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How Labour turned the UK into a Soviet tractor

Sun, 23rd Apr 2006

LABOUR'S BEST management decision was to eschew management when it made the Bank of England independent. Its worst has been to ignore this example everywhere else. Despite its professed dedication to market disciplines, New Labour is the most micromeddling administration in history, creating detailed specification and prescription for everything from school lesson planning to the way documents are processed or calls answered in local government offices.

Since the government's understanding of management is stuck in a mass-production model circa 1970 (similar to the one that has brought General Motors face-to-face with bankruptcy in the US), the results are not just mediocre: they are disastrous, full of perverse consequences that make the public sector harder to manage, and raise rather than cut overall costs. Ministers as managers are making things worse, not better.

The surprise 40 per cent rise in GPs' salaries since 2002-03 is just the latest manifestation of management naivety. It is the outcome of a crude performance-management system that allots points for targets (for instance, seeing patients within 48 hours) and pounds for points. Last year, the first year of the new contracts, GP practices were expected to tot up 700 points out of 1,050. People with sufficient incentives almost always meet their targets, usually at the expense of unmeasured aspects (try booking an appointment with your doctor more than two weeks ahead). In fact the average score hit 950. This year it is higher.

The argument is not that GPs didn't deserve extra pay, just that the government has learned nothing about system dynamics. It is now making a similar but opposite mistake with dentistry. Dentists, like GPs, are self-employed. Determined not to give away too much, ministers are driving dozens of practices outside the NHS altogether, with whole swathes of the country becoming toothcare-free zones.

Back in 1995, Sovietologist Ron Amann, then chief executive of the Economic and Social Research Council, delivered an elegant public lecture, 'A Sovietological view of modern Britain', which remains a telling and prescient analysis of modern public-sector management in the UK. The parallels between the two systems have become greater in the intervening years, not less. Paradoxically, the UK's planning culture stems from the opposite impulse to the Soviet one: a desire to strengthen the market rather than control it. Hence the recasting of the public sector into quasi-markets, and the sharp division between purchasers and providers. But crucially they weren't real markets with real customers: 'The purchasers were an organisational proxy for the final customer, using their allegedly superior inside knowledge... to secure value on society's behalf. From such little acorns do the great oaks of planning grow.'

And so do the games-playing and bureaucracy that all planning and budgeting exercises engender. The first casualty is the integrity of the figures as providers hide capacity to get an easier deal and purchasers second-guess them. With the mind-games comes distrust, leading to ever-intensifying attempts to quantify and rank performance. But as with GPs, providers learn quickly how to play the game, resulting in yet more measuring refinements - and more slippage in the figures, which are no longer comparable even if they could be trusted. The result is the worst of both worlds, information overload combined with imperfect knowledge, perfectly symbolised by aircraft hangers full of unread university and schools inspection documentation. Audit becomes the manufacture of 'comfort certificates', an elaborate exercise in self-deception that allows both sides to claim fulfilment of their targets but is fundamentally out of control - revealed by surprises like GP earnings figures or NHS financial deficits.

It is not just that the resulting system is inefficient, systematically underproducing and overconsuming, like the old Soviet Union. The 'new' culture now permeates every corner of the public sector. The auditable drives out the non-auditable, even where the latter is more important, defining organisational purpose and the priorities of employees.

A new stratum of managers materialised to juggle the pressures and technicalities of the phoney markets. In this light it's not surprising that productivity gains from Labour's extra public spending are so debatable. Much of it is auto-consuming, devoured by the direct and frictional costs of proving that it is not being wasted, or of devising methodologies to make things work better.

And the madness is not going away. Tellingly, commenting on the Chancellor's budget speech, the FT' s Martin Wolf likened it to a Soviet commissar's discourse on tractor planning, containing plans and targets for every cranny of British life - children, skills, education, science, environment, enterprise and even (most Soviet of all) Olympic athletes. It took 75 years for Soviet central planning to crumble under the weight of its own contradictions. E-enabled and computer assisted the UK version may be, but it's still a Soviet tractor at heart.

The Observer, 23 April 2006


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