Leading article: Privatisation should be pragmatic, not dogmatic

Like generals condemned to fight the war before last, the Tory politicians of 1997 seem fated to redo their triumph of 1987. Privatisation, they cry, as if it were some new or radical proposition - or, indeed, as if it were in itself relevant to the good and cost-effective governance of these islands. If we needed any more evidence that ministers are stuck in a time warp, it is their faith that privatisation will prove a winning electoral formula.

After all these years the public will do two things. One is to distinguish between selling off a function of government in its entirety and bringing in, on an ad hoc basis, a private firm to provide a service on contract. The notion of "privatising" the Inland Revenue, for example, is bizarre, but to contract out Revenue activities such as offices, computers and certain clerical tasks seems to be sensible housekeeping, without any obvious political definition (that's how much the political world has changed in the past 15 years). Secondly, the public will make judgements about public activities without being guided by dogma. To chant, with Stephen Dorrell, that discredited mantra "public-bad, private-good" is not only bad for the effective delivery of public services, but bad politics, too.

It is understandable that the Tories should be imprisoned in history. Privatisation has worked. The experience of anyone with a telephone account before 1983 teaches that state ownership of telecommunications had led to poor standards of service, under-investment and a "producer culture" in which the needs of staff came before those of the public. The privatisation of British Telecom was an outstanding success. Similarly, the privatisation of British Airways is difficult to count as anything but an improvement - in terms of jobs (despite staff-cutting plans) and airline service.

But both examples show that privatisation does not mean the withering away of the state, to coin an old phrase. Transferring ownership to the private sector does not automatically call forth competition. The "markets" for water and gas demand different regulatory regimes. The unacceptable conclusion is the one saying that because the flotations of the Eighties worked, in the specific circumstances and histories of those industries, privatisation is therefore a universally applicable tool. It is always worth thinking about as an option (this, presumably, is conceded by Labour with its promise to conduct a spending review of each Whitehall department); but a government genuinely concerned about consumers and the public's well-being would proceed case by case, making empirical judgements about organisations, products and managements. In other words, do what works best.

So, to the candidates now on the block - including the Royal Mail and London Underground. One of the most dismaying aspects of Michael Heseltine's elevation to the second position in the Government has been how little his proclaimed acumen in business affairs has been applied to the conduct of public policy and management. The Royal Mail is a case in point. A connoisseur of organisational change would conclude that the Royal Mail has accomplished a great deal: 10 years ago it looked like a producer- dominant state enterprise ripe for takeover. Productivity, morale, effectiveness, public reputation: the Royal Mail has come on apace and could go much further if it were able to borrow and trade more freely. There is a case for privatisation based on breaking the fiscal bonds which tie the Royal Mail down; equally there is a case for treasuring those cross subsidies delivered by the present system which ensure geographically disparate senders and receivers of letters are not penalised. The final judgement (which in our view clearly says keep the Royal Mail in the state sector) must be made on pragmatic grounds, not dogmatic or even ideological ones.

In the same way, a judgement about London Underground ought to move in the opposite direction. Here the debate needs to start with big questions of state subsidy in the transport infrastructure and the fairness of competition between road and rail; but it soon moves on to a damning critique of London Underground's managerial performance, its failing of customers, during the past two decades. There are few regular Underground travellers who do not believe a shake-up of staff and management would not improve service, regardless of how much subsidy were put in. Privatisation might well prove the challenge that a complacent operation needs.

The "privatisation" of the Inland Revenue, by contrast, has little meaning to its consumers - a government either sets and collects taxes or it does not exist. How those taxes are set and collected is a practical question, though one which broaches a matter of high principle. The principle is whether rummaging in a citizen's private affairs, let alone her purse, is something which only a state official should be empowered to do. A pragmatist would ask, as the Government has, whether tax officers need to run their own computers, clean their own offices, etc. But a pragmatist, who might answer no to the preceding, would say firmly that public trust in the assessment and collection of money from the public depends upon the existence of honourable and skilled public officials possessing, as tax inspectors do, a historical identity based upon their special responsibility for the financial health of government.

International comparisons of public spending, state employment, GDP and growth rates show there is no magic ratio between the size of government and the national product. What we know, from experience over the Conservative era, is that cutting government is amazingly difficult, which might lead us to conclude that the present size of the state is an expression of public will. There is no single geography for the state, no pre-determinable boundary for the public sector. Our next government, Tory or Labour, should choose the right horses for the right courses.