Are we really still talking about privatisation?

by | 12 Jul 2023

Privatisation of public services is a religion which refuses to engage with a wealth of evidence of the reality. The problem isn't 'market discipline', the problem is lack of investment.

It is the perennial burden of those who are broadly on the left to be accused of living in an ideological fantasy world untouched by the realities of the world as it is. Meanwhile those on the right can say the same thing over and over again, it can fly in the face of all available evidence – and yet it is treated with respect.

That’s how you can end up with two stories sitting virtually next to each other in the same day’s edition of the same newspaper with one pretty clearly demonstrating the fatal flaw in the other. Yet right-wing dogma often passes without comment – and it disguises the real problem which is chronic underinvestment in the UK.

This starts with the claim made yesterday that the solution to poor and declining services on Scotland’s ferry network is to privatise the lot, just like the privatised bus network in Glasgow is improving crucial night bus services – which in reality it is about to scrap. Because private bus companies cares about shareholders and not the public good. Obviously.

It feels like only yesterday that the public were clamouring for ScotRail to be taken back into public ownership because of the dreadful service being provided by the privatised version, yet the solution to the ferry problem is to pursue the solution which makes train reliability worse? Said with a straight face?

It was Margaret Thatcher’s revolution in the 1980s which unleashed the vague notion that the way to make public service more efficient is to run them as private businesses. This is purely neoliberal doctrine – that markets and the profit motive push operators to do everything they can to maximise efficiency and so best serve the public.

A surprisingly large proportion of people took this at face value. Public services can be bloated and inefficient and are driven by politicians whose interest may not tally with the best interests of a public service. Operating in narrow timeframes, politicians may see more gain from a short-term tax cut than the long-term risk of failing public services and infrastructure (which will be someone else’s problem).

Thus people think that the private sector, which doesn’t face the conflict of interests inherent in governmental politics, must therefore surely do the job better. And in that simplistic, lazy assumption we find the heart of the problem.

No, the private sector does not suffer from the one, giant, glaring conflict of interests that comes from direct political control – but it faces many others, of which I’ll only look at three here. The first of these is that business leaders face the same incentive towards shortsighted short-termism that politicians do, just for a different reason.

While politicians operate in short electoral cycles, the private sector now often operates to even shorter financial timescales. As we’ve moved away from an industrialised economy towards a financialised one, longer-term investment is outweighed by equity release in profit-making. Get any cash that you can out now and worry about the rest later. If you leave behind a hollow shell, that’s someone else’s problem.

It is not the case that the only route to profit maximisation is efficiency – asset stripping, monopoly and corruption work pretty effectively too

So the idea that the private sector in the UK is doing a better job on long-term investment than the public sector is genuinely laughable. There is so much data to look at to demonstrate that point that it’s hard to know what to recommend but this article has a lot of good links.

But the short version is this; of every major economy (the G7), the UK has the lowest rate of business investment and the highest rates of wealth extraction (in dividend payouts and share buyback). The captains of UK industry seek always to take out more than they put in.

And of course that is also the second major problem with privatisation – it is simply, very clearly not the case that the only route to profit maximisation is efficiency. Asset stripping, monopoly and corruption work pretty effectively too. And which route is the UK norm? Well, if the private sector was really pushing efficiency gains everywhere it would be seeing improving productivity. That is the opposite of what we see.

On the other hand if I was to try and produce even a concise list of corporate malfeasance I would need this entire article simply to share the links. Even just the scale of corruption and malpractice in the big four accountancy firms takes a substantial amount of documenting. If you can find me someone who will claim with a straight face that the UK’s economy is underpinned by a culture of investment and productivity, put me in touch. I have questions for them.

The other big conflict of interests I want to touch on relates to the political power of the private sector. If a private business is receiving contracts for public service (or the franchise for a regulated market), they are contractually expected to be delivering the maximum public benefit. But they have the wealth and lobbying power to argue strenuously against the public interest.

Or let me put that another way; private businesses receive public money for public benefit but can simultaneously use that money to argue for reduced standards for the public. They are nominally bound by conditionality they are free to lobby against, virtually in secret and with no limitation on their spending.

So privatised operators work to even shorter self-interested timescales than politicians, are more likely to seek profit from asset-stripping and corruption than long-term investment and use their financial clout constantly to try and redefine how much ‘benefit’ the public is allowed to expect. When someone points out they also extract profit (the obvious point), they miss these bigger points.

What’s wrong with Scotland’s ferries? Partly it is the imposition of a complex organisational structure, dominated by private sector interests and put in place specifically to enable the previous privatisation of part of the publicly-owned ferry network. But the much bigger issue is that this kind of public service needs serious, long-term capital investment and that hasn’t happened.

I honestly wish I had time to hammer home the reality of this. The horror of profit-from-care-services is now being noted globally, the scale of corruption inside big organisations which are the routes of privatisation is extensive, the sheer madness of the crazy (and ongoing) PFI experiment are so well documented and so jaw-dropping people forget. And on it goes.

Expecting accountability via a politician is like expecting long-term investment from a corporation – it’s not what either does

It just isn’t the case that the public sector or the private sector is ‘better’, it’s that they each do different things in different ways and that is because the different challenges they face need that diversity. Look at private healthcare in the US to understand why the private sector is dreadful for delivering universal healthcare. Meanwhile the public sector would be rubbish at manufacturing smartphones. It’s not one or the other.

Calls for privatisation (and, ironically, nationalisation too) are either cynical or desperate. When things are really bad the assumption becomes that any change is a good change. The mountain of evidence against this seems never to have an impact.

There are three things that need to be done to make public services work. The first is investment, pure and simple. The UK as a nation is in a desperate state now because since Thatcher ‘wealth without investment’ has been our real national anthem, and the reality is hitting home now. (‘Customer services – would you like to chat with our digital assistant?’)

The second is to roll back the attempts to make the public sector operate like the private sector. For example, imposing idiotic non-markets-that-look-like-markets-but-aren’t is a very large part of why the NHS is both so inefficient and so screwed. Management consultants who have never run a public service should no longer be required. We need to simplify government.

The third is more radical, but the more I write about it the more convinced I am – the ‘mutualisation’ of a lot of public service. Unless we can make public services democratically accountable to their users and behave in a long-term way, these problems will constantly recur. Expecting accountability via a politician is like expecting long-term investment from a corporation. It’s not what either does.

I want to see direct, democratic control of public services in a mutualised model. Mutualism is the one remaining model we have which is long-term in nature and which enables real, direct democratic power returned to the people who the services are supposed to be for – the public.

Privatising CalMac will do no more to improve ferry services in the long term than bus privatisation did for protecting Glasgow’s night busses in the long term. That people can trot out this measurably untrue nonsense without challenge is pretty remarkable. Desperation shouldn’t lead us running from one bad idea to another over and over, like there are easy, cost-free solutions stuffed inside a desk drawer no-one thought of opening.

We have to invest, we have to return to prioritising public benefit above all else, we have to slim down the self-service bureaucracies that the business consultants put in place and we need to make public services democratically responsive to those who use them. And we need to laugh a lot louder at people who say ‘privatisation will fix it’.

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