PUBLIC SERVICE or PRIVATE PROFIT?

by Julian

When I decided to write something on the marketisation of public services, I never expected my research to start with an academic paper on Hitler’s Germany. But here’s an interesting fact. The very first country in the world to facilitate large-scale transfer into private hands of public services previously provided by central or local government was Hitler’s Germany in the 1930s.

The main reason for the policy was not to save money or increase efficiency. It was to enlist support for the Nazi party from the powerful German business and industrial elite. (1)

After the defeat of Hitler’s Germany, mass privatisation of public services was not attempted again in Europe until Margaret Thatcher made it a cornerstone of her government in the 1980s. By the 1990s, privatisation of public services had become a world-wide phenomena, unchallenged in its claim that it was the cheapest and most efficient way to deliver public services.

New Labour was an enthusiastic convert. It continued the previous Tory government’s neo-liberal policy of privatization of public services and even today, the dogma that private is automatically better than public is rarely challenged.

But if we take the time to take a good look at the hard facts, it’s clear that the 30-year experiment in the marketisation of public services has been an abject failure. Despite this, the current Tory-led Government’s white paper on provision of public services is set to propose that all public services will be subject to privatisation, without exception.

Would I be accused of being too radical to suppose that if Labour ever wants to win back the votes of all those millions who have deserted them over the past decade and a half, they must once again unequivocally be the party which opposes provision of public services for profit, and again be the party whose sole concern is the quality of services provided to the public?

By the silence (so far) coming from senior Labour politicians one might presume so. But maybe we should let the facts speak for themselves.

FAILURES OF PRIVATISATION

Care Homes

Since 1990, under both Tory and New Labour administrations, 95,000 places have been closed in local authority care homes. Today around 90% of residential care provision is in private hands, mostly for profit.

But has this lead to lowering of costs and improvements in services?

A report by the Commission for Social Care Inspection in 2005 found that private provision of social care for older people – both residential and non-residential – was less likely to be judged ‘good’ or ‘excellent’ and more likely to be judged ‘poor’ or ‘adequate’ by inspectors than either public or voluntary or charitable sector provision. (8) Workforce turnover was also substantially worse in the private sector than in the public sector (CSCI, 2009).

In 2000, Barnet Council approved the selection of Ealing Family Housing Association (now part of the Catalyst Group) to take over the majority of the Council’s elderly persons residential care homes and day centres in order to – “achieve an ongoing revenue saving for the Council”.

According to the Cabinet Resources Commitee on the 2 March 2011, instead of saving money, Barnet Council has had to pay out £10.252m of public money.

In 2009, Care UK was awarded a £2.4 million annual contract by Hertfordshire county council. Just 10 months later, the council had to cancel Care UK’s contract. One care inspector’s report gave Care UK a zero star rating and assessed its standard of care provision as “poor.”

A private equity group, Blackstone, led by billionaire Stephen Schwarzman, pocketed almost £500m when in 2006 it sold its interest in Southern Cross, Britain’s biggest care home provider. This represented a tripling of its original £162m investment.

The Care Quality Commission took urgent action in January 2011 to close down Southern Cross’s Griffin Care Centre in Luton “to protect the safety and welfare of residents” as the regulator “judged people living in the home to be at risk”. (11)

The home’s 57 residents were moved to other care homes, by arrangement with Luton Borough Council and NHS Luton. Failings regarding the management of medication that were previously identified by the CQC were found on subsequent visits not to have been resolved. During the visit that immediately preceded the CQC’s action against the centre, inspectors found that medicines were being given together in breach of instructions on the labels and the inspector had to intervene to prevent this happening. Homes closures are only required in extreme circumstances.

Recently, Southern Cross, has come close to complete collapse possibly placing at least 31,000 elderly and vulnerable people without proper care.

Sedgemoor Care Homes ran 45 care homes for sexually abused and autistic children. In 2000, it was bought by ECI Partners, a private equity firm, for £13 million. When Sedgemoor could not afford to pay staff or rent, the company collapsed in 2007 and some of the care homes were sold, leaving many vulnerable children potentially homeless. Local authorities had to intervene to find homes for many of the children. The Adolescent and Children’s Trust (Tact), the UK’s largest fostering and adoption charity commented: “Private equity firms are more interested in maximising profits for shareholders and operating for short-term gain rather than providing long-term care for the most vulnerable.” (12)

Rail

Privatised railways now receive more public subsidy from the tax payers than when we owned them. Since privatisation, the annual subsidy has risen five-fold to more than £5bn. (9) Despite this, the UK has a rail system with the highest costs and highest fares in Europe. Taxpayers money has even been used to pay shareholders dividends when companies such as Railtrack PLC collapsed.

This is from an article in The Economist in 1999 –

The Rail Billionaires

One of the three rolling-stock firms, Porterbrook Leasing, was duly sold to senior BR managers for £528m. But only eight months later, Porterbrook was sold on by the management-buyout team for £826m. Having done little but (briefly) own the company, the directors and staff of Porterbrook, who had invested a mere £300,000 of their own, made nearly £83.7m. Porterbrook’s managing director, who had invested £120,000, scooped £34m. Venture-capital firms, which had put £2.2m into Porterbrook, picked up £315m. Eversholt Leasing and the third rolling-stock company were sold in 1997 for £900m more than the original purchasers paid. As Sir Alastair (Morton) told MPs on June 23rd, it was a ‘fat-cat carve-up’.

(2)

The directors of the main private train operators have made spectacular profits since privatisation. But despite this, they let the service deteriorate and invested too little in the rail network. This finally resulted in accidents such as the 2002 Potters Bar disaster which claimed seven lives and injured 76. The 3 million pound fine for the disaster imposed on the private firm Railtrack PLC and the private contractor Jarvis PLC was finally paid by the taxpayer as both firms had been wound up, meaning the directors were no longer liable.

A succession of fatal train crashes clearly shows what happens when the primary focus of contractors is profit and returns to share holders. The public interest, including safety, becomes secondary.

Other Cases

Research by Cardiff University on the impact of outsourcing NHS hospital cleaning services to private providers found that the level of hospital cleanliness has declined since the introduction of compulsory competitive tendering in the 1980s (Davies, 2005; 2009).

Barnet’s ‘EasyCouncil’ outsourcing experiment shows that the council spent £1.5m in the financial year 2010-11 on its reform programme. It is on course to recoup only £1.4m of savings in the financial year. (3)

Raytheon Serco, which won a £650 million deal in 2007 to build the e-Borders system had its contract cancelled after becoming more than 12 months behind on its contract obligations.

IT and data-loss seem to be a particular speciality for private sector failures. TNT lost the child benefit records of eight million families. PA Consulting mislaid the personal details of 84,000 British prisoners. ETS triggered the breakdown of the national Sats school testing system with delays and its inability to mark scripts. Private IT company, EDS is said to have cost the taxpayer up to 1 billion pounds at the child support agency. Xafinity had been mishandling pension payments for nearly 30 years before anyone noticed.

HOW TO FIX IT

Since when has demanding quality above profit in things like health, education and care been seen as radical policies? Policies once seen as radical, such as re-nationalisation of essential services, should now been seen as practical. Why should we pussy-foot around trying to look like we’re friends of the markets when behind our backs these so-called friends have been systematically pimping out our essential services, putting our health and lives at risk and throwing to the wolves those most vulnerable in society such as our children, the sick and the old, all to turn a quick profit for themselves?

1) Labour should pledge to put quality ahead of profit at the centre of every decision made by health authorities, education authorities and central and local authorities on matters related to public services.

2) Education, health, public transport, social care, policing and public housing should be immediately taken out of the hands of for-profit organisations and placed back in the hands of not-for-profit organizations. This could be done by replacing private for-profit provision with provision by cooperatives, local authorities and charities as well as renationalization of some sectors if necessary.

3) Tenders for public services which do not include at least one not-for-profit and one in-house bid should be invalid. If at least one non-profit and in-house contractor does not provide a bid, the service should remain (or revert back to) in-house provision of the service.

4) Local or central authority PUBLIC SERVICE QUALITY COMMISSIONERS should be installed who will monitor and oversee the quality of local authority and central services. The only criteria for the Commissioners to assess provision of public services will be quality. The Commissioners will collect public opinion and monitor complaints about the quality of public services provided by local and central authorities as well as make their own independent assessment. They will produce annual reports outlining services which have failed to meet minimum criteria of quality. The Commissioners should also have powers to order reruns of procurement processes if minimum quality of services have not been met. Yet again, procurement processes should not be solely a competition between for-profit organizations. If at least one non-profit and in-house contractor does not provide a bid during the procurement process, the service should automatically remain (or revert back to) in-house or central provision of the service.

5) The ‘public service industry’ where banks, private equity groups, consultancy firms and multinational corporations have speculated and bought-up public sector assets, only to asset-strip them for a quick profit, should be made dismantled and such practices made illegal. Private Equity groups in particular like Blackstone should be excluded from the whole field of public services on the grounds that public and community services should not be reduced to a mere commodity in the commercial marketplace. (4)

6) For-profit organizations which provide public services should be made liable to all the financial and operational transparency rules, as well as governance, equality and safety regulations which control local or central government organisations but which commercial organisations are often exempt from. ‘Commercial confidentiality’ is routinely given as the reason why there can be no proper scrutiny of contract proposals during procurement processes. This must end.

CONCLUSIONS

The evidence is clear.

In the UK, privatisation has become a byword for over-runs, lack of consultation and transparency, extortionate costs and poor quality of service.

Worsening services are being delivered at ever higher prices.

The only winners in privatisation are over-paid executives, brokerage firms and shareholders, while the losers are the consumers who are left to face poor services, rising bills and more government subsidies paid for from their taxes.

Private sector provision of public services is inherently more expensive than public sector provision because it must pay a dividend to its shareholders. Borrowing costs are also higher because the private sector is judged to be a higher risk by financial markets than the state backed public sector.

The only motivation of private companies is to make as much profit as possible, not to provide for peoples needs.

Labour must repudiate the claim by proponents of privatization that it is the cheapest and most efficient way to provide public services and not be afraid to argue the case for public, in-house and not-for-profit provision of public services.

You never know. It may even win them the next election.

REFERENCES

(1) Against the mainstream: Nazi privatization in 1930s Germany – Germà Bel – Universitat de Barcelona i ppre-IREA – http://www.ub.edu/graap/nazi.pdf

(2) The Economist – The Rail Billionaires – http://www.economist.com/node/218876

(3) The Guardian – Barnet No-Frills Council Overspend – http://www.guardian.co.uk/society/2010/oct/26/

(4) Michael Meacher MP – The collapse of Southern Cross – http://www.michaelmeacher.info/weblog/2011/05/the-collapse-of-southern-cross-should-end-any-willing-provider-privatisation/

(5) UNISON – Positively Public – http://www.kensingtonandchelseaunison.org.uk/public.html

(6) Association of Public Services Excellence – http://www.unison.org.uk/acrobat/13455.pdf

(7) UNISON – The Case For In-House Services – http://www.unison.org.uk/file/The%20case%20for%20in-house%20services%20-%20a%20branch%20guide.pdf

(8) UNITE – The Shrinking State – http://www.dontbreakbritain.org/pdf/Theshrinkingstate.pdf

(9) The Guardian – Will Hutton – disastrous rail privatization – http://www.guardian.co.uk/commentisfree/2011/may/22/will-hutton-rail-privatisation-disastrous

(10) UNISON – The rise of the “public services industry – Paul Gosling – http://www.insidehousing.co.uk/Journals/1/Files/2011/6/8/UNISON%20-%20The%20rise%20of%20the%20%E2%80%9Cpublic%20services%20industry%E2%80%9D.doc

11) CQC takes action to protect the safety and welfare of residents at Griffin Care Centre, Luton’, Care Quality Commission, press release, 20 January 2011 – http://www.cqc.org.uk/newsandevents/newsstories.cfm?FaArea1=customwidgets.content_view_1&cit_id=37108

16 thoughts on “PUBLIC SERVICE or PRIVATE PROFIT?

  1. Let’s not forget ATOS, Serco, A4E, G4S and all the others. ATOS have an appeal rate of 40 -50% on wrong decisions. A4E run work programmes that do not find people work yet are allowed to carry on taking Billions in public money for doing nothing. SERCO were highlighted by 10 O’Clock live and surely none of us can forget the total shambles of G4 back in the 90s to provide security services?

    In welfare, these private companies are taking between 3 – 5 billion of public money to be incompetent. Money that could and should go to the vulnerable sick and disabled people it is intended for, not shareholders.

    Great piece and I hope many others add their examples on this thread to pull together a real catalogue of private disasters.

  2. “The Commons public accounts committee’s report is remarkably trenchant: ” The performance by the mainly private-sector providers was universally poor … £94m was spent on employment support that did not deliver additional jobs … Private providers have seriously underperformed against their contracts and their success rates are worse than Jobcentre Plus even though private contractors work in easier areas.” – Polly Tonbee.

    Full article – http://www.guardian.co.uk/commentisfree/2011/apr/04/benefits-bonanza-big-serco-welfare

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  7. I like the idea of tenders having a non-for profit and public applicant in them.

    I’m still tempted to price cap the private providers and then acquire the infrastructure in the public interest, however. ;-)

    Then we’d give every household a share that can’t be sold and form a monopoly consumer co-operative, in say the electric, gas, water providers and potentially public transport (mentioned as the right to energy, water and uninhibited movement are surely fundamental human rights). The reasons are three fold: one, it prevents re-privatisation; two, it makes the services directly accountable to the users; three, the business model would directly spread wealth.

    I like the article because it also doesn’t talk about blind nationalisation as the left had proposed in the past, but presents a rational and reasoned argument from the left of how to prevent private sector corruption, coercion and greed through honest business measures and public service in the public interest.

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