Tuesday 14 October 2014

The peculiar changing purposes of privatisation

I had such an interesting response yesterday about dysfunctional customer service systems fuelling widespread, and rather unfocussed rage.  It may also have been significant that more people read what I wrote than any one day hit-rate I've had this year.

It also focused my own attention on the huge change in the stated purposes of privatisation. Not that I have difficulties with the idea in theory – there is bound to be private investment in services and there should be.  It is the practice that has changed so much, and apparently without anyone noticing.

First let's go back a bit.

It wasn’t until after the Falklands war and her 1983 election victory that Margaret Thatcher’s ministers grasped the sheer power of the privatisation idea. It was obvious to anyone who tried to use them that the nation’s telephone boxes were largely out of order, and so the privatisation of British Telecom in 1984 was a popular move. As many as 2.3m people brought shares.

Three years later, the Treasury had earned £24 billion from privatisation, and the sale of British Gas provided four per cent of public spending for 1986/7. The idea of privatising state industries had spread to France and the USA and Canada. Even Cuba and China were testing it out.

The merchant bank Rothschilds set up a special unit to organise privatisations, under the future Conservative frontbencher John Redwood, and Conservative theorists were muttering darkly about selling off the Atomic Energy Authority and the BBC. In fact, selling nuclear power stations was the thin end of the wedge. No amount of spin could disguise the fact that they weren’t economic.

A pity that knowledge has not survived the decades since.

The original impetus to sell BT was partly to find private investment for telecoms and partly because of Peter Drucker’s original idea that private companies were more efficient than public ones.

By 1985, efficiency was just one of the benefits – it was also supposed to help employees get a stake in the business, provide wider share ownership and reduce the role of the public sector.

All those happened, though one of Redwood’s team – another future Conservative star Oliver Letwin – said that actually there was very little evidence for the idea that privatised companies were more efficient.

Even so, there was a logic about the idea that added up. Privatising public services would break those bureaucratic straitjackets, and get a new entrepreneurial energy about the place. They would focus on customers. Things would happen. There would be enterprise and imagination. The human element would weave its magic.

But that didn’t happen. The early privatisations led to dramatic increases in effectiveness but, after that, things slowed down. Private corporate giants turned out to be as inflexible and hopelessly unproductive (at least as far as the customers were concerned) as the public giants: they just provided considerably fewer jobs.

Here is the point. Most privatised services are now as sclerotic, inhuman and monstrous as their public sector predecessors were.

The Conservative theorist Ferdinand Mount realised this as early as 1987. “It is becoming increasingly clear that the regulators have no teeth and the operators no conscience,” he wrote, and so it proved.

See more about this in my book The Human Element.

The real problem is that the purpose of privatisation has changed. Now it is about paying down the national debt, and perhaps more broadly about competition. Not even the greatest advocates of privatisation seem to believe that private services will be more effective. Quite the reverse.

This is made worse by the effects of central targets and contract culture. In fact, the main advantage that private contractors now enjoy over their public sector counterparts is not effectiveness - not all the time but enough times - is their facility at delivering the right target numbers, to increase the illusions of the ministerial offices that services are being delivered better, when they are simply spraying costs around the system.

This delusory element to contracted out services is the main obstacle to reducing costs in public services. It is just very hard to persuade managers of this, because it would mean persuading them that the figures being delivered to them only tell part of the story.

That is precisely the point. The numbers are believed to be useful because they are simplified. Therein also lies their danger: a simplified, one-dimensional and – as a result – expensive public service system.

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