Why Privatisation is Not the Answer

This post is based on the talk that was given at this week's branch meeting. We had a great discussion from this - enjoy!

Why privatisation is not the answer

The aim of tonight’s talk is to set out some of the socialist arguments against the capitalist and neo-liberal arguments for privatisation. Initially I will set out the case that privatisation is bad for the working class and leads to exploitation – this will not take long as the exploitation of workers under a capitalist system is a common topic of our discussions. The second and major focus of the talk will be on how privatisation actually fails to offer the economic and innovative benefits which it claims to offer.

Starting with the first strand, Marxists are familiar with the argument that under a capitalist system the labour value of the workers is exploited by the owners of the means of production. The work produced by the workers must make profit for the owners of the means of production and so companies squeeze the share of the value of their productivity which is paid to the workers – workers are paid less and the capitalist aims to maximise their productivity and collect a higher proportion of surplus value. In a recent talk we discussed the example of shop workers at an apple store – selling several products at a cost of a few hundred pounds each during the course of the day when their wages for the day are a fraction of the price paid for one of these.

The exploitation of workers is particularly highlighted when we look at less skilled and less well paid forms of employment. As a summer job one year I temped doing picking and packing in a warehouse. This was not a job which I particularly enjoyed but I was in a fortunate position that I was a temp and was paid an hourly rate. Those who were employed directly by the company were paid subject to the number of picks they made per hour. This created a competitive and fractured atmosphere with workers arguing over who had the best pick sheets – everyone wanted to gain the sheets with the highest number of the same item so that they could quickly meet their target of a hundred picks per hour. This sort of pressure and such unpleasant working conditions are, in many ways, an inevitable consequence of the capitalist system.

This exploitation is seen as benefitting the capitalist class at the expense of the working class. The argument seems clear and, when made, often convinces people that the working classes are disadvantaged by the capitalist system. And yet, there are many who accept the arguments for privatisation.

It is valuable to remind ourselves of the problems inherent in capitalism and private companies, yet it is also worth addressing some of the misconceptions regarding the economic value of privatisation.

The first and most common defence is that private companies are more efficient than public run organisations. Many of us probably have our own experiences of working for private companies and I think we would all say that this myth is easily dismissed based on a few anecdotes from that experience. From my own personal experience, I could offer a couple of examples. In another summer university job I temped for a major bank, the inefficiency was evident throughout the company. I had been employed to sort out and ensure that the employee files in the human resources department were up to date and included all of the key documentation needed in employee files.

My job consisted of auditing the files and checking off that there was a signed copy of the contract, proof of address, proof of right to work in the UK and so on – all exciting stuff! I then had to phone individual branches and chase employees for missing documentation – most times I did this it turned out that the employee in question had sent the documents in a number of times. On further exploration of the offices, I soon discovered vast piles of unfiled paperwork accompanied by a tendency of staff who were working on files to keep them in their desk drawer and leave no indication in the filing cabinet as to where the files were. There were an army of temps who had been given no training and were in charge of filing and it seemed that the unofficial ‘non policy’ was to simply create piles of documents that had no file and leave them. The vastness of the company, the trend for hiring in large numbers of temporary workers with no training, no job security and frequently, as a result of these things, little dedication to the work, seem to lead naturally to repeated work and inefficiency.

The scale of these organisations is one reason why inefficiency creeps in. Yet even in smaller private organisations there is inefficiency. If we look at the privatised public services we can see that this trend continues. Public transport gives us several examples of this sort of inefficiency. It is not just the internal inefficiency of organisations, but also the inefficiency of the private model in general. Competition is often presented as a good for innovation and economic efficiency, however, if we look at the wider context we can see that the competition leads to wastefulness and the demands of profitability within an individual company leads to wider inefficient utilisation of resources.

If we take public transport around Derby and Derbyshire as an example we can see first-hand how this wider economic inefficiency presents itself. With the privatisation of public transport companies were motivated by profit and so bus routes and train stations in and to smaller towns have seen a lack of investment, closures and few services. In the context of a wider economic system this is not beneficial in terms of worker’s easy access to their work places or beneficial environmentally. As one example we can see that some of the villages in South Derbyshire are served by infrequent and very expensive bus services. If you were to live in Hatton, for example, most workers there who began their work at nine would be faced with the choice of arriving in Derby at 8:05, being 55 minutes early for their shift, or arriving in the city 5 minutes late for work – the price they pay for the benefit of this service is over £5 for a return ticket. No wonder it is more appealing for so many people to drive into the city for their jobs, using resources inefficiently and having a negative impact on the environment.

Similarly, the drive to compete for a fixed market creates a chaotic system in many instances. Heading from Derby out to South Derbyshire there are two services run by two separate companies – the x-50, which heads off to Stoke, and the Villager services which head to Burton. The x-50 is scheduled to leave Derby 5 minutes before the villager – it stops at some of the same places but a return ticket on one would not be valid on the other as we have separate services competing for the same market. Similarly with the two companies who operate services from Derby to Nottingham. Whilst supporters of the free market economy may claim that private companies adapt their practices to meet the demands of the consumer and will be forced to offer better services and adopt more ethical practices under the compulsion of their customers, we see that in practice this is not the case. Private companies are motivated by maximising their own profit which leads to a narrowing of services offered. The needs of the community are clearly not met by these privately run companies.

The economic benefits of privatisation can also be seen to be a fallacy when we look at the railways as an example. In January of this year the Socialist Worker had an article reviewing the last twenty years of privatised rail networks. It makes an interesting read and was a compelling counter to the claims that privatising benefits tax payers. It deals with the cost to individual commuters initially – the rising cost to commuters is not news to any of us, I’m sure, but it is worth considering some of the statistics: The average worker now spends 15% of their income on travel costs, fares have almost consistently increased above the rate of inflation and a worker in Chelmsford, Essex, would spend £3,540 a year to commute to London. This is all familiar news, but the supposed benefits in terms of tax payer’s money are worth tackling.

In fact, in spite of saving the treasury money and passing the costs onto individuals, we now have individual commuters and the treasury paying increased money for a diminished service. Since privatisation public funding of railways has more than doubled to £5.4 billion a year by 2009 - 2010. In 2012 the government paid £490 million in subsidies to rail franchise. The government funded McNulty report apparently noted these problems but rejected the idea of renationalising, even though this would save £1.2 billion a year, and suggested, rather, ‘that further division was the solution’. Similarly, in April the Guardian published an article headed ‘East Coast rail service costs taxpayers less than private lines, report reveals.’

The key piece of information in the article is that:

‘The route has been under the control of the Department for Transport since November 2009 after the transport company National Express pulled out.

While about half of all train operating companies paid premiums to the government last year, the report shows that passengers on every franchise were in effect subsidised when money spent on infrastructure was included. However, the net subsidy for East Coast was 1% of the line's income, compared with an average of 32%.’

The cost to workers is higher in terms of personal fares as well as in terms of the amount of public spending diverted to the rail network and the service is not improving. Clearly, again, the needs of the community are not met but the companies are protected from any shortfall in their projected profits.

The second claim which is often confidently put forward by supporters of the free market and privatised economies is that private companies are more innovative and that without private companies technological innovation and progress will stagnate. This is simply wrong and if we look at the innovations and improvements in health care since the establishment of the NHS we can see just how incorrect these claims are. It is reasonable to suggest that in the establishment of the NHS its founders were inspired by what voluntary and community based groups were able to achieve. As David Hands, visiting professor in Health Policy and Management, said in a talk in March 2010 delivered to the Socialist Health Association:

 

[Individuals inspired by the development of community groups and outstanding clinicians have been responsible for innovation in health care.] ‘But the vision of individuals is influenced by the context in which they work.  The collective efforts of the pioneers stimulated the creation of our valued social institutions such as hospitals, health centres, universities, the BBC and the NHS.  Those institutions in turn have created the environment in which innovation and improvement can flourish.

It is interesting to speculate whether some of the innovations that we now take for granted might not have happened had the NHS not existed.  It is beyond dispute that many who chose to work in the NHS have been inspired by the values and vision of the Service and the comradeship of shared endeavour.’

In fact, health care has improved beyond recognition since the establishment of the NHS. People live longer, infant mortality is down and there has been a transformation in the treatment and understanding of many illnesses.

Further to this, if we look at education, since the introduction of the educational reform act and again since the introduction of the National Curriculum, there has been a huge development in educational research, innovation in educational practice and a far greater understanding of how students learn and how teaching can be more effective. Innovation is not the preserve of the private sector, where, in fact, positive innovation is not required for continued success and profitability.

However, this is not to say that publicly run organisations and services are without the inefficiencies and stagnation that we have seen present in private organisations. In another university summer job I worked for the probation service and there was a particularly amusing and depressing story of a recent inefficient development in the practice which perhaps sums up the issues. The managers had decided that the offices in which the probation officers worked should be made open plan.

The probation officers themselves said that this would not work as they required offices where they could hold confidential meetings with their clients. The changes were brought in anyway at great cost, only to discover that probation officers were not able to do their core work of holding confidential meetings with clients in open plan office spaces. As a result, the offices were returned to their former state.

We have all also heard various stories of the creation of what can best be termed ‘busy work’ in Soviet Russia. My own personal favourite is a story of a Russian worker who retired from his night shift job in which he had spent his working life turning screws to the right. On the day of his retirement he met his counterpart who worked the day shift, only to discover that during the day his job was to turn the screws to the left.

Now, we probably take this story with a pinch of salt in terms of reflecting the actual reality. However, it exemplifies nicely the idea that without collectivism and the workers determining how their labour power should be best spent, acknowledging their personal expertise in their job, then publicly run services succumb to the same models of management led and top down organisation which creates exploitation, inefficiency and lack of innovation in the private sector.

However, public companies are better suited to meeting the demands of the community rather than seeking profit. At a time when many of our public services are under threat we must make the argument strongly that inefficiency is not the result of public organisation but of a lack of collectivism and the application of capitalist models of business organisation onto these services.