Founding Fallacies of Privatisation, take II

Anyway one wee story I saw over the week was this BBC article regarding nationalisation of the UK Railways. They asked a member of a lefty think tank and another from the Adam Smith institute to give the for and against arguments regarding nationalisation of the UK railways.

The for nationalisation argument endorsed the main points I’ve long made about the UK’s railways, that privatisation has clearly failed and the decades since have seen a massive rise in train fares well above inflation, indeed even the public subsidy to the railways is now 5 times higher than it was under a nationalised system. Yet service has scarcely improved, indeed you’ll find plenty of regular commuters who’ll tell you its gotten worse.

Inevitably the response from the ASI was to make a load of feeble excuses and cherry pick some historical statistics which he then took completely out of context. Indeed the crux of his argument seemed to be that the railways were struggling because too many people were using them (obviously he’s unaware how people travelled around the country before the Beechings axe fell). And ya, Apple and Ryanair are always complaining how hard it makes it for them to run a business when too many customers show up :no:. I mean does this guy know the first thing about how capitalism works? :crazy:

Indeed I would argue that the whole reason why privatisation has failed, both for railways as well as buses, water, power distribution and universities, is precisely because such processes involve ignoring the very basic rules of capitalism – that you have to have competition between firms in order for it to work.

But, all of the rail (or water) companies have a defacto monopoly in their given area. Inevitably this simply means they run a service that’s barely adequate, as cheaply as they can, charge the customers as much as they can fleece them for and cream off as much as they can in “profit“, all the while building up a mountain of debt and poorly maintained infrastructure for the government to deal with when inevitably its forced to step in.

And the whole reason why there is no direct competition is because it would be largely impractical to do this (there’s only so many trains you can operate on the same track, you’d need separate ticketing facilities and possibly stations, issues with companies not honouring one or other’s tickets, etc.) as well as potential unsave, as some companies seek to cut corners to survive. It was corner cutting and unsafe practices that led to a number of the large rail disasters of the Victorian era (the Salisbury rail crash being a good example) and corner cutting by Railtrack played a role in a number of rail accidents immediately after privatisation, eventually leading to Railtrack’s effective renationalisation.

Indeed I would argue that the ultimate proof of the failure of railway privatisation is how the government is now being forced to stump up the cash for HS2, much as they did for the Eurostar link to London. The original Tory plan was that the magic of the market would provide high speed rail links. However there has been scant if any privately built railway building since privatisation. Which is hardly surprising as such an endeavour represents a long term financial risk, which the train companies have no financial incentive to undertake and which no bank would ever be willing to lend money too.

If we the tax payer are going to be forced to finance a project, it stands to reason we should own the end result. This is my main argument against the proposed new nuclear plant in Hinckley Point C. It looks to me like the UK government is going to underwrite and pay all the upfront costs for the project, but EDF energy….owned by the french government, are going to own and run the plant and set electricity rates! In essence we’re going to be paying the French government to do the dreaded “nationalisation” stuff for us because its against the Tories free market religion to do so.

Hence, I am very sceptical that the government’s plans for further privatisation of Royal Mail, policing & prisons (G4S are already in trouble over tagging, is anyone seriously suggesting we give them run of an entire prison or police station?) or NHS services. Indeed the Beeb have another debate here about NHS privatisation. While the pro-privatisation type speaks alot about choice, he ignores the fact that the “choice” most of us want to make when it comes to health care is the best we can get! What he is proposing kind of reminds me of that Dickensian family heart centre piece in the 80’s movie Robocop.

Indeed experience from other parts of Europe or the US is that wherever you do open up health services to private competition, while services do tend to improve for those who can afford it (of course in the UK they can opt for private insurance anyway, so its not as if they’re being denied this right), but in poorer areas the number of clincs and the quality of them tends to decline.

Furthermore, there tends to be little if any correlation between a privatised “public” service costs (such as healthcare) and quality of service. Inevitably they will provide a service as cheaply as it can and charge as much as they can from the customer.

University fees in the UK are another good example. The OECD recently warned that the UK HEI sector is facing a similar issue where the costs of going to university have risen dramatically since the last election, but the quality of those degrees has only moderately increased (if any!). This is somewhat embarrassing for the government as they had previously claimed that the OECD supported this increase in fees, when in fact the OECD has since pointed out they were commenting on statistics relating to the pre-2010 fees structure.

In short privatisation does not offer any of the benefits it free market supporters claim, largely because the very act of privatisation often involves ignoring those very free market rules. It is merely a tool to drive through further inequality in society.

6 thoughts on “Founding Fallacies of Privatisation, take II

  1. I work for Royal Mail and am completely opposed to the privatisation, but it will go ahead regardless of what I and the other employees think.

    When you add a profit requirement to a once public utility it’s clear that either the service will suffer, cost to the consumer will go up, or both. In this case, it will be both.


    • My sympathies.

      And how important does the government think postal service is? They do realise that alot of legal documents have to be posted (courts summons, speeding tickets, etc.). Next time I get picked for Jury duty I can probably safely claimed that the privatized post service lost it and be believed!


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