Horner's Corner

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

What Is Living and What Is Dead in Social Democracy?

By Tony Judt

The following is adapted from a lecture given at New York University on October 19, 2009.

Americans would like things to be better. According to public opinion surveys in recent years, everyone would like their child to have improved life chances at birth. They would prefer it if their wife or daughter had the same odds of surviving maternity as women in other advanced countries. They would appreciate full medical coverage at lower cost, longer life expectancy, better public services, and less crime.

When told that these things are available in Austria, Scandinavia, or the Netherlands, but that they come with higher taxes and an “interventionary” state, many of those same Americans respond: “But that is socialism! We do not want the state interfering in our affairs. And above all, we do not wish to pay more taxes.”

This curious cognitive dissonance is an old story. A century ago, the German sociologist Werner Sombart famously asked: Why is there no socialism in America? There are many answers to this question. Some have to do with the sheer size of the country: shared purposes are difficult to organize and sustain on an imperial scale. There are also, of course, cultural factors, including the distinctively American suspicion of central government.And indeed, it is not by chance that social democracy and welfare states have worked best in small, homogeneous countries, where issues of mistrust and mutual suspicion do not arise so acutely. A willingness to pay for other people’s services and benefits rests upon the understanding that they in turn will do likewise for you and your children: because they are like you and see the world as you do.Conversely, where immigration and visible minorities have altered the demography of a country, we typically find increased suspicion of others and a loss of enthusiasm for the institutions of the welfare state. Finally, it is incontrovertible that social democracy and the welfare states face serious practical challenges today. Their survival is not in question, but they are no longer as self-confident as they once appeared.

But my concern tonight is the following: Why is it that here in the United States we have such difficulty even imagining a different sort of society from the one whose dysfunctions and inequalities trouble us so? We appear to have lost the capacity to question the present, much less offer alternatives to it. Why is it so beyond us to conceive of a different set of arrangements to our common advantage?

Our shortcoming—forgive the academic jargon—is discursive. We simply do not know how to talk about these things. To understand why this should be the case, some history is in order: as Keynes once observed, “A study of the history of opinion is a necessary preliminary to the emancipation of the mind.” For the purposes of mental emancipation this evening, I propose that we take a minute to study the history of a prejudice: the universal contemporary resort to “economism,” the invocation of economics in all discussions of public affairs.

For the last thirty years, in much of the English-speaking world though less so in continental Europe and elsewhere, when asking ourselves whether we support a proposal or initiative, we have not asked, is it good or bad? Instead we inquire: Is it efficient? Is it productive? Would it benefit gross domestic product? Will it contribute to growth? This propensity to avoid moral considerations, to restrict ourselves to issues of profit and loss—economic questions in the narrowest sense—is not an instinctive human condition. It is an acquired taste.

More via What Is Living and What Is Dead in Social Democracy? – The New York Review of Books.