Thursday, December 21, 2006

The Price Of Everything...

Not for the first time, a stimulating post by the splendid Doc Crippen has made me think. This time he's laying into the Taxpayers' Alliance Public Sector Rich List.

Doc has a problem with the TPA's "innuendo" that Public Sector bosses are overpaid, and goes on:

"The Taxpayers’ Alliance has but one mission statement. Reduce taxes. Reduce taxes and never mind the consequences. The clear implication here is that these salaries are far too high, and are thus a waste of taxpayers’ money.This is nonesense. Since the demise of the Red Army, the NHS is the largest employer in Europe. It supplies health care to every man, woman and child in the country. It is therefore more important to Britain than any one of the Footsie 100 companies."

Now, let me say straight away I hold no brief for the TPA.

Er... actually, come to think of it, that's an downright lie. I do hold a brief for the TPA, and just like Crippen's favourite medico academics accepting payola from Big Pharma, I ought to declare that I routinely accept handfuls of James Frayne's pork scratchings in the sumptuous surroundings of the Cardinal public house behind Victoria Station. But I don't think I will, so let's gloss over that.

Instead, I'll first draw attention to the TPA's full mission statement set out here. And it's not limited to anything as unambitious as simply cutting taxes and damning the consequences. No, its number one objective is no less than "to reverse the perception that big government is necessary and irreversible".

It doesn't just want tax cuts: it is campaigning to change the whole way we think about government involvement in our lives.

But let's park that and concentrate on the Doc's main point. Which is that relative to those sleek purring moggies in the private sector, public sector cats are kept woefully thin. As a result, the public sector could never attract the likes of genius manager Sir (only a matter of time) Stuart Rose, who'd doubtless grip that NHS crisis and maybe even chuck in the bonus of Twiggy in a nurse's outfit.

Overall of course, public sector pay is higher than private sector. The following chart shows the median earnings of full-time public sector employees expressed as a ratio to the private sector median:

As we can see, the public sector has been 10-15% ahead every year since 1997.

But the Doc's point relates to top managers, and there's no denying the picture there. As one of Crippen's millions of regular commenters (the steely sharp potentilla) points out, whereas the then NHS Chief Exec Sir Nigel Crisp earned £215,000 last year, the head of BUPA- a somewhat smaller business- got £1.4m.

Which is why Doc says the TPA have got it so wrong: public sector bosses are underpaid, hence that depressing parade of low grade chimps at the controls.

Having blogged so times about the chimp problem ourselves, what can we say other than absolutely spot on? So, Absolutely Spot On.

But the question is what should we do about it? And there we part company.

Doc's solution is simple- pay top dollar, incentivise heavily with humongous bonuses beyond even the wildest imaginings of Sir Stuart, and shoot failures. Dead.

All of which has the authentic ring of his robust good sense.

However, whereas Sir Stuart will only be handsomely rewarded at M&S because he successfully wooed back us consumers from the likes of Philip Green, things are different with the NHS. Setting aside the small minority who can afford to pay twice for healthcare, for the vast bulk of Britain's consumers the NHS is a monopolistic supplier. Even worse, there's a complete disconnect between payment and use. Which means there is no market test of the top guy's value.

Oh sure, you can do one of those salary surveys and find out what it generally costs to employ a CEO of a top UK company. That's his price, right enough. But that's not the same thing as his value in terms of what he actually achieves running the NHS. And just because he had fantastic credentials running something else, it doesn't mean he's running the NHS successfully.

With no competition and no market price for the output of the NHS, there's no direct way of saying what it's worth. Is it worth more than the output of BP, Britain's biggest company by market capitalisation, as Doc asserts? Well, it may be, but we just don't know. And while I undertand "your health is everything", as we've noted before, following that line ultimately leads to the whole of our GDP being spent on health. Anyway if I recall my Maslow correctly, the NHS didn't make the primary needs list.

Which means that the "value" is actually determined by politicians, and we all know how that goes. Among other things Sir Stuart would find his bonus determined not by something simple and observable like shareholder return, but by all sorts of "off-market" niceties such as how many hospitals he'd kept open in Labour marginals, and how the minister felt about recent media coverage, including the prospective coverage of paying out gzillions to a CEO who was only paying his nurses £19 grand. It's just the nature of the beast.

And even worse, that would mean that he would spend his time thinking not about useful customer focused stuff like how big to make his knickers, but rather, how best to serve his political paymasters. Sound familiar?

Real value can only be determined by us, not by our cheeky politicos. Which is precisely why we need to get our public services right away from the clutches of Westminster and Whitehall, break them into independent competing units, and allow the market to decide.

Competition and choice. Just like Stu vs Phil.

And if the head of BUPA is on £1.4m now, I wouldn't be at all surprised if successfully running one of Britain's big future health insurance groups didn't pay twice that.

And that would be real value.


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