Ship of Fools: Privatisation

Thread: Privatisation Board: Purgatory / Ship of Fools.

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Posted by Schroedinger's cat (# 64) on :

I am aware that, with the potential nuclear armageddon and rise or Donald "Hitler" Trump are more immediate issues, but this has been drifting around in my head. I also realise that it is more a UK issue than other places.

One of the arguments for privitisation is that it give a chance to draw in private investment, which sounds like it is a positive thing. However the truth is that most privitisations result in the companies taking vast profits out of the system. Normaly taking huge government subsidies and providing a worse service than before, because they are purely based on profits - increasing them being the purpose of the companies.

Now some of this is the poor regulation and planning for privitisation, but it strikes me that the principles behind it - which are dubious anyway - are being flaunted. Is it time to renationalise, so that all of these lovely profits can be fed back into the system?

Of course, the "extra investment" is investment therefore meaning that the investors want a good return on their money. Why is this so good? If this money can be raised, then surely the governmetn can raise it, or other approaches could be taken to draw more money in, backed by government.

So is it time to forget this? To reverse the privitisation fetishism that the UK is currently in.

Posted by Callan (# 525) on :

I think it depends.

Where one clearly has a worse service then renationalisation ought to be an option. Where a better service exists then it should be left alone. There's also the question as to what governments spend their money on. Do you nationalise 'x' or spend the money on schools, the NHS, Sure Start Centres and the like. To quote the Blessed Liz Kendall (PBUH) what matters is what works.

Posted by Schroedinger's cat (# 64) on :

The money issue is a tricky one, but an agressive renationalisation (based on the fact that these organisations have made a lot of money out of it) should then produce more money for the country.

Maybe I am missing something, but how does privitisation actually generate more money? The esperience many hae is of increased prices, poorer service and huge profits for the companies (who are often Tory donors, surprisingly).

Posted by Dafyd (# 5549) on :

quote:
Originally posted by Schroedinger's cat:
Maybe I am missing something, but how does privitisation actually generate more money? The esperience many hae is of increased prices, poorer service and huge profits for the companies (who are often Tory donors, surprisingly).

AIUI there are two strands of reasoning. I am going to assume that the cheerleaders for privatisation have all read Hayek.

The underlying thought is that what each economic agents knows is their own resources and self-interest. No economic agent can reliably know more than that. Therefore an economic agent acting on its own self-interest will at least make decisions that reliably reflect something. Economic agents that try to make decisions that benefit more than just themselves will in so doing overestimate their own knowledge and effectiveness and so start making bad decisions.

If two individuals both negotiate based on self-interest they will hit on the price that best reflects the cost to the producer and the value to the person willing to pay. If the government or other party steps in and negotiates based on an altruistic motive without a direct stake that will result in a distorted price in one way or another.

The other thought is that if the government owns businesses that places power in the hands of the government. And that starts the country down a slippery slope that leads to totalitarianism.

The response of course is that the above is entirely theoretical. Things do not necessarily happen that way in practice. In particular, there's little to no evidence that private enterprises are more reliable in making decisions than government; nor is it true that the totalitarian governments of the mid-twentieth century arose out of attempts to overextend government intervention in the market. Where private enterprise is generally more efficient than government it is because there is genuine and transparent competition rather than any special virtue of private enterprise as such.

Posted by no prophet's flag is set so... (# 15560) on :

I come from a province in Canada where most of the major utilities and services are publicly owned. I post with this experience.

There are several problems with discussions of privatisation. First, with some things, like electric service, natural gas, water, sewer, telecommunications, is that privatisation often doesn't really result in any consumer benefit. It benefits the few companies or corportations which can manage to get control of the market in total or in part. There is both direct collusion and unconscious collusion to raise prices to take profit, even when prohibited by laws.

Second, it is often stated that privatisation is more efficient and that competition is good for the consumer. We have found that this is not true in many cases. Essential service can be cur or eliminated because it isn't profitbale. Profit, in the case of a public service, is not necessarily a good thing. There is contribution to the public good and quality of life which mustn't be externalized. Which is why we have a good cellular and internet network, natural gas, electric which operates at a loss in some areas of the province, subsidized by profitable areas for the public good. Everyone pays the same rates. Competition could up the rural rates by 4× and reduce city rates by “a bit” - do we really think they'd reduce the city rates?

Third, “government owned”, “socialism”, “nationalization” are loaded terms, and do not describe how public ownership can work. Our publicly owned corportations are called “crown corporations” and are governed by a legislative act which requires that they operate at arms length from government. Thus a government can never dictate corporate policies, business model or plans. There is a formula for profits to be refunded back to service consumers, to fund new infrastructure and to invest in rainy day funds for emergency expenses.

The cellular phone network makes the point about efficient and less profit taking in one area of business: we spend ⅓ less on monthly cellular phone bills than elsewhere in Canada.

Should everything be publicly owned? No I don't think so. The largest grocery and building supply stores are co-ops here, which are owned by member-consumers. Because the private chain stores are not interested in small markets, there was no choice. As smaller centres grow and become profitable, the chains do move in, but they are often not successful because their business plans are known to be exploitive.

Posted by Ricardus (# 8757) on :

ISTM there is a difference between private enterprises and privatisaton. Private enterprises are generally started by people who care about whatever they're producing, e.g. software companies care about IT. But bids for privatisation and government outsourcing projects seem to be dominated by private equity and venture capitalists.

Also, I think there is an inherent tension in the idea that private companies have superior commercial awareness to the civil service, but that when the civil service is negotiating the sell-off or the outsourcing contract, the private company's superior commercial awareness won't lead to the civil service being shafted.

E.g. I read an article about the sale of servicemen's homes. The private company showed a truly impressive commitment to in-depth research, compared to a rather 'I'm sure it'll be all right chaps!' approach from the civil service. But one can't then be surprised that the civil service got the raw end of the deal, especially if one is wedded to the view that private companies primarily exist to make money for their owners.

Posted by Schroedinger's cat (# 64) on :

The competition argument is a good one in some circumstances. The problem, as no prophet indicated, is that so much of the service market does not lend itself to competition.

I know we see this in the train franchises in this country. The bid seems to be given to the one who asks the least money from the government for the service, irrespective of what this means for users of the service (normally, an even poorer service than before, as they try to cut costs to cover themselves). It may cost the government less money in the short term, but then scrapping the entire system would also do that. That is not the point.

I think one of the problems with this is that the "competition" is at the wrong point. If they actually had to compete for a passenger vote, it might be different.

Competition - the market - is a really bad system for service provision. Where the privitisation is done based on the cost (it always is), this means that the service users are not considered. If it is done based on the service users, it will prove unattractive/expensive. These are areas that SHOULD (IMO) be provided by the state.

This includes train and health, but also essential supplies like Gas and Electricity.

Posted by Ian Climacus (# 944) on :

One of my concerns comes from the sometime very restrictive non competition clauses that often accompany such deals, leaving citizens worse off (e.g. no increased road network near a tollway).

We seem to favour leases now. 99 years or so. A quick cash injection to give the state some money to spend. It will be interesting to see how these go.

Posted by Baptist Trainfan (# 15128) on :

quote:
Originally posted by Schroedinger's cat:
Competition - the market - is a really bad system for service provision. Where the privitisation is done based on the cost (it always is), this means that the service users are not considered. If it is done based on the service users, it will prove unattractive/expensive.

This has certainly proved to be the case in the bus industry, leaving residents in rural areas with no service as it is too expensive to provide them. Equally operators compete on lucrative urban routes when co-operation and shared ticketing would have been more sensible. And, in many places, evening and Sunday services have all but disappeared.

Things have not been helped by the pressures on local Councils to cut costs, this means that subsidies for "essential" bus services have been slashed. Equally the concessionary pass scheme for pensioners has been badly handled, leading to the loss of many services as unviable.

Result: increased dependency on private cars in all but the largest cities, leading to increased congestion and pollution.

Here in my city the main bus company is still owned by the Council, which I see as a Good Thing. However it is increasingly being challenged by an upstart private operator, with slightly lower fares. The short-term effect is to increase the level of service on those routes. The long-term effect around the whole city could be disastrous, but most people don't seem to see that. In any case, there's nothing that can be done under the current legal framework.

Posted by Adeodatus (# 4992) on :

quote:
Originally posted by Callan:
To quote the Blessed Liz Kendall (PBUH) what matters is what works.

Yes, but with a little heap of footnotes under it:

What works - and provides the best service to the whole population, not just a sector of it.

What works - and is under democratic, not corporate, control regarding what is provided.

What works - with maximum possible taxpayers' money going into service provision, not private profit.

With those footnotes, I'd be getting close to agreeing with Ms Kendall. But somehow I doubt they were in her mind.

Posted by Schroedinger's cat (# 64) on :

"What works" is so difficult to determine. It should be what works best for the consumers. It is often what works best for the government.

There is the sense that "value for money" means "the cheapest possible". So often government ministers argue that xxx is now costing them less, while ignoring the fact that the service provided is less too, that the expensive parts of hte service have been withdrawn.

Then they argue that companies have ot make a profit, or they wouldn't run the services. But most of the services shoudl not be judged on profit/cost. They should be judged on customer service delivery.

I live on hte THameslink train service, which was mediocre when we arrived 16 years ago, and has been going downhill eversince, becasue the franchises have been sold to the lowest bidder. And the quality check measures have been tweaked so that they achieve them despite providing a dreadful service.

Posted by Albertus (# 13356) on :

quote:
Originally posted by Baptist Trainfan:
...
Here in my city the main bus company is still owned by the Council, which I see as a Good Thing. However it is increasingly being challenged by an upstart private operator, with slightly lower fares. The short-term effect is to increase the level of service on those routes. The long-term effect around the whole city could be disastrous, but most people don't seem to see that. In any case, there's nothing that can be done under the current legal framework.

If you and I are in the same city, that main bus company seems to me to combine the worst of the public and private sector- private-sector high and until recently very inflexible fares (and that piratical 'no change' policy) and old-school Welsh public sector complacent unresponsiveness to users. The private provider didn't just increase the level of service, it forced the public provider to cut its very high fares on at least one route to compete. Another example- which may have changed because this is based on experience a few years ago- the two publicly owned bus companies of neighbouring cities shared a route code between the two city centres- same number service, integrated timetable. Brilliant. Except that your ticket was only valid with the company you'd bought it from- they weren't interchangeable.
Despite all this I am a staunch supporter of public services being publicly owned, and of things being run as services rather than as profit generators. But public services have to be genuinely services as well as being public. They can: there's no excuse for them not to be, except complacency.

Posted by irreverend tod (# 18773) on :

Good things about public services - no profit motive and universal provision. I'm massively in favor as the idea of my bus fare, electricity bill etc being use to pay the pension fund of another state worrying - and that's before we get onto the whole security issue of who owns our water supply.

Bad things - no accountability for ineptitude from senior staff who I wouldn't trust to wipe their own arse without supervision; Profligacy and waste that would make Caligula raise an eyebrow.

If we can deal with the bad things we can have the best services going, but the inefficiencies we have in the NHS and in education management remind me of pigs at a trough and as a tax payer I find that sickening. I do love our pigs though!

Posted by Baptist Trainfan (# 15128) on :

quote:
Originally posted by Albertus:
The private provider didn't just increase the level of service, it forced the public provider to cut its very high fares on at least one route to compete.

You may well be right, I've only been here a few months so can't comment. And I live on that route (but can use either bus as I don't pay!) By the way, buses at My Old Place didn't give change either - but did give you "change tickets" which you could use toward another journey.

quote:
Another example- which may have changed because this is based on experience a few years ago- the two publicly owned bus companies of neighbouring cities shared a route code between the two city centres- same number service, integrated timetable. Brilliant. Except that your ticket was only valid with the company you'd bought it from- they weren't interchangeable.

The joint route still runs but I don't know about the fares. The private operator is just about to begin a competing service.

[ 17. August 2017, 20:22: Message edited by: Baptist Trainfan ]

Posted by Dafyd (# 5549) on :

quote:
Originally posted by irreverend tod:
If we can deal with the bad things we can have the best services going, but the inefficiencies we have in the NHS and in education management remind me of pigs at a trough and as a tax payer I find that sickening.

A few years ago the NHS was the most efficient health system in the world. The right-wing press like to run stories that it's inefficient largely because they can't stand the idea that a publically run service could be efficient. Politicians like to go along with it because they can claim they're improving the service without actually spending more money on it.
But at the moment the NHS is being starved by unneeded efficiency savings where there is no inefficiency to be found.

Posted by Ricardus (# 8757) on :

I'd also like to see evidence that the private sector doesn't have nonsensical inefficiencies. Dilbert is a parody, but it is a parody of managerialist stupidity that really exists.

The difference is that the NHS is subject to intense public scrutiny, whereas inefficiencies in a private company are only of interest to shareholders, and shareholders don't generally care about the day-to-day management of the companies they own as long as the share price goes in the right direction.

Posted by no prophet's flag is set so... (# 15560) on :

I read about government subsidized housing this morning* and the impact on health. Since about 1990 Canadian Gov'ts have basically stopped supporting housing, with the ideology that the private sector will do it more efficiently and better. But it is not true for all housing. The private sector does expensive, single-family dwellings, building multi-unit owned dwellings (here rented are apartments, owned flats are condos) so they do higher end condos well, and they also do gated communities where those who own separate dwellings co-manage the common areas. The private developers and builders do not do rentals for lower income people very well at all, and there is a shortage of housing for lower income people. We're seeing the selling off of subsidized housing here (I think this might the equivalent of selling off council housing in the UK).

In Canada, the results are that people who rent spend far more of their income on paying rent, and have less for food and other life necessities, they work longer hours, they have less time with family. They are under more stress. This produced more health problems for them and more behavioural problems for their children.

It brings me back to to my basic understanding that we mustn't let ideology over come data, yet that's precisely what we have done. It is the wealthiest sectors of society which have dictated this sort of direction.

*Link.

[ 18. August 2017, 15:01: Message edited by: no prophet's flag is set so... ]

Posted by chris stiles (# 12641) on :

quote:
Originally posted by Schroedinger's cat:
The competition argument is a good one in some circumstances. The problem, as no prophet indicated, is that so much of the service market does not lend itself to competition.

Yes, the other part of this is that some of these services are natural monopolies, furthermore because they are natural monopolies as well as an essential service, pure market discipline bankruptcy included isn't on the cards. Of course their management and ownership usually realizes this and acts accordingly.

Posted by irreverend tod (# 18773) on :

The major problem with the massive increase in inefficiency in the public sector is that they are being encouraged to be "more businesslike". Then comes the increase in middle management, fancy job titles and the like all run by people who don't have enough private sector experience to get lean running or by people who are so focused on the bottom line as to lose sight of that public sector means. Our local NHS trust lost many of it's best people once the new initiatives came in with inevitable results. A neighboring parish has resorted to using a minibus to get people to church and visits to town as there are loads of them waiting to be seen for procedures that mean they are unable to drive [Mad]

The bus service stopped years ago.

A lot of my friends now regard private health care as a necessity because they can't afford to wait for public sector.

Heaven forbid that a church would try to operate this way ...

Posted by Ricardus (# 8757) on :

quote:
Originally posted by irreverend tod:
The major problem with the massive increase in inefficiency in the public sector

But there hasn't been a massive increase in inefficiency. There has been a massive increase in cuts.

You cite the NHS. NHS waiting times have indeed increased. This is because we have an ageing population and demand is rising faster than funding. King's Fund article.

Posted by Adeodatus (# 4992) on :

quote:
Originally posted by irreverend tod:
A lot of my friends now regard private health care as a necessity because they can't afford to wait for public sector.

As Noam Chomsky observed (this is the slightly paraphrased version) -

quote:
That’s the standard technique of privatization: defund, make sure things don’t work, people get angry, you hand it over to private capital.

The NHS is actually one of the most efficient and lightly managed large organisations in the world. The Tory government, however, wanting to privatise it, first near-crippled it with a pointless, expensive and complicated top-down reorganisation. Then the real-terms spending cuts started, then the salami-slicing privatisations. During the first full year of the Health & Social Care Act, the value of contracts going to private providers doubled. Then, of course, the double whammy of EU staff leaving - an inevitable and foreseeable result of the Brexit vote - coupled with the ending of bursaries for trainee nurses, leading to a dangerous staffing crisis that's growing worse by the day. The NHS is not failing, it is being failed.

Posted by Ricardus (# 8757) on :

quote:
Originally posted by chris stiles:
Yes, the other part of this is that some of these services are natural monopolies, furthermore because they are natural monopolies as well as an essential service, pure market discipline bankruptcy included isn't on the cards.

On top of which, public sector outsourcing companies seem to have formed a natural oligopoly, and operate a little treadmill whereby the same three or four usual suspects are offered a contract, cock it up, and then get offered another contract, because there are so few firms with the capacity and willingness to take on public sector projects.

Posted by irreverend tod (# 18773) on :

quote:
But there hasn't been a massive increase in inefficiency. There has been a massive increase in cuts.

Granted the funding has decreased alarmingly, but you look where the staffing cuts have come and who is employing their unqualified relatives (as we have had in the west country).
We now have a situation where a nurse can be paid more for working for an agency than by being directly employed by an NHS trust and they do. We have huge numbers of unfilled posts as a result of this. There are also a lot of administrators who are paid more than nursing staff. This is the mismanagement situation that is exacerbating a difficult financial situation

Posted by Sioni Sais (# 5713) on :

quote:
Originally posted by irreverend tod:

quote:
But there hasn't been a massive increase in inefficiency. There has been a massive increase in cuts.
Granted the funding has decreased alarmingly, but you look where the staffing cuts have come and who is employing their unqualified relatives (as we have had in the west country).
We now have a situation where a nurse can be paid more for working for an agency than by being directly employed by an NHS trust and they do. We have huge numbers of unfilled posts as a result of this. There are also a lot of administrators who are paid more than nursing staff. This is the mismanagement situation that is exacerbating a difficult financial situation

Evidence please. This isn't the Daily Mail.

Posted by Dafyd (# 5549) on :

quote:
Originally posted by irreverend tod:

quote:
But there hasn't been a massive increase in inefficiency. There has been a massive increase in cuts.
Granted the funding has decreased alarmingly, but you look where the staffing cuts have come and who is employing their unqualified relatives (as we have had in the west country).
We now have a situation where a nurse can be paid more for working for an agency than by being directly employed by an NHS trust and they do. We have huge numbers of unfilled posts as a result of this. There are also a lot of administrators who are paid more than nursing staff. This is the mismanagement situation that is exacerbating a difficult financial situation

I think this is a result of short-sighted efficiency savings. The NHS is forced to cut nursing staff in the name of efficiency. Then it turns out the NHS needed the nursing staff it cut. So it then has to rehire them from an agency at more expensive rates with the agency taking a slice. I suspect the agency staff also come from a different budget entry, so they're not marked down as staff costs but as private sector partnership or something. The ideology would be that because agencies are private sector they must be more efficient, when of course they are not.

Posted by Ricardus (# 8757) on :

I'm prepared to believe irreverent tod's examples, but what I dispute is that the private sector is any more efficient.

We all know about overpaid senior management thanks to the scandal of CEO pay, which has soared in recent years without any corresponding increase in performance, to the extent that even the PM vaguely thinks something ought to be done.

As for false economies using temps, I once worked on a project for a company that most people would regard as successful, where senior management had decided the project would mostly be carried out using temps, and that the temps would have rolling contracts that would end when there was no more work to be done on the project. The vocabulary of these senior managers included an impressive array of management bollockese but did not apparently include the words 'perverse incentive'.

Added to which was a managerialist total separation between people who understand stuff, and people who have the power to make decisions. Meaning that an awareness that we were doing the wrong thing took weeks and tens of thousands of pounds to filter through to a management decision that we should do something else.

But none of this would ever make the Daily Mail in the way that a daft decision by an NHS Trust would.

Posted by Arethosemyfeet (# 17047) on :

Of course agency staff are paid more - they don't have job security or guaranteed hours. That's how it's meant to work. If the government hadn't screwed up training for nurses and cut their pay then there would be enough nurses that agency work would be less attractive and the permanent posts would soon fill. With doctors and locums it's less the pay and more the working hours (and too few training places), but arranging more deals like a friend of mine has of a 0.8 contract where they work 4 weeks full time then have a week off must surely be part of the solution.

Posted by irreverend tod (# 18773) on :

Ricardus, you've hit the nail on the head. Most managers have limited knowlefge of what they are managing. Hospitals used to be run by people who had spent a lot of time actually nursing or doctoring and knew exactly what was needed - we now have people with management qualifications who wouldn't know one end of a patient from the other.
We seem to have moved to a point where the ability to manage is more important than the ability to do the job. Staying in a technical role is very often viewed as failure. From working across Europe this seems to be a very English thing, but I suspect is and English speaking thing - I will stand corrected by anyone from other countries who knows more than me about this.
I think this is why we are being cajoled as a nation to more privatization by the management mad of the parish.

Posted by chris stiles (# 12641) on :

quote:
Originally posted by irreverend tod:
Ricardus, you've hit the nail on the head. Most managers have limited knowlefge of what they are managing. ..
We seem to have moved to a point where the ability to manage is more important than the ability to do the job.

Which is entirely the problem with trying to bring in privatization by the back door and imposing a managerialist culture, which is why the worst of the faults you find with publicly owned services are more a characteristic of private enterprises:

"Bad things - no accountability for ineptitude from senior staff who I wouldn't trust to wipe their own arse without supervision; Profligacy and waste that would make Caligula raise an eyebrow."

quote:

Staying in a technical role is very often viewed as failure. From working across Europe this seems to be a very English thing

Yes, I think that private enterprise in the UK suffer from this in spades. Actually having domain expertise is seen as faintly grubby and not really something that would mark out a gentleman.

Posted by Schroedinger's cat (# 64) on :

So I remember a discussion some time ago which argued that Microsoft WIndows software was so crucial to the infrastructure of the US, so vital to the continued running of the nation, that it should be nationalised.

I don't think it was a serious suggestion, but it was done to illustrate the problems of a private company with such significance. I think there probably is a case for providing a continuity plan, that might involve significant national interest in the company.

But again, watching The Secrets of Silicon Valley, companies like Cambridge Analytics are working for political campaigns and having substantial impact on at least two major votes last year. Companies who are interfering in election results should surely not be available to the highest payers, otherwise the democracy can be bought.

I don't know where I am going with this. I just think that there are companies who have such an impact on our society today that they shoudl not be purely commercial based.

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