Privately Run Public Services
If a government farms out public services to private companies (particularly those big companies with a good number of shareholders) is it always going to fail. Water, trains, The Royal Mail and Post Office Counters have all suffered under private ownership. Worse service for more money, the opposite of what was promised.
Is it inevitable that things will go pear shaped?
Is it inevitable that things will go pear shaped?
Comments
For any other service the answer is a qualified yes, mostly because I think the financial incentives run against running that kind of stable, low growth service well at this point in time (it might have worked with capitalism as it was back in the 70s/80s).
There may be some truth in this but I don't think it's inevitable.
There is also the question of whether private sector companies can access extra capital (and if this is a good thing or not).
Publicly-run services are afraid of losing contracts?
No, private ones - sorry for the confusion.
From the perspective of the public body the problem at the contracting stage is retaining the knowledge necessary to draft and agree something suitable - including costs - when you no longer implement the service itself.
If the private supplier has been wildly optimistic or runs into trouble down the line the public body can rarely take the risk that the project fails altogether and is forced to either compromise on cost or accept under-delivery.
Financial incentives will see suppliers consolidate over time and run as a core business which wins contracts and then subcontracts or hires on demand to service wins, which means that they can rarely retain any distinctive delivery culture of their own, so every project becomes a crap shoot.
That there are then only a limited number of suppliers able to bid for public contracts further limits the public sector, in that the impact of a single supplier running into financial difficulty is exacerbated, so they can rarely punish bad suppliers for under-delivery and public procurement becomes - more or less - a kind of Buggin's turn.
In the case of most government services this is effectively not so.
There is a good chance Trump will move to privatize the operation of the National Park System. Such a move has been discussed for many years in both Republican and Democratic administrations. Hate to see what the results will be.
The standard argument in favor of outsourcing various support needs is that it allows you to purchase the services that you need without having to retain and train expertise in that domain. At the small scale, this is obviously true: if I need a handful of things machined in a year, I do better to send them out to a local machine shop than to employ a machinist and buy a lot of equipment. It's also easier to accommodate a significant variation in my demand for a particular service if I contract that service out.
(Assuming that the service is a widely-used and available one, of course. If the sort of contracting-out you do is to take the dozen people that you currently employ as widget-washers, and tell them that they are now employees of Widget-Washers PLC, but will continue to wash widgets at your site under the same terms, then I find it harder to see an advantage.)
If you're an employer with a relatively static workforce, you may gain an advantage by outsourcing tasks that typically have rapid turnover of staff (janitorial and catering services, for example) to a contractor who is used to managing that kind of employee turnover.
To a extent; there was a point where these jobs had lower turnover, but that was also associated with higher pay and better conditions.
I've worked for companies which made deliberate efforts to have high quality catering, and it's perhaps no coincidence that their catering staff were directly employed and tended to stay on for a lot longer (due to both pay and conditions and because they felt part of something bigger).
Imagine you work in a town hall, managing a caretaking and cleaning service for schools.
One day, some bright-eyed geezer in Whitehall decides it must be privatised. (For doctrinal reasons, natch.)
Your first task is to minutely specify exactly what you want the caretaker and cleaners to do. This may sound easy, but it isn't. Of course, you have neither experience or training in this field. You're just supposed magically to do what you have never done before and get it right first time.
Then it goes to tender, and unless there's a very good reason, the lowest tenderer will win. Even if dodgy or near-bankrupt.
The staff will be 'TUPED' across on the same terms and conditions. In theory. In practice those terms and conditions are gradually eroded, beginning with new appointments.
The caretakers and cleaners will now do exactly what the specification states and no more. If by chance you've forgotten to include the cleaning of the headteacher's toilet seat, that toilet seat will go uncleaned. There is no flexibility at all. Except at extra cost. That extra cost always being disproportionately large.
The council supervisory staff will now check the contract is being adhered to, and haggle with the contractor if it isn't. Again, they have no experience or training in supervising contracts, but never mind. There will also be a new layer of supervisory staff, working for the contractor, doing a similar job but making sure that the employees are not doing more than they are contracted to do.
After X years, the whole tendering process is repeated.
This may strike you as a very efficient process. It strikes me as a recipe for chaos and for the impoverishment of low-paid workers.
But that's OK becaase lower taxes.
The railway privatisation in Britain has come at huge cost because of all the interfaces between jobs and contractors and jobs have to be managed and assessed - although I believe things are a bit more sensible now than they used to be. And of course the railways always used private contractors for some things, eg Westinghouse brakes, although this was less so in Britain (where the big companies literally made everything themselves) than in, say, the US.
And the railways were themselves private until 1947. After being run ragged in WW2 nationalisation was actually popular with railway shareholders on the ‘you broke it, you can pay for it’ principle! That and they got a good deal on their shares.
Not true of telecoms. Nor energy. Both where market forces seem to be working. Water could be nationalized, yes, as everyone needs it and it should be flagship due to its environmental impact. At least regionally in the case of Thames Water. It's all about the intersection between the consumer and the taxpayer. Worse privatized service for more money would indicate how inefficient services were when funded by the taxpayer. But there won't be any government buy outs for decades. Till the next century. If there is sufficient economic growth.
If you are talking about the UK then it has some of the highest consumer energy prices in Europe at the minute. Telecoms is the market with the probably the most amount of regulation out of the utilities, and basic telecoms and internet services (which are what are covered) are relatively fine, however the UK is a laggard when it comes to high speed internet, with a lot of regional variation.
Makes me shudder.
https://www.sentencingproject.org/reports/private-prisons-in-the-united-states/
I'm aware that we have some of the highest consumer energy prices in Europe; I'll ask the AI.
It's a hideous idea. Slavery through the back door.
It's barely the back door. The abolition of slavery in the US explicitly includes an exemption for this.
In order to protect their business interests, which is providing the "service" of incarceration, they need to have prisoners in their prisons. Promoting politicians who are "tough on crime" and lobbying one's business interests in the name of public safety can be a method of doing business.
The more I think about this, the more questions come to mind. Now I'm feeling the urge to research.
Do those inefficient things include services that people rely on but don’t make money like bus and train routes that have to be subsidised by the government?
Does that include closing post offices or cutting delivery of letters because parcels make more money?
I could go on.
- they can be run on a purely commercial basis. Some routes will prosper but other areas will have no service. This can mean that services may disappear almost at the drop of a hat.
- they can be run on a semi-commercial basis with companies using profitable routes to subsidise others.
- they can be run commercially with support from local Councils for specific loss-making but essential routes.
- in some areas (until recently, only cities with elected Mayors), the Council invites competitive tenders from companies to run services. This should guarantee an integrated network but the cheapest bids may prove to be unreliable (old vehicles, insufficient staff etc).
It's worth pointing out that there are still a few Council-owned bus companies in Britain. While they no longer have a monopoly in their areas, and have to run commercially, they don't have to make a profit either. However some Councils have regarded them as a "cash cow", making a contribution to Council finances.
All bus services in Britain have to be approved by the Traffic Commissioners, although I'm not aware of proposals ever being refused.
The conditions for genuine competition in genuinely free markets are rarer than mainstream neo-classical economists acknowledge.
@chrisstiles, I will look into it. Thanks.
But this would apply to all public services. There is really no actual competition in many cases. To get to work I can only use Transport for Wales trains. The only bus company running services is First. Where my sister lives if you want to get a bus to the area she lives there is only one choice. The post office is privately owned and service has gone down drastically. The same with the Royal Mail. It has been hauled before government committees several times for not fulfilling its contract. There is competition in the parcel delivery sector, but that has not lead to better service. As free markets are not really relevant to the OP
My point is that people who advocate for the private sector taking over public services in the name of efficiency are assuming that the special factors that make the private sector more efficient in the case of eg production and distribution of staple foodstuffs apply in all cases. But train services as you are saying are not apples. The cases in which the private sector is actually more efficient are special cases.
Not necessarily, but it takes some care, I think.
I might also feel a bit grim and wonder...is there anything humans construct that does not inevitably go pear shaped?
Public services can decay and fall apart on their own if not properly maintained. Cabrini Green comes to mind.
But, the argument for efficiency is deeply flawed anyway. Let's assume an example of genuine competition and multiple businesses competing for market share (and, a free market). A business can compete by lowering prices, or they might compete by maintaining high standards (think of supermarkets where you have the budget sector constantly pushing that their prices are lower, and others who push the quality of their goods). They may compete by finding a niche position (eg: by maintaining particular ethical standards), or by playing on an established name. Generally a combination of the above. If you apply only the efficiency criteria, make it all about price, then all the other elements of competition are excluded.
The UK government subsidized rail travel both before and after privatisation. The level of subsidy is currently around double what it was in the years immediately before privatisation. There was a decline after privatisation and then a sharp increase after the Ladbrook Grove and Hatfield rail crashes (the ultimate cause of both was a gradual running down of the maintenance regime).
More, yes, but not double (or at least not in 2015 when that chart ends). But I for one have no doubt that if it weren't for privatisation that figure would be considerably lower - and the services considerably worse.
The interesting thing about government subsidies for the current rail franchises is that they're written into the contracts. That means the government can't just decide it doesn't want to spend as much on railways in the next budget and therefore introduce cutbacks and "efficiency savings" across the network.
Rail usage since privatisation has grown (Covid notwithstanding) at a faster rate than at any time since the First World War (and before then a large part of the growth was because new lines were being opened regularly). That's in and of itself evidence of improvement. I could also cite the number of new lines and stations opened since privatisation (BR, in contrast, famously closed a significant portion of the network), improved customer service on trains and at stations, the pace at which new trains have been introduced, and so forth.
Not necessarily. It's far more indicative of the vertiginous increases in housing costs in London and to a lesser extent other cities.
There's a more recent graph here:
https://en.wikipedia.org/wiki/Financing_of_the_rail_industry_in_Great_Britain#/media/File:GB_Rail_Subsidy,_1985-2019.png
Obviously the milestones on the graph don't necessarily represent the majority of the money spent (Hatfield/Ladbroke Grove aside) and in many cases account for line upgrades that allowed for increase in capacity (WCML upgrade in the 00s). Recent costs are dominated by the need to take over Rail Operating Companies which ran into financial trouble.
If you want to draw that inference you need to look at maximum capacity and investment in additional capacity over the same period. There were significant changes in the economy leading to changing patterns of employment that could easily account for much of change (it's instructive that it more or less tracks London's population - which decreased year on year until the 90s).
In the US, I think they wouldn't exist. But in any case, I think that your personal experience of transportation depends a lot on where you live. "The trains" vary wildly, as do the highways and other roads. There are probably places where even pavement is still a luxury.
Pardon me if this is a pond thing, I'll admit that political systems do create different outcomes.
Anyone who thinks they got better obviously never spent much time on Northern Rail services.
That is an interesting question. There are the same number of trains, but more coaches, they cost more and there is more over crowding. Before privatisation you used to be able to get a seat outside of busy times, about about five years ago, when I last used them regularly, busy times seemed to be almost all the time. I suspect this is still the case. They might run slightly more to time as the Dore Station upgrade happened last year or this may just have pushed the bottle neck closer to Sheffield. This is my first travel by this line since then but I have have been on a train delayed by this bottle neck coming in from the other line that merges only a couple of weeks ago.
Very much depends where you live - I travelled to school in the dying years of BR Regional Railways and what is now West Midlands Railway is leagues better. However, living away from there for the last 20 years the annoying exception that proves your rule is the beyond excellent ‘railwayman’s railway’ that is Chiltern Railways. The service levels and indeed the services now operating on the route out of Marylebone are beyond the wildest dreams of 80s and 90s travellers.
But yeah, Northern (in its many post privatisation guises) is definitely poster child for why not to do it.
I think the big difference is that the Chiltern route carries virtually no freight, meaning London Marylebone to Birmingham Snow Hill is essentially a race track for one company’s services.
But it would still be instructive to look at the successes - which absolutely do exist - and see why they were successful vs the ones that very much haven’t been.