Institutions are brittle. This is one of the big lessons of 2011. The News of the World and the presidencies of Hosni Mubarak and Zine al-Abidine Ben Ali have in common the fact that they looked strong, but suddenly collapsed when they came under strain.
This brittleness has implications for public sector reform.
Take as the starting point Tim’s questions:
How do we get rid of management that fucks up? How do we incentivise those who own the system to hire good managers?
Only when you’ve managed to create a system within the public sector that manages those two tasks do you have an idea that is worth considering.
Now, it is the case that cash incentives tend to be weaker in the public sector - though penalties for failure are not a ubiquitous feature of the private sector. But there’s something else that can replace these: gift exchange. (Some) public sector workers do huge amounts of unpaid overtime, partly out of what Julian Le Grand calls “knightly motives” such as a sense of vocation. In exchange for this, (some) public sector users put less pressure upon the system by not bothering doctors too much and by not suing them for malpractice.
But here’s the problem. Gift exchange is brittle. It might collapse disastrously if heavy-handed management causes a withdrawal of goodwill, if excess regulation displaces a sense of professional discretion, or if peer pressure leads one or two bad employees to infect others.
The question, then, is: how can we design a system that’s flexible in the face of such brittleness?
The obvious - and not wholly incorrect - answer is to use market forces. As Tim says, the collapse of Southern Cross (another example of institutional brittleness) has not had disastrous effects, simply because another provider has taken over. And the very diversity and plurality of a well-functioning market protects us from the collapse of particular institutions within it. No-one, other than its staff, suffered much when Woolworths went bust because we just bought our sweets from elsewhere*.
There are, though, two problems here.
One is that market forces require space capacity - so that users of a collapsed or inadequate school or hospital can quickly move elsewhere. But provision of such capacity is expensive. There is an inherent trade-off between flexibility and efficiency.
The other is that the very introduction of such markets threatens to displace that gift exchange - as I say, it’s brittle; people might work for nothing for the NHS, but not for a private firm**.
I don’t say this to offer simple answers. The point is instead that there are none - because, surely, another lesson of this year’s events is that human affairs are unpredictable, and so we cannot foresee the consequences of political change.
* The banking crisis actually vindicates my point here. The massive losses resulting from the collapse of the tech stock bubble in 2000-03 led to milder economic effects than the smaller losses incurred by banks in 2008-09. This is because the former were spread over more people, whilst the latter were concentrated in a few oligopolies. We were too reliant upon a few brittle organizations.
** Surely, HuffPoUK cannot recruit decent bloggers who are prepared to work for nothing for long?