Is privatisation inherently wrong?

Hell yes.

Last night I was at a very well-attended community meeting at Meadowbank Stadium, where local councillors were invited to explain what’s happening around the plans to privatise £1bn worth of public services at Edinburgh City Council. I say well-attended, but I mean well-attended by the public, not by the councillors. All the back-office functions like HR, revenue and benefits, council buildings maintenance, cleaners etc are all involved in these plans, along with environmental services including bin collections and looking after Edinburgh’s award-winning parks. That’s an awful lot.

If you haven’t heard anything about these plans then you’re not the only one. There has been little to no effective consultation of the public, and even Gary Peacock, the Liberal Democrat backbench councillor who attended the meeting, didn’t seem to know anything about the details of the plans. Indeed although the Labour group and the Green group have consistently voted against the privatisation of services, really the only people that have been keeping track of the developments and holding the council leaders accountable for these plans have been the trades unions. It’s not the councillors who are standing up for the interests of the people; that duty has fallen to trades union organisations like Unison and PCS, who I’d urge you to support. The SNP, despite being one of the larger groups on the Council, couldn’t find anyone to attend this meeting, or the last one on the same topic about a month ago.

Anywho over the past week I’ve been asked several times what’s so bad about privatisation, so I thought I’d put a post together on the topic. I took a quick look at it a couple of months ago but it’s worth revisiting. Let’s have a list:

1) The efficient private-sector is a myth. There are only a small number of ways in which private companies can run a public service more efficiently. Let’s have another list:

  • Reduce the quality of the service
  • Sack people
  • Pay their employees less
  • Hire less qualified staff
  • Reduce working terms and conditions

If the private company is being more efficient in other ways (so let’s say they change supplier and buy a necessary product at a lower price), then those options are also open to the government in-house, and the privatisation isn’t necessary. What privatisation essentially does is pass the service onto a company where the trades union representation isn’t as good, so they can treat their staff worse than they could get away with if they did it in-house. I don’t think that’s what the people want.

I’ve said it a million times before, but there are 2 types of efficiency. The one that private companies are concerned with is money earned vs money spent, whereas the one that government should be concerned with is money spent vs quality of the service. There is a real danger when you privatise services that you get a race to the bottom, where companies are willing to compromise on the quality of a service in order to slip through the cracks in procurement processes that aren’t tight enough, and thus get awarded public contracts.

Remember too that a large proportion of the money the government pays will go straight into the pockets of shareholders rather than towards paying for the service. That’s another huge layer of inefficiency which doesn’t seem to get recognised often enough.

2) It takes control of public services away from your representatives. Now if you’re not happy with a public service, you can go to your councillor and tell them, and because it’s carried out by the council, they can try to change the service. Once the service is privatised, you go to your councillor and complain about it, and they’ll send you to go and talk to a private company, and they’ll more than likely tell you to sod off, because they’re carrying out the service as it was defined in their contract, and as long as they’re doing that they’ll get paid, so they don’t give a monkeys if you’re happy with it or not. Privatisation takes the control of resources away from democratic structures. So does capitalism by the way, but there you go. The heads of the IMF and WTO aren’t elected. There’s a very specific part of this which I think deserves its own point.

3) Contracts limit democratic control over a service. Due to European tendering law, once the specification for a contract has been written, whichever company can fulfil that specification for the lowest price has to be chosen. Whilst on paper this is a good idea because it helps to prevent government corruption, in practice it is terribly limiting, and companies can often sneak through the gaps in the specification if they’re not written tightly enough, as they often aren’t. That’s why the University of Edinburgh banks with RBS, because its ethical investment policy didn’t form part of the specification when it went out to tender, and so it was legally obliged to choose RBS, to the dismay of many of its students.

It’s also not unheard of at all for private companies to stick to the exact letter of their contractual agreements, even when a higher level of service would clearly be overwhelmingly in the public interest. So as a hypothetical example whereas a school caretaker working for the council would clear the whole playground of snow, a private company might choose to just clear a path from the gate to the front door in order to stay within its contractual obligations whilst saving money. Any subsequent changes to the contract are met with huge charges.

4) There’s no guarantee that the terms of the contract can be met. As we saw with the trams fiasco, a company can claim to be able to complete a project with a certain amount of money, but then realise that they can’t do that. The council is then left with a choice, either they can give more money to this company to finish the job, or they can have a half-finished job that’s no use to the public, but which has cost the public lots of money. The threat of bankruptcy, which according to capitalist theory keeps standards high, is completely useless in this situation because it’s not just the company that loses out, it’s the people. In the case of the privatisation plans in Edinburgh, the City Council estimates it can save £90m, but what is the guarantee that they’ll be able to do so? And if the company runs out of money, where are they going to turn to to get more?

5) Private companies with dodgy records can be given contracts. Even just in these privatisation plans in Edinburgh, companies have slipped through the net and been allowed to continue in the procurement process, even though they’ve been found guilty of negligence causing workplace deaths, even though they’ve taken part in price-fixing. These companies don’t care about the welfare of their staff or the public, they care about money.

6) It’s a reactionary redistribution of wealth towards the rich. Public services primarily benefit working and middle class people because they’re the people that rely on them the most, and they’re the people that benefit from the jobs that are created by the provision of that service. Privatising that service not only risks its quality, but it also means that a big chunk of public money is taken from the pockets of the people and placed straight into the bank accounts of the rich shareholders in that company. On a small scale that’s not especially objectionable, but when privatisation is as hegemonic as it has been in the UK since the dawn of New Labour, it represents a systematic redistribution of wealth to the top.

7) Corruption becomes very real. When representatives are involved in the awarding of contracts for millions of pounds, corruption suddenly becomes a very real prospect. Not so long ago in the US we saw private prison contractors paying judges to send more kids to juvenile detention so that they’d make more money. This is the kind of thing that becomes a possibility when you start putting profit before the provision of service.

8. Privatisation is often a 1-way street. If and when it becomes obvious that a service would be better run in-house by the government, setting it up as a public service again can become impossible, because you’ve got to hire a tonne of staff, set up all the infrastructure all over again, and the cost of doing that is so prohibitive that you have to stay with the privatised arrangements, even if it’s a bad deal for the public, and the whole time you’ve got a private company that’s going to make the process of renationalisation as difficult as possible, because it’s in their financial interest to do so.

There are some situations where using private companies is understandable and possibly even beneficial. Situations where there’s a one-off job that needs doing, that requires special expertise that the council doesn’t have, and where it’s not practical to do it in-house. I’d argue that there are other ways to do those jobs, such as using central government resources and sharing them between councils. But even if you accept that premise, in this case we’re talking about privatisation of services which are already run perfectly well in-house. It’s not an extra burden that the council’s not able to deal with.

And there are plenty of examples of privatised services gone wrong. The trams in Edinburgh, BT in Liverpool, the Southern Cross nursing homes, the Elsie Inglis nursing home in Edinburgh, and the national rail service are just off the top of my head. The NHS is one of the most efficient health systems in the world (pdf)*, and is ranked #2 overall, and yet the government still wants to privatise huge swathes of it. It is ideological, not in the best interests of the public.

* I originally wrote “the most efficient health service in the world”, but that was based on 7 data points which isn’t exactly fair (HT Ian). It’s difficult to know for sure because I can’t find any papers on it, but the NHS comes 9th overall according to the WHO in 2000, and I think we spend less per capita on healthcare than all of the countries ranking higher, except for Japan. That would indicate to me that we’re probably 2nd to Japan in terms of efficiency. But the point remains, as the services near the top like Norway and Sweden, which spend a fairly comparable amount on healthcare, are almost entirely nationalised systems, and others that aren’t nationalised are very heavily regulated. Switzerland is also at the top, but it spends almost double what the UK does on healthcare.

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11 Responses to Is privatisation inherently wrong?

  1. Absolutely excellent, well-written, informative and convincing.

  2. Although what I will say because I’m a pedantic philosopher is, you can’t say it’s inherently wrong,

    AND THEN GIVE REASONS!

    Daft.

  3. Actually I’ll tell you the truth. Inherently means based solely on the structural properties of the thing that’s wrong, so actually the statement is still correct (in the way a hammer has inherent value because of its weight and shape). I was just joking because generally the usual (mis)use of “inherent” is the actual use of “final”, which means in and of itself and not regarding outside circumstances, in the way a hammer does not have final value as it must always be used to attain some other end. The opposite to final is instrumental as the opposite to inherent I imagine is something like exherent. Also I believe inherent tends to be used s a synonym for “intrinsic”.

    I don’t think it really makes any more than colloquial sense to suggest that an abstract idea has inherent value, as I’m sure the companies that benefit from privatisation would disagree with you that it’s inherently wrong, as they are surely of the opinion that it’s inherently right. Unless they’re morally bankrupt. BUT YOU’RE NOT SUGGESTING ANYTHING LIKE THAT, ARE YOU MIKE?!?!

  4. Norman says:

    The problem here is that you are comparing your ideal public service with the worst possible private one, which is a little unfair. There are many well run, ethical and efficient private sector organisations that exist.

    Some of you points seem to suggest that public sector services are better because those in charge of the decision cannot be trusted to select the best private option. Surely it would be better to make sure that those writing tender specifications were better trained and that electoral decisions were based on who could manage that privatization the best? That to me is how democracy is supposed to work.

    On a continuation of your reasoning that private contracts cannot be enforced, this again is a thumb in the direction of an incompetent management of the project rather than an underlying flaw in private tender.

    I just can’t see how you would want to the sort of elected body that can’t write tender specs, can’t manage projects and are not to be trusted to select ethical suppliers to be in charge of public money at all!

    • grammarking says:

      “There are many well run, ethical and efficient private sector organisations that exist.” – But how are they more efficient? Purely through virtue of being private? I fail to see what efficiency options are available to private companies but not to the public sector organisations, other than compromising on working conditions.

      “Some of you points seem to suggest that public sector services are better because those in charge of the decision cannot be trusted to select the best private option. Surely it would be better to make sure that those writing tender specifications were better trained and that electoral decisions were based on who could manage that privatization the best? That to me is how democracy is supposed to work.” – Are you kidding? My image of democracy isn’t my representative signing off on a contract on my behalf and then waiting 5 or 10 years before they can change it. Neither do I expect a democracy to funnel wealth upwards. And I vote for my representative based on their policy, not on their ability to put together a specification.

      Regardless, the fact remains that specifications are seldom written perfectly. One key difference between nationalised and privatised services is that a government department won’t try to exploit the loopholes in those specifications, whereas a private company has a vested interest in doing so.

      “I just can’t see how you would want to the sort of elected body that can’t write tender specs, can’t manage projects and are not to be trusted to select ethical suppliers to be in charge of public money at all!” Yeah, in fact, screw democracy, let’s just hire some beaurocrats and be done with it.

  5. Greg again says:

    I think it’s certainly the case that privatisation is inherently wrong if the principle of ownership is not given due moral importance. Not to argue too strongly for a sort of Nozickian libertarianism as I can’t say I know enough about it, but if I were to one day come to your flat, Mike, and begin taking all of your things, and the ensuing dialogue followed thus:

    “Why are you taking all my things?”
    “Private ownership of these items is inherently wrong. My plan is to sell off all your possessions, and, using a catalogue of extremely precisely measured price comparisons, trade them for items of equivalent use-value, and recompense you with analogues of the items you currently own with an equal use-value, and a good 4 times as many items to be given to my children”

    What would you say? If your response would be “no, I own these things, and as such am disallowing you to take them until such time as I have arrived at a conclusion to either allow or disallow you” then you’re simply offerring a scaled down prototype of the importance of ownership that informs one of the philosophical pillars of the political ideologies that, in turn, inform privatisation. Notice, it does not consider your decision per se, but simply defends your right to any decision whatsoever.

    The enforcement of your principle of property is one you have to enforce to ensure your survival, and as such might be considered a principle that transcends any valid practical moral consideration. So privatisation as a utility for the protection of private property is certainly NOT inherently immoral. Its myriad institutions in practical circumstances surely can be considered less efficient than they would be in a public context, sure, but a generalisation to inherent immorality in any institution of a policy protective of the right of a human being, or the collective rights of collective human beings to dispose freely of their own property certainly cannot and must not be considered finally decisive.

  6. Greg again says:

    Also, the above argument takes it for granted that “public benefit” and the “people” (I don’t mean this to be ironic, simply to reference their use as they and their analogous terms occur in your article) refer in abstraction to the majority.

    There is a trivial and undeniable sense in which “the people” should not be allowed to practice biology or medicine as the majority of the public aren’t qualified to do so. So in considering what would benefit “people” would in a sense require the respecting of differences in class, situation, circumstance, Usw.

    There is a certain section of society that would not benefit from the publicisation of certain social services simply on the classic basis that it disables the profit motive to drive up quality on meritocratic grounds. If a certain level of expertise is required in a health service to, say, treat a particular illness, and someone with a vast amount of money comes in and finds that they are unable to procure any service with the appropriate training due to the fact that the government has the insufficient funds to hire doctors who are capable of treating it, then in an immediate sense I doubt you would disallow this man from

    (2 levels of abstraction) starting his own institution, privately funded, in an effort to locate or train a doctor who has the equipment and training necessary to heal his ilness,

    (1 level of abstraction) procuring a doctor who can heal his illness, or

    (practically) enlisting the help of a privately-owned clinic whose superior funding already allows his illness to be cured.

    Is privatisation inherently wrong? Well, if ever a case practically analogous to the above can exist, which, undeniably it can, then clearly offerring the choice to people must be allowed, and refusing to allow private ownership of any service must be condemned.

    So a choice must exist, which is why, reversing the argument, we can surely come to the conclusion that if there is no choice of a public service, the argument works in the same way.

    But what are you saying? That the principle of privatising a company from a prior public status is wrong, which, as we can see is clearly a circumstantial affair, or that in these particular circumstances, the adjustment of national infrastructure such as to prevent there being a choice is wrong?
    On the former point I emphatically disagree, on the latter I emphatically agree.

  7. Greg again says:

    Well, it seems pretty significant to me in a political way if there are circumstances where privatisation is ok.

    It’s kind of, you know, a refutation of the whole point of this article.

    Saying that privatisation is inherently wrong is a pretty major accusation of the system at work here. I myself would only say I’m sympathetic to socialism on certain moral points but it seems that if you’re broadly in agreement with what my points attempted to illustrate then that would appropriately downgrade the point of the article here from “all privatisation is wrong because the system is inherently corrupt” to “privatising these particular institutions would cause efficiency problems” which is not a political point but a matter of criticising one aspect of public policy.

    I’d also say you misunderstood my comment with regards to the moral basis of private property as having anything to do with the grammar of the word “inherently”. In that case the meaning and usage of the word was given, I just thought it to be especially misjudged as an assault on the principle of private ownership per se, which of course is no pedantic philological judgement but a pretty hefty moral one, one that would seem to be a pretty major political disagreement with the thrust of the article.

  8. grammarking says:

    I’m clearly not talking about private property, I’m talking about privatisation of public services. What I’m saying is that the process of privatising public services is wrong, and that there are some services that I would renationalise. It doesn’t follow from that that I’m against the concept of private property (at least that’s not what I argued here), and I don’t think most people would understand that from my use of the word privatisation.

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