Privatisation vs nationalisation

Mkjackary

Ask me a year ago and I would say any kind of privatisation is stupid, why let someone earn a profit, when if it was run by the govt the profit that would have gone to CEOs will go back into the govt.

However I didn't account for the fact that the government may be doing things Incredibly inefficiently when another company could come in and do the same job for half the price, even with a load of profit they could still be cheaper.

Things like the post office are stupid as they made money and we would have got the same amount of money we sold it for in a couple of years.

I *thought* if we nationalise the railways and buses again, there will be effectively no profit margin as it will go back into the government, so the prices would be cheaper. Now I'm unsure.

When is (if atall) privatisation a good thing? What would be bad about a state funded near fully privatised NHS?

TTony

Nationalised industries really undermined their own position back in the 70s/80s, mainly due to incompetent management working to ever shifting objectives and constraints determined by politicians (generally swayed by popular opinion rather than business sense).

Add to that, or maybe because of that, incompetent management, you had very highly unionised workforces and typically in industries where withdrawal of labour had an immediate and inconvenient impact on the paying public.  Governments generally crumble in the face of popular outcry, unions get stronger, and unions then end up demanding ever more daft concessions for their members.

Ultimately you end up with unions running the business for their own benefit and completely trashing the economic/financial viability of the business.  Govt then has to cover the losses which just perpetuates the whole broken system.

Hence British Steel, National Coal Board, the railways, the 70s-era British car industry (BL) and plenty more.

However, I'd argue that those businesses are fundamentally different because they should be "businesses" whereas the NHS, schools, the police force, armed forces (etc) exist more for "public good".

That's not to say that the NHS (et al) shouldn't be run by competent management (clearly they should), which is where it gets messy.  As long as the govt has the ultimate say in how those organisations are run/managed, then the management will remain beholden to politicians whose idea of "strategy" is limited to short-term (next election) political dogma with little experience of running any sort of business.

ICBM

I am in favour of nationalisation for things which are natural monopolies (where true competition is impossible, and artificial even if supposedly introduced), for utilities which are necessities for life, and public services which people don't have a choice whether to use or not, or at least where they're means-dependent.

eg water, energy supply, roads and railways, police and prisons, healthcare, education.

Even when nationally owned the running of them needs to be kept at arm's length from government - I agree that one of the problems in the 60s and 70s was constant government meddling with management. If they're run as proper independent organisations with the state as the sole shareholder there should be no difference in competence or efficiency compared to running them privately, the only difference is that all the profit goes back into the public finances instead of to private shareholders.

Although actually I don't think efficiency is that important - effectiveness is. Obviously there is a tradeoff with cost, but as long as the money is being recycled via wages and taxation, it doesn't matter as much as it would in a private business, and if one of the benefits is higher employment then I don't see that as a problem either.

But I suspect I'm a bit old fashioned...

hugbot

IMO, privatisation is good for things that benefit from competitive innovation lbut utterly shit for certain things that are in the public good.

If you have for example, a railway line out to some arse end town that might be invaluable the to economy of the town, but highly unprofitable for the rail company. So they won't run it. Similarly if they determine running freight makes more money than moving people, they won't bother, so government always has to step in at some point with subsidies and so on, it's a question of how far you want to go. 

Healthcare is another example. The fundemental premise of the free market is that everyone is a rational actor and thus makes rational decisions that optimise the market to the consumer. But with healthcare that breaks down, you can't be a rational actor if you're not conscious, or if I tell you you've got to buy this pill or you die.

ICBM

You also can't easily choose which hospital to use if you're ill and there's only one in the city you live in. So competition is a false premise here too, just as it is for example with railway lines between most two places. If you take away the competition, you remove they key justification for why privatisation reduces costs.

The free market works well for consumer products and services where there is genuine choice of what to buy or whether to buy, but not when you move away from that.

PolarityMan

Railways compete with other transport methods and NHS care in a given hospital competes with private care. I get your point but I'm not sure there are as many total natural monopolies as you might think.

ICBM

They don't have to be total to remove effective competition.

digitalscream

PolarityMan said:

Railways compete with other transport methods and NHS care in a given hospital competes with private care. I get your point but I'm not sure there are as many total natural monopolies as you might think.

If it were somehow possible that the NHS was more expensive (at the point of contact) than private care, then yes...there would be competition. As it is, the NHS is free at that point for the absolute majority of people, and there's nothing any private healthcare company can do to compete with that.

ICBM said:

Even when nationally owned the running of them needs to be kept at arm's length from government - I agree that one of the problems in the 60s and 70s was constant government meddling with management. If they're run as proper independent organisations with the state as the sole shareholder there should be no difference in competence or efficiency compared to running them privately, the only difference is that all the profit goes back into the public finances instead of to private shareholders.

For a lot of services where they're absolutely necessary for modern life - electricity, for example - that would simply never work. Why? Because the government would start off keeping it at arm's length, and all would be good. Then prices would creep up - because costs creep up, like wages - and there's a tipping point somewhere, where the huddled masses say "Oi! We're paying for this in our taxes, but you're charging us again and it's more every year! We pay your wages etc etc!". 

The government steps in to try to massage the price down a bit to keep the population sweet, the management makes some efficiencies and lays off a bunch of staff (because staff are always the most expensive thing in a business) to keep the government sweet, the unions get together and say "This ain't good enough! We want our golden pensions! etc..." and go on strike with support from the tabloids, and the population shout, "Government sucks! Get rid of them!", while the opposition are shouting, "We'd never have done this to you...".

Round and round we go.

PolarityMan

digitalscream;1121678" said:

PolarityMan said:

Railways compete with other transport methods and NHS care in a given hospital competes with private care. I get your point but I'm not sure there are as many total natural monopolies as you might think.





If it were somehow possible that the NHS was more expensive (at the point of contact) than private care, then yes...there would be competition. As it is, the NHS is free at that point for the absolute majority of people, and there's nothing any private healthcare company can do to compete with that.




ICBM said:Even when nationally owned the running of them needs to be kept at arm's length from government - I agree that one of the problems in the 60s and 70s was constant government meddling with management. If they're run as proper independent organisations with the state as the sole shareholder there should be no difference in competence or efficiency compared to running them privately, the only difference is that all the profit goes back into the public finances instead of to private shareholders.










For a lot of services where they're absolutely necessary for modern life - electricity, for example - that would simply never work. Why? Because the government would start off keeping it at arm's length, and all would be good. Then prices would creep up - because costs creep up, like wages - and there's a tipping point somewhere, where the huddled masses say "Oi! We're paying for this in our taxes, but you're charging us again and it's more every year! We pay your wages etc etc!". 

The government steps in to try to massage the price down a bit to keep the population sweet, the management makes some efficiencies and lays off a bunch of staff (because staff are always the most expensive thing in a business) to keep the government sweet, the unions get together and say "This ain't good enough! We want our golden pensions! etc..." and go on strike with support from the tabloids, and the population shout, "Government sucks! Get rid of them!", while the opposition are shouting, "We'd never have done this to you...".

Round and round we go.

I didn't say that private healthcare competes on cost at point of contact, although generally it is funded through insurance so is free at point of treatment. It aims to compete on quality and timeliness of treatment .

digitalscream

PolarityMan said:

I didn't say that private healthcare competes on cost at point of contact, although generally it is funded through insurance so is free at point of treatment. It aims to compete on quality and timeliness of treatment .

Fair enough. The problem, though, is scale. Private healthcare survives as a better-but-more-expensive option in this country because the volumes of people using it are low. Scale it up to the size of the NHS, and I'd be willing to put money on it having almost exactly the same problems, except people would complain even more because they're tangibly paying for it.

In any case...my point is that for the vast majority of people, there's no competition between public and private healthcare because the latter is simply not an option.

Fretwired

Mkjackary said:

When is (if atall) privatisation a good thing? What would be bad about a state funded near fully privatised NHS?

If you look back to the 70s the GPO (now BT) was in state ownership as was car maker British Leyland. Thatcher privatised them and they took off - they were able to raise capital, innovate, buy other companies and operate abroad. Thatcher was a keen fan of privatisation, but even she stopped short of things like the railways and the NHS.

In my view the state should control the basic utilities - power and water, the national rail infrastructure, the NHS and the education system - I'm not convinced by academies or religious schools. It's also worth pointing out that there's the third sector - for example not for profit organisations - which is a good way to mix commercial disciplines and acumen with social responsibility. A good example are housing associations. There are also cooperatives in which the employees own the company - think the Wine Society and John Lewis.

PolarityMan

You're also leaving out the possibility of services delivered under the NHS being entirely subcontracted to private companies. It's obvious this could be successful for things that have fairly standardized skill sets but I could imagine it even working for things like lab services, equipment provision etc. The danger is when you get a monopoly that's held by a private company, not necessarily privatisation itself.


For a private company not in a monopoly position there will always be downward pressure on price. Once an entitlement is only beholden to shareholders there is obviously a huge incentive to increase the price to the maximum that the market will bear.

Heartfeltdawn

Fretwired said: In my view the state should control the basic utilities - power and water, the national rail infrastructure, the NHS and the education system - I'm not convinced by academies or religious schools. It's also worth pointing out that there's the third sector - for example not for profit organisations - which is a good way to mix commercial disciplines and acumen with social responsibility. A good example are housing associations. There are also cooperatives in which the employees own the company - think the Wine Society and John Lewis.

Yes. 

chillidoggy

Originally, I was dead against privatisation of essential services like the utilities when it was first introduced. Water I think it was. How was it morally right to make a profit from them, I asked myself. It took me a bloody long time to get my head around it, but I came to realise just how terribly inefficient public services were. I now think that opening up the market to competition has largely been a good thing, the efficiencies meaning utilities becoming cheaper for the consumer.

As for Comrade Corbyn and his desire to re-nationalise the railways, the bloke must be stark, staring, raving mad. Anyone remember what British Rail was like? Well I do, and from first-hand experience, it was a national joke, and utterly shite.

ICBM

chillidoggy said:

As for Comrade Corbyn and his desire to re-nationalise the railways, the bloke must be stark, staring, raving mad. Anyone remember what British Rail was like? Well I do, and from first-hand experience, it was a national joke, and utterly shite.

Except that in the recent period when East Coast Trains was under state control - the previous private operator having ballsed it up - efficiency and quality of service improved, and it returned a substantial profit to the taxpayer. It has now been re-privatised purely for ideological reasons.

The key is that it was not *run* by the government, it was simply owned by the government and run as an independent business, as I said earlier. If nationalisation is to be done properly it needs proper formal safeguards to prevent ministers meddling for populist reasons. We don't have to - or should - go back to the 1970s.

It's not nationalisation that's the problem, it's incompetent management by politicians.

TheBigDipper

PolarityMan said:

You're also leaving out the possibility of services delivered under the NHS being entirely subcontracted to private companies. It's obvious this could be successful for things that have fairly standardized skill sets but I could imagine it even working for things like lab services, equipment provision etc. The danger is when you get a monopoly that's held by a private company, not necessarily privatisation itself.


For a private company not in a monopoly position there will always be downward pressure on price. Once an entitlement is only beholden to shareholders there is obviously a huge incentive to increase the price to the maximum that the market will bear.

There's some good posts on this thread. 

Re above: This already happens. Cleaning, pharmacies (for wards as well as out-patients), scanning units, labs.

Teetonetal

ICBM said:

I am in favour of nationalisation for things which are natural monopolies (where true competition is impossible, and artificial even if supposedly introduced), for utilities which are necessities for life, and public services which people don't have a choice whether to use or not, or at least where they're means-dependent.

eg water, energy supply, roads and railways, police and prisons, healthcare, education.

Even when nationally owned the running of them needs to be kept at arm's length from government - I agree that one of the problems in the 60s and 70s was constant government meddling with management. If they're run as proper independent organisations with the state as the sole shareholder there should be no difference in competence or efficiency compared to running them privately, the only difference is that all the profit goes back into the public finances instead of to private shareholders.

Although actually I don't think efficiency is that important - effectiveness is. Obviously there is a tradeoff with cost, but as long as the money is being recycled via wages and taxation, it doesn't matter as much as it would in a private business, and if one of the benefits is higher employment then I don't see that as a problem either.

But I suspect I'm a bit old fashioned...

That, for me is a great post.

TheBigDipper

Teetonetal said:

ICBM said:

I am in favour of nationalisation for things which are natural monopolies (where true competition is impossible, and artificial even if supposedly introduced), for utilities which are necessities for life, and public services which people don't have a choice whether to use or not, or at least where they're means-dependent.

eg water, energy supply, roads and railways, police and prisons, healthcare, education.

Even when nationally owned the running of them needs to be kept at arm's length from government - I agree that one of the problems in the 60s and 70s was constant government meddling with management. If they're run as proper independent organisations with the state as the sole shareholder there should be no difference in competence or efficiency compared to running them privately, the only difference is that all the profit goes back into the public finances instead of to private shareholders.

Although actually I don't think efficiency is that important - effectiveness is. Obviously there is a tradeoff with cost, but as long as the money is being recycled via wages and taxation, it doesn't matter as much as it would in a private business, and if one of the benefits is higher employment then I don't see that as a problem either.

But I suspect I'm a bit old fashioned...

That, for me is a great post.

+1. 

Some will maintain there is an idealogical drive within the current government to privatise everything, whether it is a good idea or not. There's some truth in that, but it's not everything. 

I think there might also be an issue of ministerial incompetence - seeing privatisation as a way of solving management and accountability problems that continually arrive on your desk and you don't know how to deal with them. The poisonous atmosphere at Royal Mail before privatisation sprang to mind - incompetent senior managers and disruptive unions. If I was the minister for that, I'd probably prefer to sell it off and make it someone else's problem. I don't agree with it, but I understand how you might be tempted to do it.

What I want from a government is for them to govern, not avoid responsibility and aim for "clean hands", but that's just me... 

Fretwired

ICBM said:

chillidoggy said:

As for Comrade Corbyn and his desire to re-nationalise the railways, the bloke must be stark, staring, raving mad. Anyone remember what British Rail was like? Well I do, and from first-hand experience, it was a national joke, and utterly shite.

Except that in the recent period when East Coast Trains was under state control - the previous private operator having ballsed it up - efficiency and quality of service improved, and it returned a substantial profit to the taxpayer. It has now been re-privatised purely for ideological reasons.

The key is that it was not *run* by the government, it was simply owned by the government and run as an independent business, as I said earlier. If nationalisation is to be done properly it needs proper formal safeguards to prevent ministers meddling for populist reasons. We don't have to - or should - go back to the 1970s.

Yep .. my local line and it delivered a surplus of over £100 million a year to the Treasury. And remember that EDF is owned by Électricité de France which is owned by the French state. The French manage to run efficient state owned utilities.

FX_Munkee

chillidoggy said:

Originally, I was dead against privatisation of essential services like the utilities when it was first introduced. Water I think it was. How was it morally right to make a profit from them, I asked myself. It took me a bloody long time to get my head around it, but I came to realise just how terribly inefficient public services were. I now think that opening up the market to competition has largely been a good thing, the efficiencies meaning utilities becoming cheaper for the consumer.

As for Comrade Corbyn and his desire to re-nationalise the railways, the bloke must be stark, staring, raving mad. Anyone remember what British Rail was like? Well I do, and from first-hand experience, it was a national joke, and utterly shite.

That is some seriously subtle sarcasm right there, right?

Axe_meister

The Problem with Nationalization is that the incentive to reduce costs and improve service disappears.

Also the government can't be seen to be paying high wages to the top brass of the nationalized company.

Also all accountability will be on the government. So you are not going to attract the same kind of competency
at management level.

I've worked for both public and private companies, the difference is chalk and cheese.

Now if you could run a nationalized company as a profit center and attract the right kind of management it might be a different matter.

Unfortunately as far as our Railways are concerned we still subsidize them we should have gone the whole hog and cut them loose but still have the right to change franchise if they do not perform to quality/price standards