Horner's Corner

Privatisation: Three Things to Remember.

by on Dec.23, 2009, under economics, politics, society

privatisation-image

Plenty of  people seem to have forgotten, or never to have grasped, what actually happens when you sell off public assets to the private sector. So as a public service I offer you these three key things to keep in mind the next time you hear some wiseacre banging on about the ‘efficient private sector and the  inefficient state’:

(1) Cost to the taxpayer It has been calculated that, in the course of the Thatcher-era privatisations the deliberately low price at which long-standing public assets were marketed to the private sector resulted in a net transfer of £14 billion from the taxpaying public to stockholders and other investors.

To this loss should be added a further £3 billion in fees to the banks that transacted the privatisations. Thus the state in effect paid the private sector some £17 billion to facilitate the sale of assets for which there would otherwise have been no takers. Not an efficient use of public money.

(2) Moral hazard. Private investors are willing to purchase apparently inefficient public goods because the state shields them from risk.  Take the London Underground: Metronet et al. were assured that  they would be protected against serious loss—thereby undermining the case for privatisation: that the profit motive encourages efficiency. The “hazard”  is that the privileged private sector will be inefficient —while creaming off such profits as are to be made and charging losses to the state. Take a look at our rail and underground and you’ll see that this is just what has happened.

(3)  Problem of regulation: Postal services, railway networks, retirement homes, prisons, and other provisions targeted for privatisation remain the responsibility of the public authorities. Even after they are sold, they cannot be left entirely to the  the market. Someone has to regulate them. The private sector has proved time and again that it doesn’t self regulate properly; the danger is that at the moment the state is letting too much of the private sector do just that. And when it the state tries to regulate at all, it too often subcontracts to other private organisations to do this for it (for instance, with accounting).

The state won’t be going anywhere soon. But do we just want to to limit its activities to military and policing duties? That would leave a state whose main job was essentially repression, with all the other relations of life left to the market, or to unprotected individuals in an insecure world, where to be other than well off is a big problem, while to be ill, old or unfortunate and poor is a catastrophe.

Further reading: What is Living and What is Dead in Social Democracy (NYRB), by T Judt, from whom I’ve drawn heavily for this posting.  I don’t share all his politics but he does make a telling case. You can find it elsewhere in Horner’s Corner




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1 Comment for this entry

  • Owen Boyd
    October 18th, 2011 on 10:21 am

    Well said! I’m coming to a kind of utilitarian view on private vs public, horses for courses. Services – NHS/Post Office/Rail network/Education better owned and run publicly; Stuff – scalpels/Jiffy Bags/Trains/Smart-Boards better made by private enterprise. I think private schools should probably be banned, or perhaps taxed out of existence. Not sure about the utilities which Thatcher sold off. It’s worked with some – wouldn’t go back to BT monopoly, would you? But some, British Gas and Rail for instance, have just continued their former inefficiency in the private sector. I have experience of relatives in both council run and private retirement homes. For what it’s worth, the council one was MUCH better. Maybe it’s down to management? I don’t like the idea of caring being a business anyway. In areas like this regulation and very tight inspection regimes are essential, whoever owns them.

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