Friday 27 October 2017

The "not for" prophet

Would you like your taxes to be collected by a private company acting on behalf of the government under contract? No, me neither. I'd be concerned about tax collectors behaving a bit like aggressive private car clamping companies, while mindlessly pursuing targets set by their public sector bosses.

But would you prefer to have the option of hiring a builder, a removal company or even a hairdresser who works for a not for profit, public sector organisation rather than a private company? The very idea seems a bit bizarre, I know. But I ask because "profit" is a dirty word for many in our society. And it was for me as a socialist-leaning long-haired student in the 1970s, when Stevie Winwood sang "The percentage you're paying is too high a price/When we're living beyond all our means/ and the man in a suit has just bought a new car/with the profit he's made on your dreams"*.

The example of a removal company wasn't randomly selected. The first time we came to move house we decided to do the equivalent of buying IBM, so we couldn't go wrong. But we did, because we chose Pickfords, then the leading national removals company. They were poor. Now this was a while ago - 1980 - but our things were literally packed into tea chests. Many folk won't have seen a tea chest but they're made of rough plywood and, unsurprisingly, are used to ship tea. Indeed the scruffy chests that Pickfords used still had a fair bit of tea in them! This wasn't the only aspect of the service we weren't impressed with. Having made a mental note to take more care in future, get multiple quotes and ask questions etc, we moved house several more times and I thought no more about Pickfords until I was reading Ken Clarke's autobiography last year. What I hadn't realised was that Pickfords, until much later in the 1980s, was still owned by the people, as John McDonnell might put it, being part of the enterprises nationalised by Labour in the 1940s, along with coal, steel, railways etc and was still in the public sector. Clarke happened on this as a government minister and proposed it should be one of the Tories first privatisations. Hmm, I thought. That explains a lot, in particular why they didn't seem to care very much and provided such a poor take it or leave it service at the time.

Now I accept 1980 is a long time ago, but human nature and behaviour patterns don't change much. I take the view that public sector organisations are institutionally less able to provide good customer service. They are often very large, so senior management is remote from the coalface. They are usually highly unionised, so middle managers have little empowerment, indeed they generally have less power, influence and knowledge of what is going on than their team member who is a union rep. That doesn't mean the public sector can't provide good service. But decisions to 'flex' the system to meet specific situations in real time are problematic in such organisations, especially where there is a jobsworth culture. But where the service is fairly standard there's no inherent reason why public ownership should result in a less efficient or responsive service. Apart, of course, from the obvious dynamic that private companies can go bust, so the employees naturally think about what is good for the business. In contrast, state owned enterprises can't go bust and, more importantly for customer service, public sector enterprises tend to be very poor at performance management, being slow to take action when employees under-perform and generally unwilling or even practically unable to sack people who aren't doing their job. There is no fundamental reason why this has to be the case, but it just is.

The public-private mixed economy is ubiquitous throughout the world. Well maybe not in North Korea, but in countries like Russia and China there are quite significant private sectors, albeit in Russia overwhelmingly owned by a small group of oligarchs. If you count black market activity, I'd venture there must be private "business" even in north Korea. The question is all about the mix - what should the state do and what should be left to the market?

I hold the view that the shift towards private provision made by the Thatcher government was a colossal improvement. That doesn't mean everything the privatised companies do is perfect - clearly it isn't. Some private supply arrangements haven't worked at all well, though there are always provisions for the contract to be rescinded if that is the case. And it doesn't mean that more private provision is necessarily for the best, though it would be odd if we just happened to be at the optimal point.

Of course, the real issue isn't whether the operation is publicly or privately owned, it's competition. I recall reading my favourite journalist in the early 90s, Norman Macrae, who used to say "don't throw money at it, throw competition at it" about everything from education to the railways. I suppose you could have competing publicly owned companies, but it wouldn't be for real: everyone would know they couldn't fail in the sense of going bust. It would be sham competition, not red in tooth and claw as they say.

The left accuses the right of pursuing privatisation through dogma. I think it's the other way round. It seems to me that most people on the right want to get it right - make the services work well and cost effectively. But they are prepared to make a case and listen to argument. And few of them think everything should be run by private firms. It's the left who are actually totally dogmatic on this issue, always raising scares about privatisation of the NHS, crying wolf and seeing plots everywhere when there usually aren't any. And remember, the NHS was set up as a public-private partnership - most GPs are self-employed private suppliers providing services to the NHS under a commercial, not employment contract, that pays them to provide the surgery and employ the people who work there, none of whom are generally NHS employees. It's been this way since 1948.

As noted above, one of the reasons why the private sector is generally more efficient is the simple survival motive - lose money on a sustained basis and the company goes out of business. It struck me in the 1970s, organising football club socials, that if you planned to break even you usually lost money. It didn't seem to work out 50-50 and balance out. There are always unexpected costs, often lower revenues, etc. If you set out to make money, you generally didn't lose money. And, when you did well, you created the financial scope to put on a better event next time. Now there is no reason why, given a cost budget to manage to, managers shouldn't succeed in any type of enterprise. It doesn't have to be about making a profit. Except in a public sector organisation there is often an implicit, or even explicit, driver to "spend the budget", for many reasons amongst them that, otherwise, next year's budget will be smaller. Which is lazy management, but tends to happen. Guess what happens if you make sure the budget is spent? There aren't savings, anywhere in the system, to balance the inevitable higher costs that occur in some places. However hard the managers try, overspends for the enterprise as a whole are culturally hard wired into the system.

And there is the feeling in those organisations that it doesn't really matter to overspend; it just shows there weren't enough "resources" (i.e. money) for the task at hand. Commenting on the fascinating underground "Mail Rail" that Royal Mail operated underneath London's streets from 1927 to 2003, Alan Johnson noted that it cost twice as much to build as envisaged and incurred an initial loss of £100,000 a year (a whacking great sum in the 1920s). "Yet the principle objective of the Post Office was not profit but public service"**. So that's alright then? This just confirms for me that it's a good job Johnson, upright member of society and all round good guy that he seems to be, only ever made it to Home Secretary and that, while shadow chancellor for a period, he didn't become chancellor or PM. I expect he'd  be a fascinating and very pleasant chap to talk to, but I also expect I'd conclude that, while his heart was in the right place, he'd have the wrong solutions for every economic issue that we face, every time.

The issue of the public-private mix is sharper than it has been for many years, with Labour's plans to "take back" all sorts of activities into the public sector and Nicola Sturgeon's plans for a public sector energy company in Scotland. In the case of the railways, many reports say that it's a popular policy. Not with those of us who used to commute into London in the 1980s, where I remember the refrain on the platform when trains were late: "Privatise the bastards, it's the only thing that will sort them out". While not claiming that it did "sort them out" I would argue that it is probably not a coincidence that rail passenger journeys have doubled since privatisation, after 50 years of decline before that. The railway has problems but they are, relatively speaking, problems of success now (e.g. far more overcrowding) rather than failure. (OK, apart from cost which remains a big issue).

Many of the problems the railway has are due to the failure to tackle union power. So the unions get away with concealing their insistence on outdated working practices  behind an unprincipled smokescreen on safety. Pay levels are stratospheric compared with broadly equivalent jobs elsewhere, partly because management won't take on the medieval guilds of drivers and signallers. And, even though the train companies are privately run, the culture is still very public sector. It can take a long time to get people in a privatised entity thinking in ways that aren't steeped in public sector culture. (I have an allegorical story, about monkeys and bananas, which my boss often made me repeat for people, as it showed how attitudes can persist through generations of change. But not now, I can't type that much on the tablet). The issue with Train Operating Companies is the unions know the franchise will be re-bid eventually, so they view all management as 'empty suits', temporarily in charge till the next round of changing the cap badges. (Cap badging being the phrase used in BR for the initial separation into units that would become new entities).

As another example, many of Corbyn's young supporters would have extreme difficulty in understanding what it was like being totally dependent on British Telecom for your phone service in  the days before mobiles and broadband. If they really would prefer to go back to 1980s BT and wait many weeks for their phone line to be installed, I'd eat my hat.

Nevertheless, for some, the idea that someone is making a profit out of providing a vital service sticks in their craw. I can understand that, but only a bit. All that matters to me in these situations is the total cost and actual quality of the service. While I don't think utility type services should earn high profit margins (and some of them have been pushing their luck on this), I've never seen why I should care if part of the cost I pay is someone's profit, as long as the total price I pay is as low as it can be. I am much more agitated about an under-performing non- profit making service I rely on paying huge sums to their Chief Executives. This is the case for some local authorities, for example. I'm sorry, I can't accept poor quality and high cost just because the organisation isn't making a profit when I can see a lot of high paid individuals in a management team that I think is taking the mickey. (Polite choice of word there.... but the fact that they aren't making a profit doesn't mean that they aren't, effectively, profiting from us and ripping us off big time through their pay levels.)

And where do the profits of privatised utilities go? Into the pockets of rapacious shareholders? Substantially into pension funds actually.

So, if you think something should be totally owned and operated by the public sector and not privately operated under any circumstances I issue a challenge. Aren't you the one being dogmatic? Where is the evidence that running that particular activity in the public sector will make it better in terms of service delivery to customers and cost? I accept that some might say it would be better for the employees of the business and other stakeholders such as unions, but that surely can't be the primary concern. And, having spent around half of my career in the public sector and half in the private, mainly in former public sector enterprises, I would reject as untrue the idea that employees are happier in public sector enterprises. I have seen too much frustration in public sector teams in organisations I have belonged to and in enterprises that were customers, where the employees know things could be done better and can't get anything done about it. As a result they don't enjoy their jobs as much as they should and many end up indulging in organisational game playing rather than getting on with satisfying their customers.

However, all current evidence shows that pay levels are probably higher in the public sector, though there is an issue about like for like job weight comparison, the public sector reputedly having more higher weight jobs, though I've never seen any evidence for that. What is clear is that when the value of pensions is included, the pay levels in the public sector are much higher. (Please don't try to tell me pensions are in some way separate - they are simply deferred pay and their value should always be counted in comparisons of employment packages).

My experience trying to make former public sector companies competitive and responsive to customers was fascinating, tough and only partly successful, which I'm sure is typical. Relapses in behaviours by the teams could happen at any moment for no apparent reason, years after  change appeared to have been embedded. But I don't think this is an argument for not attempting to privatise enterprises.

It doesn't need a crystal ball or the powers of the oracle to see that taking back water, energy and rail into public hands will increase the power of the unions and decrease competition. It is very unlikely to improve service delivery and will probably increase cost in the long term, even if shareholders aren't there to take out dividends.

That's why I'm the not-for prophet. Because it's a very easy prophecy to make.

*from Traffic's song The Low Spark of High Heeled Boys from the eponymous album, released in 1971. With sound quality what it was in those days I'd always thought he sang "beans" not "dreams", which also kind of works. Either way, not the most risible lyric I sang along to - or still do!
** Alan Johnson's fascinating column on the Mail Rail was in the Sunday Times on 3 Sept 2017



1 comment:

  1. We live in an unbalanced society Phil where there is to much money, power and control amongst too few people; a situation that has been developing ever since MT came to power in 1979. What is missing from your analysis are mutuals and co-operatives as they are a really positive economic model to spread power, wealth and responsibility in a more equitable way. For reasons best known to the powers that be we sold off many of our Building Societies turning them into banks that behaved irresponsibly.

    Of course we need to create wealth but our economy needs to have a far better balance, indeed I fear that if it is not re-balanced it will eventually lead to civil unrest.

    Maybe the test we consistently fail to make is the one that says where is the service (whatever it may be) best placed - in the public, mutual or private sector. Personally I would always be reluctant to put a public service in the private sector as surely a mutual could do it just as well without us having to pay for the profit?

    You talk about trade union power as though it is a bad thing yet most of the social advances we have made since the Industrial Revolution have been on the back of trade union campaigning. Yes trade union power can be used negatively just as private profit can be. However, our inability to run an inclusive economy is in many ways down to the lack of worker participation in the running of companies. If Germany can make such a success of that model of industrial relations why are we stuck in the 'us and the' slow lane of the 1950's?

    Mutuals must be one way way forward.

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