Is privatisation inherently wrong?

July 28, 2011

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.