Sunday, 26 June 2011

Private Sector Efficiency? Tell me another one...

There is an oft repeated assumption, not only among the neoliberal right, but among many in the centre and Nu-labour infected centre-left, that two legs good, four legs bad. Or should I say "public sector waste, private sector efficient."?

The theory goes that, if maximising profit from your activities is your main focus and sole objective, you will find ways to become ever more "efficient" and "effective". At what precisely? In the final analysis, at extracting as much excess cash from your customers as possible over the actual cost of producing the service or goods you are selling. It's not exactly a particularly edifying or trustworthy nostrum, nor does it in fact follow that you will provide the best conceivable service - rather you will provide the one that gives you the best financial advantage.

The Tories' willingness to embrace this goes without saying. But why have even many of those who supposedly believe in public service been seduced into turning to the private sector to find ways to improve services to taxpayers? Whether in the form of the huge contracting companies like PWC and Crapita, which have ripped hundreds of billions of pounds from the public sector in return for poorer services (including abandoning one contracted-out Education Authority mid-contract); or in the form of consultants charging massive fees to identify savings; or whether in the form of the new owners of privatised state industries requiring ongoing government subsidies to carry out their role, as in the case of the nuclear power industry, private enterprise has in fact very little to recommend it as a guru of efficiency. Somehow, however, private effectiveness is taken as fact, in spite of the very substantial lack of evidence.

British-owned private companies on average take far more out of their profits as shareholder/owner dividends than almost any other major economy - fifty per cent more on average than US companies and nearly three times the rate of Japanese firms. meaning that other countries regularly re-invest more and consequently outperform us. In spite of poor business performance, British Boardroom salaries have rocketed to phenomenal amounts, with bonuses proliferating far beyond the banking sector alone, just as ordinary workers have been told to tighten their belts. Greed is good, it seems, if you've already supped greedily enough.

The railway industry is a case in point. By the end of the second world war, the private rail companies that ran the British rail system were more or less bankrupt, with tens of millions of pounds in accumulated debts. In 1946, the Labour Government nationalised them and turned them into British Rail, but, critically, made this new state company liable for the ongoing debts of its private predecessors. Consequently, although BR ran at an operating profit from 1947 to 1962, its requirement to pay the debts of the old owners meant it ended up making losses which had to be subsidised by the Government. After a while, with investment in new rail held back because of this, BR ended up requiring constant, ongoing public subsidies.

In spite of this, an integrated, modern, electric rail network was created. By the 1980s, a steady decline in passengers had reversed and massive investment began in the Channel Tunnel project, which was completed just before BR was split into 24 regional and network franchises and sold off to the private sector in 1994. The Conservative Government claimed that by doing this, the magic wands of the profit-seekers would drive forward ever-better rail services and cut costs, so that the taxpayer would no longer be out of pocket (albeit because of the original losses of the private sector way back in the 1940s).

But nothing could be further from the truth - rail services are no more efficient that before privatisation. Customer satisfaction has declined although transport requirements mean more people have to use the service. Our fares are among the highest in Europe. And the public subsidy at today's prices has risen from £2.3 billions in the last year of BR to £5.2 billions in 2008/9 - an increase of 126%. This has been cut in the current financial year, but will still stand at nearly 110% more than the cost of BR to the public purse.

So, with the Tories eying up more private involvement in the NHS even after the revision of the health bill, as well as seeking to widen private contracts in government as some sort of panacea for every problem, the Left need to reassert that it is not just on the basis of ethics and ideology that we want to see the state running our public services; it is also because keeping things in the public sector makes plain good business sense.

London to Wakefield service last week: nearly 20 years and £48 billions in taxpayer-funded subsidies after privatisation, East Coast railways and their rivals are still using decades old British Rail rolling stock.

1 comment:

  1. excellent analysis - if only we could get rid of this nonsense we could build a better Britain for all of us to live in.