Privatisation vs nationalisation

Jalapeno

Somebody mentioned profits back to the Treasury.  The main issue with that model is that nationalised industries cannot borrow money for investment from anyone but the Treasury (as they (we) are the ultimate guarantor) - and no civil servant or politician wants to be accountable, and also every major investment turns into a political football. It wasn't 100% union's fault in 70s/80s, though they were a serious problem at the time.

chillidoggy

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.

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

You cannot lay all the blame at the management's door. The unions had a big part to play in hastening British Rail's demise too.

chillidoggy

FX_Munkee said:

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?

No, actually. Although it cannot be proved either way, it's what I believe to be the case.

crunchman

I've seen some of these things close up having worked for London Underground right through the whole PPP shambles.

Yes LU was inefficient before but a lot of that was down to the way it worked.  There was this whole "annuality" thing where you had a set amount of money each year, and couldn't go a penny over.  I had a colleague who was working on a project that had spent something like £500,000 and needed another £200,000 to complete.  As there was no budget for that the project got canned that year, and then got restarted the next year at a cost of £500,000.  £300,00o down the drain just like that.

The converse of that was that if you didn't spend your whole budget that year you wouldn't get it the next year, so in February and March people would blow money on nice to have things just to spend their budget.  There also wasn't any certainty of funding from one year to the next which meant projects getting cancelled a lot.

If they had done what @ICBM had suggested and let it be run as a separate company, free from silly Civil Service rules like annuality then they could easily have cut the engineering budget by at least 15%  and probably a lot more.

When PPP came in it introduced the idea of "competion" with 3 companies but again it was false competion.  If I want to get from Barnet to Morden on the tube  I have to use the Northern line.  There was no real competition.  The companies were supposed to buy services from each other, so then you have contractual and commercial interfaces.  You also had contractual and commercial interfaces between the companies and the operating part of LU.  There was a lot of mirroring of structures.  For example, each company had their own Engineering safety structure and staff.  Each company had there own procurement, IT support etc.  There would have been hundreds of extra staff employed because of the duplication and the commercial/contractual stuff.  It was an inherently inefficient structure.

The worry now is that we are going back to the worst of the pre-PPP days with all the political interference.  With Sadiq Khan coming in his policy of freezing fares for 4 years it is causing havoc.  We are back to the worst of the short term stuff we used to see.  They can't really cut station staffing levels so the engineering functions are getting caned.  Managers have been told they have to cut their budgets this year and are going around looking at a lot of short term cost savings.  Projects that might deliver major improvements in efficiency 5 years down the line are being killed off to save money now.  Staff are being refused training that they need so that they can make savings in the training budget.  In 5 years time there will be a massive skills shortfall and people with the right skills will be able to name their own price and the company will end up paying through the nose.

I'm with @ICBM - for things that have a natural monopoly privatisation makes no sense.  You cannot introduce real competition.  Health, transport, water, Land registry etc. should be state owned, but at a distance so that you don't get political interference messing things up.

That doesn't stop you buying in some services.  For example, I would nationalise the electricity distribution network, but not the power stations.  Companies that actually run power stations can legitimately compete with each other.  If a private company can innovate and produce a power station that can sell electricity to the grid 30% cheaper than existing power stations that's good.  On the other hand a private company probably wouldn't want to take on the risk of building a Severn Barrage, or a new nuclear plant, without huge guarantees and/or subsidies from the government so you could have that state owned.  There is nothing except ideology to stop a mix and match approach that uses the best of both worlds.

randella

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.

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

It was interesting to watch the East Coast Trains saga, and I was certainly disappointed when it was privatised again after returning a healthy balance sheet for some years.  It's also interesting because it demonstrates that we were, for a while, closer to solving the main public/private quandary, namely how to run a business like a business under state ownership.

My belief is that there are certain things which should not be in private hands.  Healthcare, transport, utilities among them.  The state has an inconsistent track record running these things, however - but if the East Coast Trains story taught us one thing, it's that it is possible to maintain ownership, not meddle, improve service, and make money for reinvestment at the same time.

chillidoggy

And while we're on the subject, what's going on with EDF and Hinkley Point?

Fretwired

Axe_meister said:

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

You could take the French model - a state owned company. You can hire the best management and pay commercial rates and run it as a commercial business. Surpluses could be ploughed back into improving services or lent to the government at commercial rates. Government bonds could be issued which pay interest/dividends to help fund major infrastructure.

I'd like to see the government own the power sector. There's a complete lack of investment at the moment as private companies are worried about their short term returns and shareholder value. They are always looking for government subsidies. Power generation requires strategic planning and high investment and is too crucial to leave in the hands of private investors who know they can effectively blackmail any government into getting a good deal.

UnclePsychosis

Fretwired said:

Axe_meister said:

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

You could take the French model - a state owned company. You can hire the best management and pay commercial rates and run it as a commercial business. Surpluses could be ploughed back into improving services or lent to the government at commercial rates. Government bonds could be issued which pay interest/dividends to help fund major infrastructure.

I'd like to see the government own the power sector. There's a complete lack of investment at the moment as private companies are worried about their short term returns and shareholder value. They are always looking for government subsidies. Power generation requires strategic planning and high investment and is too crucial to leave in the hands of private investors who know they can effectively blackmail any government into getting a good deal.

This, particularly the last part. Seeing private companies doing a pisspoor job and then getting the government to bail them out with subsidies because the public can't cope without the service that is being provided is a total joke. Power, the rail network, the NHS. All better off state owned (but not necessarily state run).

Chalky

Wha does a business do when it had more work than it can handle? It outsources it to suppliers or temporary staff.

Why can't the NHS outsource common operations to remove waiting lists? Notice I didn't say reduce, I said remove. The answer is because so many barriers are built against it because the NHS has an inbred culture of 'waiting lists are right'. Its this complete change of vision that is impossible to achieve in a state run enterprise.

ESBlonde

Re the NHS and private health care. Most private hospitals are stocked with second hand NHS equipment (and a few nice shiney new bits. If any operation they undertake goes a bit haywire, the shove the patient in an ambulance and sent them to the NHS hospital to sort it all out with the proper skills and equipment.
Yes those are generalisations and anecdotal, but comparing the two services is quite impossible because one must supply all services to everyone and the other can select what and who and when.
The railways need an element of nationalisation otherwise we'll have to get off one train, cross the platform and get on another when crossing county borders.
Out of date unprofitable businesses from our past like Coal, steel, etc. should not be propped up unless there is a specific short term blip in proceedings and profitable service can be renewed soon (like the banking farce). Otherwise we'd all still be farming small plots of land with hand tools like 150-200 years ago.

Evilmags

Good for who? The current situation in utility companies is not competitive enough and control of prices, through tax, is a much bigger component of what the consumer sees than the profits attributable to the ultimate owners.

Telecoms, where competition has been stronger are a much better example of the consumer benefitting.

ICBM

Telecoms are one of the areas when real competition is much more effective - although landline provision is still a major problem when it's largely controlled by only one company.

The problem with saying that utilities aren't competitive enough is that there is no sensible mechanism to make them so, unless you want to pointlessly duplicate huge amounts of infrastructure.

Evilmags

You could start by actually liberalizing the sector. Highly efficient Combined Cycle gas turbines are small, don't pollute much and can be installed and even financed locally. People won't invest in competing infrastructure without having at least a chance to displace incumbents. Just the power savings over national grid type distribution, are hugely advantageous. But the hurdles put up by governments are too high. Competing infrastructure may eventually even emerge as a local monopoly, but that would be through a natural, evolutionary process rather than dictated from above. 

Mkjackary

What about internet and broadband? Relatively new industry, not around in Thatcher's time.

Now the big companies are given a load of money to update the infrastructure in rural areas of the country, yet I am here still with 300kbps and at my girlfriends I get 30mbps.

Why doesn't the government just put in all the infrastructure and then charge a small tariff to companies that wish to use it (similar to line rental)? Instead of giving BT 1.7Billion to do it, and still have a lot of areas that need doing.

Fretwired

Evilmags said:

You could start by actually liberalizing the sector. Highly efficient Combined Cycle gas turbines are small, don't pollute much and can be installed and even financed locally. People won't invest in competing infrastructure without having at least a chance to displace incumbents. Just the power savings over national grid type distribution, are hugely advantageous. But the hurdles put up by governments are too high. Competing infrastructure may eventually even emerge as a local monopoly, but that would be through a natural, evolutionary process rather than dictated from above. 

That was tired near me by a small power company .. the local NIMBY's blocked it. They do this in Germany quite effectively although they are state aided not for profit organisations.