The Contract State: X‐Efficiency and Trust

Economic theory emphasises the efficiency‐enhancing properties of the competitive imperative. In some way competition and efficiency are tautological. Comparatively recently some economists have, by applying economic techniques to essentially non‐market insitutions, questioned the efficacy of state provision. Their model suggests that the state is inherently inefficient, and that by extending the market mechanism to state activities efficiency improvements will follow. Over the past decade there has been a shift in emphasis in the role of the market mechanism in state activities, including the welfare state. Central government has adopted ambitious privatisation programmes popularised by the sell‐off of nationalised companies. Other forms of this adjustment in the role of the market in the state have included a shift in the state as a provider of welfare services to an enabler of welfare provision. This has several manifestations including competitive tendering of health and local authority activities, market testing, the regulation of privatised water provision, and the internal market in the NHS. The compelling arguments presented by those economists applying market techniques to state institutions seems to have struck a chord in Central Government.