Towards the end of 2012 a telling interview with the head of the London Olympics, Lord Coe, was published in a national newspaper. “I actually don’t believe in big government,” said Coe “and half the time I’m never quite sure I believe in government, generally.” Dumbfounded, the interviewer Decca Aitkenhead responded: “But without government we wouldn’t have had the Olympics.” Coe conceded, “No, that is true. That is true.”

The myth of private sector superiority says that the private sector is efficient and dynamic, the public sector wasteful and slow; that the more we can get the private sector to run things the better. That the head of a massive public enterprise like the Olympics can so blithely discount what underpins it demonstrates its reach. In fact, while billboard adverts said we had commercial sponsors to thank for every minute of pulsating Olympic action, as little as 6% of costs were met from sponsorship.

The myth is effectively government policy. In 2010 David Cameron spelled out his priorities for government which were to use, “all available policy levers,” to make it easier for the private sector to “create a new economic dynamism”. The following year Cameron announced that he was “taking on the enemies of enterprise“, which included the “bureaucrats in government departments” and the “town hall officials”. The chancellor, George Osborne, claimed it wasn’t just that the one sphere was generally better than the other. He argued that the public sector was “crowding out” the private sector and needed cutting back.

But, what of the evidence of private sector efficiency? Public subsidy to Britain’s railways rose dramatically following privatisation. Famously, the failure of Metronet Rail’s contract to work on the infrastructure of London Underground was estimated to have cost the public purse more than £400m. Meanwhile, it was recently revealed that the single remaining state-run mainline rail service requires less public subsidy than any of the 15 privately run rail franchises in Britain.

Healthcare is typically much more expensive in countries with heavily privatised systems. As the figure below demonstrates, in 2008, the United States, with predominantly private healthcare, spent around $7,000 per person on health. The NHS spent around half that sum per person, yet, judging by outcomes such as life expectancy at birth, the NHS did just as well.

Some of the UK’s largest private care home providers effectively bankrupted themselves and had to be saved by public intervention. Similarly, the banking system – which underpins our economy, and whose demands for financial returns determine the broader shape and nature of the economy – is only standing today due to monumental public backing after near complete failure of its investment model. Private finance is much more expensive than direct public investment: the cost of capital under the heavily used private finance initiative was estimated by the Financial Times in 2011 to have added £20bn to the taxpayers’ bill (paywalled link).

Of course, the choice a society has to meet its needs is not between just the state or private sector. The “core economy“ describes work done in homes, neighbourhoods and communities that goes unpaid, but upon which wellbeing, resilience and conviviality of society largely depends. Costed at even a basic rate, the value of that work would vastly outstrip spending on formal care. Voluntary, mutual, cooperative and social enterprise models all represent important alternatives to either traditional private sector or state provided goods and services. Although more recently lip service has been paid to the idea that the provision of services should be opened up to these kinds of providers, in reality it is the large private suppliers – the likes of Serco, Atos and Capita – who are set to replace direct provision by the state.

Private sector dynamism versus public sector inefficiency has been the dominant political narrative of the last few decades. It has supplied the excuse for repeated, one-directional upheaval in many of the services that we rely on, and which are essential to our quality of life. At best, evidence of private sector superiority is missing. At worst, such lazy assumptions can cost lives as well as money. The public sphere in its broadest sense can be more efficient, more effective and better for human dignity. That is not to argue against innovation. On the contrary, innovation is desperately needed to reintroduce the human element to how things are run.

• This mythbuster is part of a series co-ordinated by the New Economics Foundation and the Tax Justice Network.