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| Prize our public services, but don’t make privatisation a dirty word | Prize our public services, but don’t make privatisation a dirty word |
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| Fri 16 Feb 2018 06.00 GMT | Fri 16 Feb 2018 06.00 GMT |
| Last modified on Fri 16 Feb 2018 08.28 GMT | |
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| What do Oxfam, Carillion and the East Coast mainline have in common? The answer is that we all own them, or we run them, or at least we pay for them to be run. They are agents of government, subcontractors, proxy servants of the state. The government has responsibility for the money they spend and picks up the pieces when they fail. They form a grey, soggy, unaccountable no man’s land somewhere between government and private sector. No one knows what to do with them. | What do Oxfam, Carillion and the East Coast mainline have in common? The answer is that we all own them, or we run them, or at least we pay for them to be run. They are agents of government, subcontractors, proxy servants of the state. The government has responsibility for the money they spend and picks up the pieces when they fail. They form a grey, soggy, unaccountable no man’s land somewhere between government and private sector. No one knows what to do with them. |
| At the end of the 1970s the British state owned half the economy. It ran railways, ports, coalmines, steelworks and telecommunications. It built ships, airplanes, cars, weapons and computers. It drove most of them into the ground. Public utilities were inefficient, largely because ministers thought they owned them and could not leave them alone. Return on capital was half that of private industry. Strikes were rife. In the inflation crisis of 1974-76, coal and rail fares were pushed up by double the price index. The answer was privatisation. It began with companies such as Jaguar, Britoil and British Aerospace, followed by gas, electricity and water. It then moved into local government, prisons, court services and care homes. Mostly it worked. Air fares plummeted. Train use rose. Landline phones were available in days, not months. There was a boom in care home availability. | At the end of the 1970s the British state owned half the economy. It ran railways, ports, coalmines, steelworks and telecommunications. It built ships, airplanes, cars, weapons and computers. It drove most of them into the ground. Public utilities were inefficient, largely because ministers thought they owned them and could not leave them alone. Return on capital was half that of private industry. Strikes were rife. In the inflation crisis of 1974-76, coal and rail fares were pushed up by double the price index. The answer was privatisation. It began with companies such as Jaguar, Britoil and British Aerospace, followed by gas, electricity and water. It then moved into local government, prisons, court services and care homes. Mostly it worked. Air fares plummeted. Train use rose. Landline phones were available in days, not months. There was a boom in care home availability. |
| Then under John Major and Tony Blair, privatisation exploded in the outsourcing of government investment, the so-called private finance initiative. The public sector was deeply out of fashion. John Prescott’s dud privatisation of London Underground was a fiasco, blowing £500m in consultancy fees alone. School and hospital building went wild. Stoke-on-Trent was ordered to give all its 125 schools to Balfour Beatty. Hospital budgets were hit with 20% debt servicing. The outsourcing firm Capita had a turnover of £117m when Blair came to power. After seven years it was £1.4bn. This recklessness was bound to go rotten. | Then under John Major and Tony Blair, privatisation exploded in the outsourcing of government investment, the so-called private finance initiative. The public sector was deeply out of fashion. John Prescott’s dud privatisation of London Underground was a fiasco, blowing £500m in consultancy fees alone. School and hospital building went wild. Stoke-on-Trent was ordered to give all its 125 schools to Balfour Beatty. Hospital budgets were hit with 20% debt servicing. The outsourcing firm Capita had a turnover of £117m when Blair came to power. After seven years it was £1.4bn. This recklessness was bound to go rotten. |
| It is hard to see where this is leading. Frantic Whitehall efforts to promote competition have got nowhere | It is hard to see where this is leading. Frantic Whitehall efforts to promote competition have got nowhere |
| In the 2000s, outsourcing government meant in-sourcing snake-oil salesmen and junk, in what became the most disreputable period of postwar public administration. The failed NHS computer was priced at £30bn, and the identity card computer at £19bn. IT consultants were driving round London in Treasury-funded Ferraris. Since no one could invent a model for competitive outsourcing, private companies ran rings round ministers and civil servants (or just gave them jobs). Regulators floundered. The rail network was so badly privatised by Major that it went bankrupt and had to bailed out ever since. Everyone grew too big to fail. | In the 2000s, outsourcing government meant in-sourcing snake-oil salesmen and junk, in what became the most disreputable period of postwar public administration. The failed NHS computer was priced at £30bn, and the identity card computer at £19bn. IT consultants were driving round London in Treasury-funded Ferraris. Since no one could invent a model for competitive outsourcing, private companies ran rings round ministers and civil servants (or just gave them jobs). Regulators floundered. The rail network was so badly privatised by Major that it went bankrupt and had to bailed out ever since. Everyone grew too big to fail. |
| Push came to shove when austerity slashed frontline services. This led to the overbidding that wrecked Carillion and Stagecoach’s and Virgin’s railways. “Performance-related” asylum vetting and disability assessment became grotesque. Capita’s handling of dentist certification has all but collapsed. As for the rigid commitment to overseas aid, it has led to Whitehall’s “dumping” of millions into charities. | Push came to shove when austerity slashed frontline services. This led to the overbidding that wrecked Carillion and Stagecoach’s and Virgin’s railways. “Performance-related” asylum vetting and disability assessment became grotesque. Capita’s handling of dentist certification has all but collapsed. As for the rigid commitment to overseas aid, it has led to Whitehall’s “dumping” of millions into charities. |
| It is hard to see where this is leading. Frantic Whitehall efforts to promote competition in privatised energy have got nowhere. The supposedly private nuclear industry is a bad joke. Jeremy Corbyn’s desire to recreate British Rail is happening already, by stealth, since rail operators are little more than Whitehall subcontractors. | It is hard to see where this is leading. Frantic Whitehall efforts to promote competition in privatised energy have got nowhere. The supposedly private nuclear industry is a bad joke. Jeremy Corbyn’s desire to recreate British Rail is happening already, by stealth, since rail operators are little more than Whitehall subcontractors. |
| Cue the declaration by shadow chancellor John McDonnell that he will cut through all this by simply renationalising on an epic scale, including railways, energy, water and outsourced Carillion services. He accused in particular the water companies of siphoning off £13.5bn in dividends since 2010, “whilst receiving more in tax credits than they paid in tax”. They were regional monopolies, devoid of consumer choice. | Cue the declaration by shadow chancellor John McDonnell that he will cut through all this by simply renationalising on an epic scale, including railways, energy, water and outsourced Carillion services. He accused in particular the water companies of siphoning off £13.5bn in dividends since 2010, “whilst receiving more in tax credits than they paid in tax”. They were regional monopolies, devoid of consumer choice. |
| McDonnell’s analysis is correct. But his preferred model is presumably that invented in the 1940s by Herbert Morrison, of a public corporation run like a private business but delivering its “profit” to the exchequer. It never worked. The corporations became inefficient, politically directed and union-dominated. Most were a drag on the taxpayer. They served ministers, not consumers. By the 1980s, privatisation was the obvious alternative. Efficiency would be delivered by corporate incentives in a competitive market. Regulated by a public sector purchaser, services would be depoliticised and fit for purpose. | McDonnell’s analysis is correct. But his preferred model is presumably that invented in the 1940s by Herbert Morrison, of a public corporation run like a private business but delivering its “profit” to the exchequer. It never worked. The corporations became inefficient, politically directed and union-dominated. Most were a drag on the taxpayer. They served ministers, not consumers. By the 1980s, privatisation was the obvious alternative. Efficiency would be delivered by corporate incentives in a competitive market. Regulated by a public sector purchaser, services would be depoliticised and fit for purpose. |
| Initial audits showed that, for the most part, privatisation worked. It cleared out much rubbish from the public sector and brought new disciplines to bear on service delivery – not just in Britain but across the world. Its deficiencies lay in the failure not of the model but of its application. Even at the start, the Tory privatising guru Oliver Letwin wrote of “widespread scepticism of privatisation outside a competitive environment”. As McDonnell implied, the virtues vanish if a public monopoly is merely replaced by a private one. | Initial audits showed that, for the most part, privatisation worked. It cleared out much rubbish from the public sector and brought new disciplines to bear on service delivery – not just in Britain but across the world. Its deficiencies lay in the failure not of the model but of its application. Even at the start, the Tory privatising guru Oliver Letwin wrote of “widespread scepticism of privatisation outside a competitive environment”. As McDonnell implied, the virtues vanish if a public monopoly is merely replaced by a private one. |
| Privatisation has worked best in back-office functions and local construction, where competition can bite. Yet all such outsourcing depends, as did nationalisation, on the ability of officials to know what is happening behind their backs, on how far they can fashion a ministerial directive or a subcontract. Like all markets, it depends on effective regulation. This effectiveness seems maddeningly adrift at present. | Privatisation has worked best in back-office functions and local construction, where competition can bite. Yet all such outsourcing depends, as did nationalisation, on the ability of officials to know what is happening behind their backs, on how far they can fashion a ministerial directive or a subcontract. Like all markets, it depends on effective regulation. This effectiveness seems maddeningly adrift at present. |
| It is equally clear that some services cannot be left to private enterprise. Britain’s roads, railways and airports are so expensive they can’t be outsourced, except as subcontracts. Personal services can be unsuited to the profit motive, such as the sensitive handling of older people, parole prisoners, benefit recipients and asylum seekers. | It is equally clear that some services cannot be left to private enterprise. Britain’s roads, railways and airports are so expensive they can’t be outsourced, except as subcontracts. Personal services can be unsuited to the profit motive, such as the sensitive handling of older people, parole prisoners, benefit recipients and asylum seekers. |
| There is such a thing as a public service vocation, and it should underpin help given in the public’s name and at its expense. In the same spirit, few would want to see the NHS as a private corporation – like the drug companies who rip it off. This is a massively complex area, and the answers cannot be binary. There are benefits to privatisation as to public ownership. The job is to identify the rules that should govern the golden mean between them. This is the job of an opposition, not to stage another round of the 1940s bawling at the 1980s. | There is such a thing as a public service vocation, and it should underpin help given in the public’s name and at its expense. In the same spirit, few would want to see the NHS as a private corporation – like the drug companies who rip it off. This is a massively complex area, and the answers cannot be binary. There are benefits to privatisation as to public ownership. The job is to identify the rules that should govern the golden mean between them. This is the job of an opposition, not to stage another round of the 1940s bawling at the 1980s. |
| • Simon Jenkins is a Guardian columnist | • Simon Jenkins is a Guardian columnist |
| Privatisation | Privatisation |
| Opinion | Opinion |
| Economic policy | Economic policy |
| Utilities | Utilities |
| Rail industry | Rail industry |
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