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Willetts: Conservativism and Christian Democracy

'Three Principles of Public Service Reform'

This evening I wish, as the exam question says, to compare and contrast British Conservatism and continental Christian Democracy. I do so not as an academic exercise but because these differences help us to understand an issue that is at the heart of today's political debate in Britain - our public services.

It has become more and more clear that despite the many things that Great Britain has achieved it has under-performed catastrophically compared with other European countries in public services. Our healthcare system is rated by the World Health Organisation as less responsive to the needs of patients than most other advanced Western countries (17th behind the USA, France, Germany, and, yes, Austria). Our educational system has its weaknesses too. 36% of adults of working age lack basic school leaving qualifications, compared to 28% in France and just 17% in Germany. Something has gone wrong. This is where we in Great Britain have much to learn. I want to try to set out in this lecture what that might be. But first, some history.

British Conservatives used to pride ourselves on our political success, a striking contrast with much of the Continent. The Centre-Right was strong in Britain and in government for two-thirds of the 20th century. Yet on much of the Continent the Centre-Right was weak and often out of power. A crucial reason for this weakness was that it was divided between several different political parties. Usually this division took the form of a rural, communitarian, traditionalist, Church Party and separately a liberal, rationalist anti-clerical pro-market Party. In Britain these different forces were held together within one mainstream political party. It remains to this day the clue to the distinctive identity of British Conservatism. To understand this contrast between the Continent and Britain we have to look right back into history.

The first distinctive Continental European expressions of what one might regard as a Conservative disposition appear in the late 18th century and early 19th century, when Europe first faced a revolutionary political doctrine. It was when Edmund Burke created what we now recognise as British Conservatism in his brilliant critique of the French Revolution and the radical view of the world on which it rested. On the Continent Conservatism first appeared slightly earlier and in a rather different context - opposing enlightened absolutism and the rationalist reform plans of powerful monarchs such as Joseph II here in Austria. That then easily became opposition to Napoleon, the most formidable enlightened despot of the lot. Napoleon tried to complete the process of destroying the medieval structure of principalities, autonomous cities, and loose federations which still survived across much of Europe. It is a rationalist, progressive arrogance which still lives on - one of Tony Blair's advisers reportedly commented on coming to power in 1997, that 'we inherited a medieval state and will turn it into a Napoleonic one.'

Jerry Miller's recent anthology of Conservatism includes the essays of Justus Moser of Osnabruck who spoke up in the 1770s and 1780s for small German principalities and the rights of traditional guilds against monarchs trying to break down local jurisdiction, social barriers and closed shops. This defence of local difference outraged the rationalists of the enlightenment. Voltaire mocked the patchwork of jurisdictions in which you could be guilty in one town of an offence which didn't exist in the next town. Karl Mannheim, in his great essay on Conservative thought, identifies this defence of the local and particular as one of the most distinctive feature of Conservatism. During the 19th and 20th centuries this strand of thought was represented on the Continent by rural or small town parties with links to the Church. In Germany it took the form of Catholic opposition to Prussian aggrandisement and bureaucracy in Bismarck's great Kulturkampf. That was the origin of what we now recognise as Christian Democracy.

During the nineteenth century Europe also saw the development of a very different political movement which was metropolitan and rationalist. It was often anti-clerical. It represented modernity and the market place. It was linked strongly to the business community. Rural areas were suspicious of its cosmopolitanism and failure to value their traditions. It often became a Liberal Party. There might even be a separate small town, small business party as well. Indeed, the eponymous Monsieur Poujade died only this year.

This fragmentation on the Centre-Right left it vulnerable to a powerful challenge from organised labour and the Left. There was no clear and united centre-right alternative to socialism. Instead, a variety of political parties had to form coalitions in order to govern.

British Conservatism could have gone the same way. Edmund Burke brilliantly held together, not least through the sheer power of his writing, a strong commitment to personal freedom in the market place, whilst at the same time valuing order, tradition and the local community. But that distinctive mixture was unstable and split in the 1840s on the great issue of Protection when Sir Robert Peel left the Conservative Party on free trade. As a result the mid-19th century Conservative Party was the closest Britain has ever come to a continental European country party. If you look at a map of seats which the Conservatives represented in the mid 19th century they were almost entirely rural - and indeed a map of British Conservatism today after the twin defeats of 1997 and 2001 doesn't look very different. We could easily have been the Party which simply celebrated the distinct institutions and ways of life of the English countryside - beautiful, valuable, tinged with melancholy, and not enough to be a great governing party.

Disraeli had the vision to realise that this comfortable option was not enough. In a series of powerful speeches he committed the Conservative Party to the elevation of the condition of the people. And above all that meant the condition of the working classes in the great cities. He identified the Party with social reform and took it from its rural heartland to start winning urban seats once more. He took us from being the Party of rural England to a great national Party with a governing mission. That message of social reform is at the heart of Conservative renewal today.

Disraeli secured one great election victory for the Party - in 1874 - but it was not enough to rival the Liberals. Then in 1886 the Liberal Party, having dominated British politics for nearly 50 years, split on Ireland. The Liberals who believed in the union with Ireland, the Liberal Unionists, moved into coalition with the Conservatives. That is why we are still officially to this day the Conservative and Unionist Party. Those Liberal Unionists brought with them crucial new groups - the City of London, big business, the big cities, Scotland - which had not been Conservative. That was when we took the crucial step fulfilling Disraeli's vision, avoiding the division of the Centre-Right on the Continent.

I was brought up in Birmingham. It could not possibly have been a seat held by the Conservative Party in the mid-19th century. But the vigorous tradition of Chamberlainite social reform and urban renewal took that City from Liberalism to Unionism to Conservatism. My Party will be back in government again when we once more hold seats like those in Birmingham which we used to hold throughout much of the 20th century.

The clue to the electoral success of British Conservatives throughout the 20th century is that we held together in one political party these two different political forces which were divided into two different parties on the continent. We are the Party of tradition, the local community, often most powerfully embodied in the life of the countryside. But we are also the Party of personal freedom, the market, social reform and enterprise.

Insofar as there is any coherence to what I have written about Conservatism over the past 15 years it is a belief that this combination held in creative tension is the distinctive strength of British Conservatism. It is as topical today as it ever was. It is not a simple, geographical divide, though you can see it in the pattern of constituencies we represent. The real reason it still strikes a chord to this day is that it is also a tension within everyone of us. On the one hand we all enjoy the power of the consumer in a modern, free-market economy - free, mobile, individualistic. We believe in a society based on contract, not status. It is innovative, restless and enterprising. But we want something else too - to know who we are, bound by ties of affinity. We want to feel we have roots and are not just leading a life which is a series of meaningless acts of consumption strung together. We want to be linked to the past through traditions and institutions that are far bigger than any individual. We want a society where there are thick local ties and lumpy local loyalties, not one which has been finely graded into individual grains moving frictionlessly past each other.

My Party was driven back to its mainly rural heartland in 1997 and 2001. The simple historical measure of the challenge which we face is that we have to regain the seats which the Liberal Unionists brought to us in 1886. We have lost the seats in London and the big cities, and in Scotland. At our time of maximum weakness after the 1997 and 2001 elections, Tony Blair dreamed of realigning British politics so that we could never rebuild that Conservative Party again. The trouble was there was always a deep confusion about what this realignment might be. In the first model it was to be a Lib-Lab pact against the Conservatives. But the pendulum inevitably swings. No governing party can expect to rule indefinitely. Then more recently, as relations between the Liberals and Labour have deteriorated, so the realignment was supposed to be a new battle between Labour and Liberals in which Conservatives became irrelevant. But how can Liberals replace us when at the same time they are trying to locate themselves on the political spectrum to the left of Blair's Labour Party? Neither sort of realignment was ever likely and with the revival of our fortunes under our new leader, Michael Howard, it looks more and more remote as every day passes.

We can see our challenge very clearly. It is to break out from our rural heartland to the cities of England and once more to make gains in Scotland and Wales. We can do so by rediscovering that Conservative tradition which Disraeli embodied so powerfully - the elevation of the condition of the people. That means a distinctive Conservative approach to poverty, to welfare reform, and above all to transforming our public services. This is sometimes seen as being a Conservative agenda for the inner cities. But it is not just the inner cities; it is urban life as a whole. It is places where the shape of the community is not conveniently defined by the boundary where houses end and fields begin. Instead there is a community shaped as much by the school run and the nearest shops. It still seems rather odd to me if you look out of a bedroom window and see blackness rather than comforting rows of sodium lights stretching out into the distance. Representing as I do one of the Conservative Party's most socially mixed seats, I am absolutely clear that it is suburban Britain we need to represent once more. I am more confident now than I have been for six-and-a-half years that we Conservatives have the stomach, the skill and the determination to rise to this challenge.

Meanwhile, what about continental Christian democracy? Conservatives have been wary of European Christian Democracy because it lacked the spice and dynamism of a belief in the market economy. We Conservatives have been slow to recognise what has been happening to the centre-right in Europe. I hope those days of a Continental Centre-Right divided between a Christian Democratic party and a pro-market liberal party are coming to an end. The collapse of Communism has led to convulsions in party political structures across Europe. In Italy and France the Communist party disappeared. In Italy it took old Christian democracy with it. In Spain a new post-Fascist political system has emerged. In much of Europe we can see a new sort of centre-right party. Angela Merkel in Germany has expressly recognised that Germany needs economic reform and has criticised the Schroeder Government for not going far enough. No longer will the CDU be leaving a shrunken FDP as the voice of business and market reform in Germany. In France the old battles between the more rural Gaullists and the liberal, rational Giscardians, seem finally to have been resolved in a united centre-right. We can already see the effects with a Prime Minister, Raffarin, trying to deliver an economic reform programme. The Secretary-General of the EPP-ED Group, Klaus Welle, who has a shrewd understanding of these political forces, has described this process as "completion." By that he means breaking free from the old interest group corporatism of traditional Christian democracy and instead creating new, broad-based Centre-Right parties. These look much more like, dare one say it, British Conservatism, aiming at a broad social base, and combining respect for a country's traditions and institutions with a commitment to economic reform.

I don't wish to imply that all this is a sudden desire by Continental parties to copy British Conservatism. Looking back in post-war Europe one can find Continental examples of such a combination. Perhaps the most powerful and attractive is the post-war Germany created by Konrad Adenauer and Ludwig Ehrhard. Adenauer represented Catholic small-town Germany. Ehrhard represented Protestant, rational free market economics. Together they embodied exactly that alliance which I see as lying at the heart of successful Conservatism. I am not claiming it is uniquely British.

I myself have become aware how Continental Christian Democracy is changing through my role as my Party's spokesman on pensions and welfare issues. It used to be so simple. We prided ourselves that Britain had achieved a great post-war success in creating a mixed economy in pensions whereas on the Continent pensioners were too dependent on the state for their incomes. Now all that is changing. In Britain we have seen the collapse of our funded pensions, and our social security pension is being overtaken by means-tested welfare. Soon three-quarters of pensioners will be claiming means-tested welfare and reporting to officials the details of their personal circumstances down to the last few pounds. This is an enormous, expensive and intrusive role for the state which we wish to reverse.

Meanwhile, on the Continent the first steps are being taken towards serious reforms of pensions and welfare. Germany introduced the Riester reforms which cut the value of social security benefits and for the first time gave tax relief for personal pension contributions. Sadly, they have not stimulated personal pensions as was hoped. Now the Rurup Commission has put forward bolder proposals for further reductions in the value of social security benefits and an increase in the pension age. The CDU's Herzog Commission has looked at even more radical proposals for reform of the welfare state. Italy has implemented one set of proposals for pension reform already. They were a small step in the right direction though they were a classic example of St. Augustine's plea on behalf of all politicians, "God, give me virtue but not yet." The Government is already looking at a further round of reforms. In France Prime Minister Raffarin, has tried to tackle the central issue in French pensions - the cost of public service pensions. I am not saying that suddenly Continental Europe's pension problems have been resolved but I do detect a strong impetus for reform coming from centre-right parties both in Government and opposition. Meanwhile, in Britain we are hiding behind absurdly optimistic forecasts of future public spending on pensions which just don't capture the long-term costs of welfare dependency. At current rates of progress, continental pension arrangements and Britain's will converge. We will face declining funded pensions with more dependence on means-tested benefits, whilst on the Continent we will see cuts in public pensions and a gradual shift towards funded pensions instead.

I hope we can see an increasing interplay of ideas between British Conservatives and the centre-right parties of the continent. There is already a new Centre-Right think-tank, the European Ideas Network, devoted to precisely this task.

What can we British Conservatives learn from this? The obvious area is public service reform. Not only do your trains run on time but your hospitals are cleaner and your schools more rigorous. This is not just a matter of managerial competence though that may be part of it. We need to look deeper in the Continental tradition to find how it has produced these services that work so much better. I believe that at least in part the explanation is to be found in that central feature of the Christian Democrat tradition, the attachment to the local institution. This is easily dismissed as the corporatist element in Christian Democracy because, unlike in Britain, it has not always been leavened by a commitment to economic reform. Where Christian democracy has been strong is in the social element of Conservatism. After all the Catholic Christian democracy of Konrad Adenauer had developed in sturdy opposition to Prussian bureaucrats attacking their local institutions. That original Conservative defence of traditional guilds against rational enlightened despotism has carried on for two centuries and left many parts of continental Europe with a much more intricate and diverse pattern of provision of social services than we have in Britain.

I recognise that we in Britain have often been uncomfortable with traditional Christian democracy's association with corporatism, and, as we see it, exercise sensitivity to the claims of interest groups. There are deep questions here. Is it perhaps that the very protection of these diverse local institutions has itself impeded economic efficiency? Must the pursuit of economic efficiency involve breaking down old interest groups? Mancur Olson warned that mature economies would enjoy lower and lower growth rates as interest groups gradually built up their power to block necessary economic reform. The heroic achievement of Thatcherism was to raise the underlying growth rate of a mature industrial economy - an incredibly difficult thing to do. Maybe the rich social networks that are an alternative to a big welfare state are also an impediment to economic dynamism? These are difficult issues which I have tried to tackle elsewhere. But I don't think they are impossible to resolve. One area where they clearly have been resolved more successfully on the Continent than in Britain is the public services. It is to that that I now wish to turn.

The experience of the Second World War left the State deeply tarnished on the Continent and the result was a further urge to strengthen the interest groups and corporations that stood between the individual and the state. They gave a richness and diversity to your public services and indeed civil society which we can now appreciate. That is why the German constitution protects the rights of families. That is why no-one would have dreamt that in reconstructing Germany after the War the central state should own and finance all the main public services. Churches were protected. Charities and sickness funds went way beyond the local community to be genuine alternative networks for financing and delivering social services.

Meanwhile, in Britain we learnt the opposite lessons from the War. A command economy had successfully fought and won a war against evil. The state appeared benign. Perhaps the military model which triumphed so successfully in the War could be applied more generally. The Fabians had mounted their first attack on the rich diversity of Victorian social provision at the time of the First World War. It was the Second World War and Attlee which finally did for the rest. Nowhere is this symbolised more vividly than in town planning. On the Continent bombed cities were painstakingly reconstructed to restore their original appearance. Even impoverished Poland rebuilt old Warsaw. The East Germans had a go at restoring Dresden. Meanwhile, in Britain we were determined to modernise and were busy knocking down many of the buildings which survived the War. Even the cities which were not heavily bombed looked as if they had been.

There was another powerful element in the mix as well - our experience of empire. The benign, rational, all-powerful District Commissioner came home after the Second World War, and his spirit lived on in post-war bureaucracies. Michael Frayn puts his finger on this brilliantly in his play, Benefactors, where the action takes place in a depressed inner city street called Basuto Road. Somehow the imperial mission was domesticated - only now the cities and neighbourhoods of our own country became the colonial outposts.

Conservatives were not blind to this. I have just been appointed, to my great delight, the Chairman of the CRD, the old Conservative Research Department. One of the great Directors of the CRD, David Clark, wrote in 1947 a pamphlet called 'The Conservative Faith in the Modern Age'. It is a deeply thoughtful critique of the Attlee welfare state. In it he draws a clear contrast between the Conservative approach to our public services shown in Butler's Education Act, and Labour's approach shown in Bevan's NHS. Butler's Education Act explicitly aimed to protect the distinct character of historic schools as well as also the religious character of Church schools. By contrast Bevan, in creating the NHS, nationalised the charity hospitals and took over many of the functions which had been carried out by local authorities. It was not a "Morrisonian" model at all because Morrison fought a losing battle to keep some role for local government in healthcare.

When we got back in 1951 we were committed to doing something about this. But we set off on the wrong track. Our attack focused entirely on the cost of the new welfare state. There were a range of Treasury studies in the early 50's - Gillebaud, Phillips and others aimed at trying to dismantle the Attlee welfare state on the grounds that we couldn't afford it. But as the economy surged forward during the 1950s this argument seemed weaker as every year passed. And although cost is a real problem there are other problems too which can capture the public imagination. What really was happening was that something beautiful and precious and human in the pattern of our social services was being lost in the interests of iron uniformity.

Successive governments then started arguing about who could manage them better. The agenda became a manageralist one with organisations and re-organisations aimed supposedly at delivering central control better. Blair's Labour Government did not reverse this; it took it to its logical culmination. Here are the figures on what they have done which I have just calculated. Since 1997 they have produced 254 Acts of Parliament filling 16,500 pages. They began by setting 600 targets. These have subsequently been amended to reach a new total of 890. Government spending on public services is up 50%. If laws and targets and public spending were the way to create a better society with better public services then we would be well on our way to utopia by now. But we aren't. Labour have failed to deliver reform and there is the beginning of a fascinating debate about what has gone wrong. The debate is between the Prime Minister and his Chancellor. We can construct the debate out of their public utterances on the subject.

This is the real big conversation.

We know what the Prime Minister would say if he could put his thoughts on the website, because they have appeared in various obscure places.

I can construct the exchanges - like a classicist piecing together an ancient drama from a few surviving fragments. Here it is.

Tony Blair: "On public services, we need to explore the usefulness of choice and contestability to extend opportunity and equalise life chances. Social Democrats must reconcile both the claims of choice and equity. We must develop an acceptance of market-orientated incentives with a modern re-invigorated ethos of public service. We should be far more radical about the role of the state as regulator rather than provider, opening up healthcare, for example, to a mixed economy under the NHS umbrella. We should also stimulate new entrants to the schools market and be willing to experiment with new forms of co-payment in the public sector."

Note that final crucial clause. But then the Chancellor's Chief Economic Adviser comes back.

"We have to have the confidence to accept that there is a limit to how far you can apply market principles … you run grave risks with the ethic of public service … if you go down the road of thinking you can apply market principles to a good like health, the evidence is that you end up with inefficiency and escalating costs, two-tierism and you can do grave damage to that ethic of public service … I think the same is true of education.

(Ed Balls in an interview to The Guardian, November 4th 2002).

The Prime Minister then replies:

"But unless we want the result to be poorer services, we need to address the balance between what the citizen pays individually or collectively."

(Tony Blair in an article following speech to Progressive Governance Conference 11th July 2003)

Now the Chancellor comes back with the conventional socialist view.

"The very same reason which leads us to the case for public funding of healthcare on efficiency as well as equity grounds also leads us to the case for public provision of healthcare."

(Gordon Brown in Speech to Cass Business School, 3rd February 2003)

This is partly a deepening clash between the two personalities at the heart of this Labour Government. But it is also an institutional clash as well. The Treasury ultimately believes in its macro control over the public spending totals. Its fear has always been that micro freedoms will end macro control. A Fabian command model for the public services is a useful tool for traditional Treasury control over public finance. Gordon Brown is just the latest exponent of this traditional Treasury view.

It is important to understand the forces pushing us towards ever greater centralisation in order successfully to reverse the trend. We are uncomfortable with local diversity. England is a unitary political culture with a national press and what one might call, following Labour's pretentious new initiative, a single national conversation. Whitehall remorselessly aims to implement total equality between different areas. It is very difficult to keep the spirit of local differences alive. The ultimate expression of this belief is the extraordinary theology that lies behind the structure of the rate support grant. The essential idea, though it is now much compromised in practice, is that a funding formula should ensure that £1 of extra local tax raised in one part of the country should have exactly the same impact on local services as £1 raised in another part of the country. I know of no other western country that has such an ambitious attempt at achieving perfect equality across the country.

There is another way we try to achieve this geographical equality, and it is rarely remarked on. Whitehall regularly remakes the boundaries of all the jurisdictions beneath it. The ward, the smallest administrative and governmental unit represented by a councillor, is not, as it ought to be, a bastion of stability in a changing world. Ward boundaries are endlessly being redrawn so as to help ensure everything from balance in elections to balance in finances. If there is one obscure statistic which captures the instability that is created by the endless pursuit of rational and equitable boundaries by Whitehall, it is that 75% of all local boundary changes in the EU take place within the UK. Whitehall is actively destabilising local communities year by year.

There is another reason for central government involvement in a locality. That is the relentless pursuit of Ministerial activism. Anyone who has been in government recognises the pressures on the Secretary of State for Health or Education or the Home Secretary if something goes wrong in any particular hospital or school or prison. It is very hard for them to say that they do not have responsibility. No government can really wash its hands of such matters. My colleague Nick Gibb has reminded us forcefully that politicians can't really wash our hands of responsibility for services which are publicly financed. We force the voters to pay the taxes - this gives them a say in how the money is spent. There has to be a framework which shows where responsibility lies. One of the problems we have in Britain is that we have become deeply confused about where we rightly expect national standards and where diversity should rule. We have national pay bargaining but computers in GP's surgeries and hospitals which can't talk to each other. We have standardised the wrong things. It must be an important part of any new political settlement for our public services that we think afresh about where we need standardisation and where we encourage diversity.

Let me now try to pull the threads together into key principles that shape our public services reform agenda. Back in 1979 we had a famous Conservative policy of the people's right to buy their council houses which they rented from the council. Our policy today seems to me to rest on three very important rights.

First is the right to choose. There is nothing that beats the dynamism of individuals being able to choose better doctors or, advised by their GPs, to choose between hospitals, or to choose between schools for their children. We are sometimes told that this talk about choice is all very abstract and far removed from the reality of life in our toughest areas. The evidence disproves this. It shows enormous suppressed demand to choose. Of all secondary school admissions in England, parents appeal against 11 per cent of decisions about the school their child should attend. 76 per cent of these appeals are unsuccessful. This is striking evidence of a frustrated desire to choose. And what do we find in our poorest areas? Is this willingness to appeal against decisions some feature of fussy middle class behaviour? Far from it. In our poorest areas 19 per cent of parents, even more than average, appeal against the school allocation of their child. And a shocking 82 per cent of these appeals are unsuccessful. These figures show that the idea of choice is far from some empty abstraction.

But there has to be some ability for suppliers to respond to what people are choosing. One of the Government's problems at the moment is that they have increased expenditure on the main public services but because supply is so constrained, not least because of their own over-regulation, all this extra money goes into higher prices rather than into extra services. Unleashing choice could have the same effect as well unless supply is liberalised. We will just have large numbers of unhappy parents if we tell them they can choose their school but access to popular schools does not expand. So the right to choose has to be enforced with a second right, to which I now turn.

Second is the right to supply, without which choice becomes meaningless. Everybody focuses in Britain on the demand side of the equation - how much we spend. That is important and I am going to turn to it in a moment. But at least as important is what happens on the supply side - how easy it is to provide these services. In particular we have what the economists would call barriers to entry. A particular example of this is the pernicious surplus places rule in our schools. That means that a good school can't expand unless a less popular school in the area has shrunk. We need to think much more imaginatively about how we break down such barriers.

One of the shrewdest investigations of the problems of the Third World is Hernando de Soto's book 'The Other Way.' It was an account of what it was like to try to set up a legitimate small business in Peru. The story was appalling. There were so many different permits, rules and regulations that it was virtually impossible to create a new business within the legitimate economy. You could only really function if you paid bribes and kickbacks or just went straight into the black economy. If Hernando de Soto visited Britain today he could write a similar book on the obstacles in the way of someone trying to supply those key services that people most demand. How long would it take you to set up a new nursery anywhere in the South East? What if you did want to open a new school in Birmingham? What if you did wish to treat patients as a new GP practice in Manchester? The obstacles to supply are enormous. Tackling them is the solid unglamorous task of looking at how planning rules work or how long it takes to get people's names cleared by the Criminal Records Bureau or how many different inspectors come to call. Yet it is an important part of reforming our great public services.

There is one other important aspect of the provision of these great services. One of the mistakes we made with the Citizens Charter, in which I was involved as a member of John Major's Government, was that we focused so much on the rights of citizens as consumers that we forgot about the proud professions at the heart of many of our great public services. They have a distinctive ethos which is precious and worthy of respect. They are not simply the passive recipients of instructions from on high. Any government that tries to treat them like this, as this Government has, will find it is destroying something very precious indeed. So we need to protect professional status. Our legal and political system is good at protecting the rights of individuals but less good at protecting the rights of institutions and professions. We need to respect the professional status and look at ways in which this can be enhanced. A doctor who is the servant of his or her patient has a professional self-respect which is much greater than that of a doctor who is a servant of the state.

After the right to choose and the right to supply there is a third crucial right, the right to spend. It ought to be possible to mix public spending and personal spending in our great public services. This is not a matter of imposing charges - that is a negative and depressing way of looking at the problem. Instead it is a matter of making it easier for people to mix their personal money with state spending. There are limits to what can be done but where feasible we should be adding to the opportunities for people to add their own spending to the state's. If we don't we will end up with a candy floss economy when you can't spend your own money on important things. Enabling them to mix is far better than the alternative which is more and more people leaving the system altogether and paying entirely for their own care.

These three principles - the right to choose, the right to supply, the right to spend - lie at the heart of our political agenda for improving our public services. They are the foundation of the major policies that we have announced and are developing further

We Conservatives are putting transforming the public services at the heart of our agenda for the next election. It goes right back to Disraeli's belief in improving the condition of the people. It draws on the Conservative critique of the Attlee welfare state at the very time it was being implemented. It is heavily influenced as well by what we have seen on the Continent as we admire the diversity of both provision and finance in public services there.

But this agenda is not just about the public services. It gets to the heart of everything we believe about the role of the state in society. It has often been seen in Britain as an economic argument but what economics is it? Is it Cambridge economics or Austrian economics? I first learnt economics in the Cambridge style. There was a very clear and rigorous definition of perfect competition. It had an almost algebraic purity, it showed with mathematical force that a perfectly competitive market maximised human welfare. But this perfect competition was a very odd sort of thing. There were no transaction costs. There were no transport costs. There was no brand loyalty. There were no big players in a market. Everyone was a price-taker. It was a very abstract idea of perfect competition and after you had spent the first term learning it you spent the rest of the course being taught that in reality, competition was "imperfect" and this licensed all sorts of government intervention. You still hear it as part of the British Treasury's case for interfering in markets today. But there is a different sort of understanding of the market economy which comes from Austrian economics. This is not a matter of neat mathematical formulae. Instead it says that a market is a place where information and knowledge are dispersed and there is a relentless process of innovation and discovery. The real problem with government intervention is that planners can't possibly have all the information which is dispersed in a modern market economy. This way of thinking is by far the most contemporary way of setting out the case for a market economy and for reforming public services. It strikes a chord with everyone. The Government is still trying to operate a mainframe system when we all know that nowadays the future lies with a dispersed set of PCs and Apple Macs. It ties in with the way in which environmentalists argue their case as well. We wouldn't trust a planner now to say there was one genetically superior breed of sheep and all the rest should be eliminated so that we could focus on the best. We understand the importance of genetic diversity as nature endlessly experiments. It also ties in with our British love of the local and the particular. It is the way in which we can make common cause with Christian Democrats across Europe, despite the differences in our two traditions. It is the right way forward for all of us.

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