# The Political Quarterly Publishing Co. Ltd. 2004 Published by Blackwell Publishing Ltd, 9600 Garsington Road, Oxford OX4 2DQ, UK and 350 Main Street, Malden, MA 02148, USA 74 The State and the Market JOHN KAY What should be the boundaries between the state and the market? To pose thisquestionistodictatetheformoftheanswer,becauseitrequiresthatitis both possible and desirable to de®ne distinct public and private spheres of activity.Theimmediateimplicationisthattheinteractionsbetweenthemcan be managed through regulation and contract. This philosophy has led in the last two decades to a reformulation of the politicalagenda.Traditionalboundariesbetweenpublicandprivateactivities havebeenreassessed:theassumptionisthatthroughregulationandcontract itmaybepossibletocarveoutlargeareasoftraditionalpublicsectoractivity for private businesses. Since private businesses are assumed generally to be more ecient and innovativeÐand there is a good deal of evidence to support that assertionÐthe framework points to privatisation as a central direction of public service reform. In this chapter, I argue that it is a mistake to seek such well de®ned boundaries. The question assumes that there is a fundamental dichotomy between public and private sector organisations, that such bodies are and should be managed in dierent ways, and that they are populated by dierent kinds of people who display dierent kinds of behaviour. While there is much truth in that observation, there should not be. The better route topublicservicereformisonewhichrestoreselementsofpublicserviceethos topartsoftheprivatesector,andestablishesgreaterscopeforinnovationand for pluralism in the public sector. Theareasinwhichithasseemednecessarytode®neorrede®neprivateand publicrolesfallintoseveralcategories.Thereareconventionalareasofpublic service provisionÐsuch as health and education. Utilities such as transport andelectricityhavesometimesbeenmanagedbypublicsectorbodiesbutare now more frequently undertaken by private companies. And activities such as pharmaceuticals and professional services are usually undertaken by private companies, but such wide and general questions of public policy arise that the activities of ®rms are extensively regulated, and the manage- ment of such regulation is central to the management of these activities. But in all of these areas, the best performing organisations have generally been hybrid bodies, which combine elements of public service ethos with private sector innovation and enterprise. To list Stanford University, Bell Laboratories,MassachusettsGeneralHospital,CompagnieGeneraldesEaux, Swiss Railways, Merck, Johnson and Johnson, British building societies, German regional banks, J. P. Morgan and Fannie Mae, is to give only a preliminary sense of the scope and variety of such hybrids. But the list is suciently long, and the achievements of the organisations on it suciently