Tuesday 26 August 2014

Privatisation Revisited

A wet Bank Holiday weekend encouraged a goodly take-up of the 'privatisation paper' challenge in the post below, yielding lots of important challenges to the Gruaniad writer's attack on private ownership of what he considers to be essentially public assets.  His provocation will stir me to write a few posts on his themes, and a good starting-point is this para from part-way through the piece. 
There's no doubt that since privatisation the old nationalised industries have sacked colossal numbers of workers and brought in new technology. If efficiency is doing the same job or better with fewer workers, many of the privatised firms are more efficient. But this simply suggests some or all of the nationalised industries should have been commercialised – that is, had their subsidies shrunk and been removed from direct government control, obliging them to borrow money at commercial rates and operate in a world of market prices without making a loss.
 The first operative word is colossal, acknowledging as it does that there was massive inefficiency in play, in some of the very largest industries of all.  This is no trivial matter and, given that many of them including the biggest were monopolies, his flippant 'solution' - should have been commercialised - is laughable.  No economy can be sanguine about monstrous systemic waste in vital sectors unless (as, say, the French sometimes claim) it is a conscious part of employment policy.  Even then, quantified justification in terms of a proper cost-benefit analysis would be a major challenge: and we capitalists already know what we reckon the outcome would be.

For this first riposte, and particularly for those too young to know these things from first-hand experience, harken to one of Old Drew's tales ...

Back in the early 1990s, the opening-up of the gas market had only just got properly started.  (The 1986 privatisation per se had been an empty gesture because ther old British Gas Corp was sold off as a de facto monopoly, a privilege it guarded and enforced with commercial brutality.)  But things were gradually changing for the better, and one day an experienced US gas company obtained regulatory approval to do something that had never been done before: an independent company was going to build an entry-point for gas going into the BG grid system.  (Previously, BG built them all.)  Obviously the new entry-point needed to be compatible with BG's existing infrastructure, so the newcomer was given BG's technical specifications, one of which was for provision of metering, a very necessary aspect.

The metering spec was for three densitometers be installed (for measuring gas density - one for use and two for back-up), and likewise three gas chromatographs.  For those who don't know, a GC analyses the molecular composition of the gas very accurately, and simple A-level chemistry allows things like calorific value - and density - to be calculated quite precisely from the results.  

Now both these pieces of equipment are standard, robust, and very reliable.  It is entirely reasonable to provide for a back-up (which will probably never be used) because continuous accurate metering is vital: but a single back-up meter is universally considered to be adequate - universally, that is, excepting for BG in 1990.  So the US interloper - a company well-recognised for its expertise in such matters - refused to install the third meter.

It gets funnier.  BG's operating procedure was for the GC density calculations to be compared with the densitometer readings at all times: and in the event of discrepancy, the GC calculation would always prevail.  In other words, no densitometers were required at all ! 

So the newcomer refused to install any.  BG resolutely insisted on 3 of each: the regulator was invoked, and wisely ruled in favour of just two GCs and of course no densitometers at all.

But here's the sting.  Obliged to accept that the newcomer needn't install a third GC, or any densitometers, BG itself installed the utterly redundant 4 pieces of kit ! - 'at its own cost', which needless to say meant at the cost of all gas users everywhere.  We may be 100% certain this accurately reflected gross inefficiency the length and breadth of BG's extensive systems.

And lest we forget, that ladies and gentlemen is why monopolies must be resisted everywhere: and, when they are found to be inevitable (as occasionally they are), they must be watched over night and day.  It is to the various attempts to resolve this problem that we will turn in later pieces.



dearieme said...

"a GC analyses the molecular composition of the gas very accurately, and simple A-level chemistry allows things like calorific value - and density - to be calculated quite precisely from the results."

As long as you've also measured the temperature and pressure of the gas, of course.

In the days when I was involved in such things, we measured flows, Ts, Ps and compositions. I never came across a densitometer. I'm surprised that they were on sale.

Anonymous said...

Of course any suggestion that employees of BG personally benefitted from the supply and installation of redundant kit can be dismissed as outlandish.

Sebastian Weetabix said...

The most telling point for me is that all those who really moan about privatisation are too young to remember just how shit things were pre-Thatcher.

BE said...

Were we supposed to read La Guardiana before posting on the previous entry?

Oops ;-)

BE said...

Eyes Sr used to remind us children of Thatcher how hard it used to be to get a phone line installed. He worked from home and needed a separate line installed when they were run by the Post Office. A second domestic line was all but impossible to obtain because priority was given to people who did not yet have one, but a *business* line could be installed in just a few months. So that was OK.

Things have got worse again since the Commission stuck its nose in, of course, but not quite that bad.

john miller said...

Nothing would induce me to comment on any article in the Graun, for the simple reason that, like all good socialists, they tell you what to do for your own good, which always differs markedly from what they do themselves.

So, let's raise a glass for all the hundreds of typsetters and inkers still employed by the Graun, let's have a cheer for all the journos they refrained from sacking in the last 10 years and a final whooppee for their offshore holding trust that enables them to make losses that stretch back forever.

Bill Quango MP said...

All you need to know about privatisation comes from Jim Callaghan, in this quite well known episode.

Not long after Jim Callaghan had come to power, his office ordered a brand-new Rover with bullet-proof glass and bomb-proof armour-plating, due to the ongoing IRA bombing campaign.

On his very first outing, Callaghan pressed the button to activate the 'state-of-the-art electric windows and the glass fell out and into his lap.

At the end of the journey Callaghan handed the pane of glass to his driver and said , "Don't bring this car again."

What is represented by this incident, apart from the poor build and non-existent quality controls of british manufacturing, was what else is the 'couldn't give a stuff' attitude of the monoliths.

Remember this was a car, to be delivered to the Prime Minister of the Nation.
One that had been specially built, at Whitehall requests, in British factories, that were being propped up by untold billions of British taxpayer pounds.

Imagine how slovenly the process must have been that even for this single model no checks had been carried out. {there was much more wrong with this car too - I think the radio didn't work and the seat was stuck}
Further, no one had checked the checking! Deespite there being 10 times the workforce for each manufactured vehicle of the Americans and twenty times the numbers of the Japanese.

And management is as much to blame. Notice the absence of PR. Of a big fanfare.
Of Company Directors ensuring this car got great publicity and hanging about smooching the new PM , a labour PM no less, to ensure his continued backing and ensuring he put his government hand into his government's increasingly empty pockets each week..

We may not think much of PR but it does exist for a reason. Without it your rivals may get ahead.
No rivals, then no need to worry!

No one gave a ****. From top to bottom.
If you didn't like it , tough! These were the only cars available so like them or take the bus..
Don't you know there's a class war on, mush?

BE said...

And yet the Japanese manufacturers managed to take market share in the face of huge tariffs and quotas.

Mother Eyes had two British Leyland cars back-to-back in the late 80s/early 90s. They were - erm - brilliant. Even the French cars appeared brilliantly-engineered by comparison. We couldn't believe the change when she later upgraded to a VW.

Budgie said...

BQ, the British (owned) car industry was killed off by British politicians, not by the management, the workers, the unions or poor quality.

UK governments used to turn the tap of credit on and off (the infamous "stop-go" policy) to regulate the economy. This was before floating currencies and interest rate manipulation.

It was the car industry that was mainly hit by "stop-go" (cars were bought on credit), and that meant British car firms because they supplied most of the UK market. Car manufacturers (based on mass production principles) could not stop-go their production. Moreover sacking was difficult (there was a grave stigma to it, and you might need the worker back in 3 months time) and it was largely before "redundancy" emerged.

To solve the problem the management cynically used to pick fights with the workers because a strike was cheaper, and saved having to sack. Eventually and inevitably this led to stand-offs, demoralisation and hence union extremism.

Behind everything that goes wrong in this country you can usually find the hand of the politicians. Yes, the car workers, the unions and the bankers individually behaved badly, but they did so as a consequence of conditions set up by British politicians. It is similar to the bad behaviour of Greece, Spain etc as a consequence of EU hubris with the euro.

Sebastian Weetabix said...

Which is why privatisation turned out the be an act of genius. Take politicians out of the day to day to running of the business and leave the actual managers to get on with it, combined with a little bit of competition, and you get a vast improvement in performance and better outcomes for customers.

Which is why they should never have touched the water companies or the railways. Turning a public monopoly into a private one with weak regulators and you get what we have today. Poor service and huge charges.

On the other hand it is about time we dismantled the NHS. Based on personal experience I like the systems in France and Singapore. The idea that we either put up with what we have or switch to the mad American system particularly vexes me.

Nick Drew said...

BE - how hard it used to be to get a 'phone line installed

in 1986 I was equipped by my employer wih a PC to install at home (required for out-of-hours communications with the USA); in those primitive, pre-www days it needed a special high-density telephone line, which BT offered for a huge rental charge

new high-revenue commercial service for high-tech customers! - some kind of incentive for them to pull the finger out ? nope, it took 3 months to get hooked up

(the actual installation was funny, too: it required a new overhead cable to be strung across the street, which entailed - yes - a man holding a red flag to stand in the road)

BE said...

Then evil Thatch came along and destroyed a generation's chances of being a redflagman!

I like the idea of BT actually installing new wiring though. My flat is about 20 metres as the crow flies from a green cabinet which claims to be fibre-enabled. I have given up trying to persuade BT to let me buy a fibre service.

Jan said...

LOL re Jim Callaghan with a pane of glass in his lap. They kept that quiet as it's the first I've heard of it. Perhaps it was a "Friday afternoon car" but of course we were "The Sick Man of Europe" in those days.

K said...


Are you sure you're not 20 metres from the exchange? If your line goes straight into the exchange then you can't get FTTC even if people a mile away connected to cabinets can.

The reason being that if you're so close to the exchange you can probably already get 24mbit ADSL2+ which already meets requirements for "superfast" so no need for BT to isntall fibre equipment.

We had fibre installed a few months ago through BDUK but we only get 10mbit. We're told that they'll come back and fill in the holes with FTTP so that everyone can get superfast broadband but that's probably 10 years away. Even if our area was FTTP enabled, installation costs for our line currently stand at £3000.

BE said...


Interesting! I have done a bit of homework on this. There is a green cabinet on each side of my estate, for some reason my line is connected to the cabinet on the far side. However the nearest one is about five metres from the building and three floors down. By Pythagoras I make that about 20m if I could run my own cable from point to point. The cabinet I am connected to is, according to the Openreach site, fibre enabled.

My working theories are that either the phone wire itself is not good enough for VDSL which I think is unlikely, or that there is a wrong database entry somewhere.

There is a market failure here: I am prepared to pay more than I pay for ADSL to get a faster connection, yet nobody is willing to quote me a price for an improved service. There is apparently no incentive for anyone to connect me.

When I ask BT what the problem is they say that they only know that my line isn't activated. Openreach do not respond to retail customers. Way to go, Brussels.

I reckon that if I was free to run my own wire from the nearest cabinet I could install a new line for about a tenner plus a couple of hours of my spare time.


K said...


You can check your cabinet number and enabled services using https://www.dslchecker.bt.com/ The Openreach site only tells you enabled exchanges but for fibre it's the cabinet that's important.

There is no way that a 20m line can't handle VDSL. Our line length is 2km or something like that.

I found that our council's BDUK thing was able to find out information from Openreach and pass it along. You might be able to do the same.

K said...


Also you make it sound like you live in a multi residence building? That could be the problem.

The building's wiring might be incompatible or just unknown. BT can't overstate what services are available so if they don't know about your building they won't be able to make any claims about fibre being available.

BE said...

The point is that whatever the current state of the wiring, there ought - in a functioning market - to be a price at which someone can offer me the service that I want. I cannot buy a faster connection!

So in some ways I am envious of Nick's 1986 situation.

K said...


First I'd try to contact your council's BDUK department and ask them to find out why you can't get fibre. Once you have a definite reason you can work on resolving it.

Timbo614 said...

BE - I am about 50 Metres from the cabinet. I get 30Mb down 8 up. 20 Metres should see better. Plus I am on aluminium cables which apparently are not as good as copper.

As for privatisation of electricity especially I consider it a make work exercise. Every year/two years we have to switch, which is obviously creating lots of jobs but not really achieving much at the end of the day. In fact it is probably wasting a percentage of the electricity that we need to save.

BE said...

Timbo614 lives in Milton Keynes and I claim my £5!