Cameron , George Osborne , Lord Stern , Nicholas Stern , Stern Review , Stern Review on the Economics of Climate Change , Keynesian , Monetarist , Entrepreneurial State ,

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