Saturday, 23 August 2014

"Privatisation Scam" - Your Weekend Reading

A great essay question:  read this Grauniad piece - & discuss. 

Sale of the century: the privatisation scam.  Privatisation promised to turn the UK into an island of small shareholders. It failed: the faceless state bureaucrats have been replaced by faceless (better-paid) private bureaucrats – and big foreign corporations. How did we get to this point? 

Your papers will be marked next week. (Leniency will be shown to candidates too young to remember what nationalised industries were like in the 1970s.)



DJK said...

We can probably all agree that selling off Thomas Cook and British Telecom were good, but I'm much less convinced by the Royal Mail. Private prisons? --- hmmm. And this lot wanted to sell off the Land Registry. How, pray, does that benefit the public, or the public purse? Then there's RBS and Northern Crock, which should both have been nationalised. And the new nukes, which should have been government owned and built, rather than being 'commercially owned' with a guaranteed price.

Too much nostalgic baggage attached to the word 'privatisation', I think,

dearieme said...

As a rough rule of thumb, Mrs T's efforts worked out better than later ones. Even BP, the one that started under Callaghan (or Wilson?) and finished under Thatcher was successful.

Bill Quango MP said...

Royal Mail is an interesting one. I've argued before that it is actually 10-20 years too late.

For those who insist nationalised is better, it provides some ammunition. But probably not enough.

Only last week it instituted large scale changes to what is essentially the same hand sorted Mail system it's been operating for decades. Reliiant on costly manpower.
The bicycles have only just gone. Rm likes to boast it gets 86% of its 1st class delivered next day.
A good figure for public sector but laughable for private.

Contrast royal mails parcel delivery with one of the new boys, my parcel?

Rm will deliver a package in one or two days at a time that isn't specified.. If you are not I it will leave a card telling you where you can collect it. Or you can contact a sorting office for an unspecified time re delivery.

My parcel will deliver in one two days with a time slot, that you can text to change. You will get an update by text or can track the van on an app.

This service is only slightly more expensive for the sender than Royal Mail.

Of course rm is restricted in having to deliver everywhere, for a fixed price. They are restricted in what services they can supply and how much they can charge.

But by remaining public for so long they are about a decade behind their competitors. Top heavy in manpower. Without modern equipment. And are losing market share.

Luckily their market share is still about 85%. Unluckily a lot of that is in loss making domestic. They can turn it around but it will be difficult.

( evidenced by the disastrous huge price increase last year, designed to boost profits before the sell off, which had it trying to charge almost double what it's rivals were doing for very ordinary items. This drove even one off ebay sellers to go elsewhere. It took rm 6 months to admit the mistake. And a further three to reverse it. It hadn't yet recovered the business it lost. Especially the lucrative bulk senders, which it had to woo back with super cheap, probably cost neutral deals)

Anonymous said...

Just to add to the RM story, I recently had a parcel shipped by Amazon using a private carrier. The carrier texted me with a 2-hour delivery slot, and then the driver texted a photo of where he had left the parcel when I was out. Wow.

Glad I stagged my RM shares for a quick profit. Unless a major shake-up can be introduced soon, this dinosaur will die on its feet.

Anonymous said...

With RM, I'd be curious as their competitors profit margins, I'd suspect a lot of them aren't making a lot which gives RM time to grind them down.

As for privatization itself, the problem has been either it being handled stupidly (the railways) or, in the case of profitable services, the private version making use of tax rules so the initial injection of cash is negated by the fact we lose recurring income.

There have some great successes with the utilities, although we see with the energy companies the very visible cack-hand of the government cannot avoid intervening.

But the current Tories seem to just want to sell off anything at the moment without any actual thought of benefits to the nation. I'm surprised they've not started taking the fixtures and fittings from Parliament to Cash Converters, although I'm sure that idea will be scribbled on a post-it somewhere in number 11.

Bill Quango MP said...

Re the private carriers. I don't think they make Any money at all. But they keep taking share and will eventually become good.

They have private self-employed delivery people( using a very dubious definition of self employed)
That alone gives them the edge on what must always be a labour intensive business.

I know of a rm postman who took his redundancy and got £65,000. Just a regular Postie, lowest rung. In the new private sector, no redundancies at all.

Anonymous said...

My water rates were about £50 a year pre-privatisation. I'm not sure the water's eight times better than it was then.

Not sure the electrons in my mains supply have improved much either.

James Higham said...

Too young to remember or too old to remember?

andrew said...

Too young to remember the 70s clearly.

Directly addressing the paper we are supposed to read.
I was going to work through it by paragraph.

His major point can (as always) be found at the end

"By packaging British citizens up and selling them, sector by sector, to investors, the government makes it possible to keep traditional taxes low or even cut them. By moving from a system where public services are supported by progressive general taxation to a system where they are supported exclusively by the flat fees people pay to use them, they move from a system where the rich are obliged to help the poor to a system where the less well-off enable services that the rich get for what is, to them, a trifling sum. The commodity that makes water and power cables and airports valuable to an investor, foreign or otherwise, is the people who have no choice but to use them. We have no choice but to pay the price the toll-keepers charge. We are a human revenue stream; we are being made tenants in our own land, defined by the string of private fees we pay to exist here.

It is not racism that makes the foreign identity of some of the owners of our privatised infrastructure objectionable. It's the selling of taxation powers to foreign governments over whom we have even less democratic control than our own. It is the hypocrisy, in particular, of a party that claims to loathe nothing more than communism and totalitarianism obliging Londoners to pay a tithe to the Chinese government just for turning on the tap."

The whole thing is like that.

I dont know if privitisation worked or failed by his standards as he has not actually defined any standards

It would be interesting to even work what the right question / or benchmark would be. He did not do that.

One answer could be like BT (and this is really a rough first approximation and I fully reserve the right to be wrong):-
(a) If privatized, we can probably work out all taxes (corporate and personal) paid, fees paid by customers
(b) If not privatized, we can probably work out all personal taxes and surpluses to exchequer paid, fees paid by customers


Once you work out out how to measure if privisation worked - and that is a really hard thing.
Actually working it out is another really hard thing.

He has not done either of these things.

Personally I am extremely wary of anyone (right or left) who thinks things are that simple.

Looking at Wikipedia

You see a list of insurance companies, airlines and mobile telecomms and wonder what on earth governments are doing owning them.

On the other hand I stoppped voting conservative when they privatised trains (a natural monopoly) as even at the time it was a clearly stupid thing to do. After 20 odd years is looks like things are improving, but a lot of money and time has been wasted.

BE said...

Privatisation was not supposed to turn Britain into a share-holding, stake-holding, sun-lit upland. Privatisation was supposed to get someone other than the government to put the money in for much-needed investment. Nobody expected the water industry, for example, to produce anything other than a privately-owned monopoly industry. The point was to get the taxpayer off the hook for building the ring mains and super sewers. The customers end up paying for the investment, of course, but how is that somehow more evil in the water industry than in any other?

The phone sell-off was a stroke of genius: we were on the cusp of a communications revolution, did we really want the state to build the mobile network and internet connections? The BT/Openreach/Virgin model is certainly flawed but does anyone really think we would have better provision if the postal unions had been directing the implementation of the new infrastructure? Apparently when people started to dial in to big computers (in the 70s?) the unions wanted a closed-shop/monopoly on computer maintenance on the same grounds that they had one on everything else connected to the phone wires. We'd be tweeting from our Trim Phones.

If the Joneses of the world had their way, Parliament would be arguing about whether to cut public spending on SureStart centres or the CEGB, whether or not Trident should be replaced by satellite television.

Those of us who moan about how some industries have turned out should try not to forget that a lot of the failing regulation is not what was originally put in place. Mrs T wanted competing cable companies to dig up the pavements to bring us what she called "the wired society". The monopolists won when they persuaded a - cough - subsequent government to let the firms merge into one. Funnily enough no pavements have been dug up since then. And we wonder why BT feels no particular pressure to connect the remaining 95% of us to fast broadband services...

Did someone really suggest above that the water coming out of our taps would be the same now if the naughty private firms had not been investing in the infrastructure? Laughable. What was the population of, say, London in 1990 compared with today? Did someone mention purity and pollution standards? And who paid for the legions of gas-fired power stations? It sure as hell wasn't HMT.

The real problem with privatisation is that instead of reducing the size of the state, it enabled the state to expand once it got rid of some of its industrial burdens. So we're stuck with high consumer charges AND absurd levels of tax. But anyone who suggests that the way to solve that is for the state to take back the responsibility for building pylons, gas mains and optic fibres must be outed as a comedian.

Simon Fawthrop said...

The phone sell-off was a stroke of genius:

I remember listening to an interview with Keith Joseph. He said that they were approached by the GPO saying that due to underinvestment the exchanges were falling apart and they needed £xm to upgrade to System x.

When they were in a meeting figuring out what to do because there was no money, someone came up with an off the cuff remark to privatise it and that it wasn't idealogical.

The rest, as they say, is history and now privatisation has become ideology.

Nick Drew said...

Thanks all - (must have been a wet Bank Hol weekend ...)

DJK - your summary is a good one: (though the new nukes shouldn't be built at all ... well certainly not EDF's design). And you are deffo right about the terminological baggage: the Graun article confuses privatisation with liberalisation with 'share-owning democracy' etc etc

dearieme - can't disagree with your rule-of-thumb

BQ & anon(1) - I defer absolutely to the Hon gentleman on matters RM / PO: (and I claim no expertise on the railways either, a tangled and apparently outrageous story)

anon(2) - at some point I shall check my own water bills. Accepting a water meter saved the Drew household so much £££, everything else seems a bit irrelevant

James - mercifully I am still just about in the middle: (must write it down before I lose it)

Andrew - you definitely win the essay prize: good analysis. The Graun chap's 'taxation' point is certainly philosophically interesting and a useful perspective but shouldn't be accepted without a great deal more (and nuanced) argumentation. Personally I'd say it would need to be qualified very heavily to the point where it ends up being essentially a different conclusion

I'm going to have a crack at some of these issues in later posts - including some of what the writer almost entirely fails to cover off, namely how staggeringly wasteful the nationalised industries were

BE - sound points, well made, always welcome here! (beers soon, I think)

Simon - interesting tale. I have a sneaking feeling Sir Keith may have been a weeny bit disingenuous there: more on this anon

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