If you think privatisation and outsourcing are sacred

[TrueBlueTerrier]

If you think privatisation and outsourcing are sacred, read this

http://www.guardian.co.uk/commentisfree ... ames-water" onclick="window.open(this.href);return false;

From G4S to Thames Water, the markets have failed us in multiple industries. Their relationship to the state has to change

As the government prepares for two more major privatisations – Royal Mail and Lloyds – there's an almost kneejerk reaction in our economic culture that markets are infallible while governments are so prone to error that they should just keep out.

After the banks' Libor-rigging scandal, EU investigations into similar price-fixing in oil markets, the continuing provocation of inordinate bank bonuses, several exposures of misselling of financial products, unlimited executive pay self-gratification, not to mention mishandling of exotic derivatives which nearly crashed the global economy, this view is ripe for re-assessment.

There is an assumption that private markets are more efficient. They often aren't. According to the McNulty report, Britain's privatised railway now has 40% higher costs, and though passenger fares have increased significantly in real terms, the public subsidy to the railways has more than doubled to £5.4bn a year. The main reasons for this are higher interest payments to keep Network Rail's debts off the government balance sheet, debt write-offs, the costs of a multiorganisation fragmentation of the rail system, profit margins of complex tiers of contractors and sub-contractors, and dividend payments to private investors.

Is rail an extreme example? Not really. The privatised water companies have a byzantine structure of private equity financing, are good at making profits and paying dividends, but fall back on taxpayer subsidies for essential projects like sewer modernisation. Last year, Thames Water paid no corporation tax last year, yet paid out £280m in dividends and the private equity stake grew 10-fold in value over the decade. Martin Blaiklock, a former director of utilities at the EBRD bank, calculated that if no dividend payments had been made and the cash used instead to build up reserves, Thames Water could have provided the £4bn to build the new London sewage tunnel, with no extra borrowing and no extra water charges, when households are expected to pay at least £100 per year more in water bills to fund the project.

A similar pattern can be seen in privatised gas. Centrica recently announced annual profits were up 14% and the chief executive got a pay and shares award of over £4m, while the average household bill rose 8% despite wholesale energy costs falling. Next year it is predicted that the average profit per household made by the "Big Six" suppliers will nearly quadruple to £110 compared to last year.

Nor is the record for outsourcing – the current government's fixation – any better. Everyone knows about the G4S Olympics security fiasco. Rather less publicised is the huge failure of the Work Programme, on which the government has so far spent £435m for private contractors. Though providers like A4E were paid £400 if they got someone started in a job and bonuses if they stayed in work, ministers were forced to announce that just one in 20 of the unemployed people pushed though this programme found work lasting 6 months, despite people who had already secured job offers still being encouraged to sign up for the scheme.

Similar examples abound. The outsourcing project to computerise NHS records was finally abandoned at a cost to taxpayers of £12bn. The £30bn public-private partnership for the London Tube network upgrading to two private consortia ended disastrously when one went bust with debts of £2bn and the other failed, leaving taxpayers with a £400m funding gap which even the Tory mayor described as "looting". Then there's the bailout of Southern Cross and the halting of prison outsourcing due to its poor value for money.

How should these across-the-spectrum privatisation and outsourcing let-downs be tackled? One obvious answer is tighter regulation. But the markets free-for-all and government-keep-out approach makes this hard to secure. The notorious light-touch regulation in the City paved the way for the 2009 financial crash. The Financial Services Authority, Ofgem and the Competition Commission have been ineffective. Most of the tough action, for example over tax avoidance, has emanated from US regulators rather than British ones.

A better solution lies in a much more nuanced approach to the balance between state and markets. The idea that the relationship is automatically adversarial should be discarded. Up to 40% of private sector activity is dependent on state investment, and many big new private sector advances have devolved from state-funded innovations such as, in the case of the iPad, communication technologies as well as GPS and touch-screen display. Economic growth has actually halved in the past 30 years under deregulated markets compared with the previous 30 years of managed markets. Other much more successful economies have not gone down the path of Anglo-Saxon market extremism. Unconstrained markets have not rebalanced the economy, but have badly exacerbated inequality.

Excessive concentration of market power in several sectors has led to abuses, weakened accountability, inhibited market entry for new competitors, and is often not aligned with the public interest. In all these areas there are strong grounds for redrawing the lines on the respective roles of markets and the state.

[Danelectro]

this article shows one of the many ways that perceived wisdom on austerity spouted by the major parties and mainstream media is nothing but a defence of privilege and corruption.

[barrowc]

Good article

[borders]

this article shows one of the many ways that perceived wisdom on austerity spouted by the major parties and mainstream media is nothing but a defence of privilege and corruption.

spot on Danelectro, the truth is out there and this article is another example. I live in the SW and our Water Rates are £750 , nearly on par with the Council Tax.

[borders]

this is another example to follow on from that article----

How Britain Pays For Europe's Rail.

Rail union RMT condemned the government's flawed transport policy today which sees Britain's rail passengers forking out massive fares to travel on ageing trains in order to subsidise state-owned railways in Europe.


Figures compiled by the union show that a staggering 60 per cent of Britain's rail network is run by German, French and Belgian state-owned companies.

German state rail operator Duetsche Bahn runs almost a quarter of services in Britain while ploughing cash coughed-up by British passengers into its own nationalised railways.

French and Belgian state companies run another six lines across the south of England, and connections to Heathrow airport are part-owned by the governments of Singapore, China and Qatar.

RMT general secretary Bob Crow said: "The hard truth is that the British public are paying the highest fares in Europe to travel on crowded and ageing trains in order to subsidise railways in Germany and other parts of the continent.

"RMT stands shoulder to shoulder with our European colleagues fighting to keep their railways in public hands but what a nonsense it is that our own government is denying us the same benefits of lower costs and increased investment that the public ownership so clearly brings."

The East Coast mainline remains the only railway line run and owned by the British state.

It has the highest satisfaction rate of any British railway and has put over £800 million into the public purse since National Express dumped its contract three years ago.

Despite all the evidence to the contrary, Tory Rail Minister Simon Burns insisted that privatisation "has been a force for good in the story of Britain's railways."

He said the rail sell-off had made Britain's network the "most improved in Europe" and claimed continued privatisation would "drive down the cost or running the railways."

But Mr Crow was clear that his union's research "blows apart the whole government case" for privatisation, especially of the East Coast mainline.

"What they are actually saying is that any state can run our railways as long as it isn't the British state," he said.

Green MP Caroline Lucas agreed the union's figures "expose a huge flaw in the government's argument that our railways must be privately operated to be effective."

She said the "perverse situation is denying taxpayers and rail passengers savings" and is similar to how "France's state-owned energy company EDF control and profit from the UK's nuclear programme"

Ms Lucas will this week launch a parliamentary campaign for rail renationalisation and RMT's research could win her Bill more backing.

Rail expert Christian Wolmer told the Star support for renationalisation was becoming "more mainstream in the Labour Party.


http://www.morningstaronline.co.uk/news ... ull/134623" onclick="window.open(this.href);return false;