You Cannot Run a Public Service Like a Business, and Here’s Why…

PS1

One of the greatest myths of our time is that public services can be made more efficient if we run them as businesses.  The commercialisation of our public services has been a manifest failure, and the response offered by the mainstream parties is that we simply haven’t commercialised them enough. What they fail to understand is that a public service and a business are inherently different beasts and asking one to behave as the other is like asking a fish to ride a bicycle.

What is a Public Service? PS2

The primary aim of a public service is to provide a service to the public.  This service exists to avoid negative social impacts and protect crucial social utilities from the instabilities of capitalism.

Within living memory it was considered basic common sense that essentials like food, water, energy, access to health services, housing, sanitation and sewage, social care and core manufacturing industries were too important to expose to the volatilities of the free market.  Aside from this practical view, there were also two core value statements:

1)      A person or entity should not seek to profit from a person’s need to eat, heat their homes, drink water, be treated when sick or have a roof over their head.

2)      A person’s access to such necessities should not be based on their ability to pay.

Public services are democratic.  If a service fails to deliver our needs we can hold those responsible to account at the ballot box.  Important matters like wages, pensions and working conditions are the result of negotiation and subject to internal and popular support.

Public services are funded by public money, paid to public workers, managed by public representatives working together to deliver social utility – every penny put in recycles within the public economy.

Neoliberal Capitalism is inherently unstable, creates inefficiencies and gaps in supply and demand, and does not create full employment.  For these three reasons, critical services must be independent of capitalism, commercialisation and profit.  In short, they must be universal and eternal.

This is the purpose of a public service.

What is a Business?

 PS3

A business is a commercial entity.  The primary responsibility of a business is to create a profit for its shareholders.  A corporation may well have other aims, but all must be subservient to this primary aim or the corporation will cease to exist, or be taken over by another corporation.

A business is not a democratic organisation. Businesses are hierarchical and wages, terms and conditions are set by the executive and subject to the market.  This can be mitigated to some degree by collective bargaining through unions, but workers in the private sector has historically delivered lower wages and reduced working conditions for the bulk of its employees. The numbers speak for themselves:

Of the 23 million UK workers in the private sector, just 3.2 million (13.9%) have a workplace pension. Of the 6 million public sector workers, 5.3 million (88%) have a workplace pension.

Public sector employees are paid on average between 7.7% and 8.8% or £86 a week more than private sector workers.  More significantly, this is a twelve year high in the wage gap, as private sector wages continue to fall in real terms.

The pay gap between the private and public sector is nothing compared to the pay gap within the private sector.  Unlike the public sector where wages are clustered around a midpoint with a small proportion of very high and very low wages, the private sector has a great wage differential between its lowest and highest earners.  Women are also paid a far higher average wage in the public sector, while constituting the bulk of the lowest paid workers in the private sector.

The public purse is picking up the bill for the wage and conditions gap in the form of large increases in state benefits paid to working people.  As the current coalition government remove these compensations, the failure of businesses to pay a living wage, together with clear provision for old age and care needs is exposed. 

Failed Privatisations

 PS4

The privatised energy market has provided six energy giants, who dominate the market and have continued to deliver above inflation price rises whilst making record profits each year. The UK now rests at the very bottom of the league tables, with the worst fuel poverty in Western Europe.

The privatised railway is an example par excellence of total lack of accountability for failure to deliver.  The rail service is, as always failing to raise sufficient ticket revenues to turn a profit.  Ticket prices are rising above the rate of inflation.  Train firms give the government £1.17bn in premiums to run their franchises, only for the government to hand them back £4bn in subsidies. So, instead of spending £140m in 1960’s money for a fully nationalised service where costs were kept low.  We are now spending almost £3bn a year today simply to fund the profits of private companies.  Network Rail profits doubled in 2012, and all rail franchises are running at a profit as the companies prioritise (as they have to, as businesses) making a profit rather than lowering ticket prices or investing in the network.  Despite all this, the government are not complaining as they were when the service was nationalised, of a loss making service.

The move away from a social housing policy during the Thatcher government and continued since has been a disaster for housing.  We are building 100,000 homes a year less than we need because the housing supply has been almost entirely handed over to the private sector to manage. The National Housing Federation issued a report last year which showed Housing Benefit has doubled in recent years as a direct result of an astronomical increase in housing costs.  The report shows an 86% rise in housing benefit claims by working families, with 10,000 new claims coming in per month.  House prices are now 300% higher (in real terms) than in 1959.  If the price of a dozen eggs had risen as quickly, they would now cost £19. Rents across the UK have risen by an average of 37% in the UK in just the last three years.

The list could continue to include care, employment support services and a litany of other failed attempts to commercialise public services. The project is doomed.

There is No Such Thing as a Loss Making Public Service

 PS6

If a business fails to recoup the costs of providing its service in money, it is described as running at a loss.  This language of business is now being applied to our public services.  When Dr Beeching dismantled the railways in 1963, the narrative then and now was that the rail network was losing £140m a year.  This is commercial speak.  This means the gap between ticket revenue and costs to run the service was £140m.  If the railway was a business, this would be a loss.  But it was a public service.  A well funded, serviceable, cheap at the point of use railway service was and is an important social utility.  We need to be able to get our people around to work, to keep connected to family and friends, to transport goods up and down the country.  So we all pitch in taxes and through an economy of scale we run a cooperative service.  Unless someone is stealing, defrauding or otherwise ‘disappearing’ public funds, then there is no such thing as a loss making public service.  The gap between ticket revenues and running costs in this case could have been entirely expected, since the priority was accessibility and maximum utility of the service.  This idea is anathema to business.

The Gulf Between Social Efficiency and Cost Efficiency

 PS7

The primary concern of the Public Service should be social efficiency; otherwise it is rendering itself obsolete.  It is not cost efficient to provide post offices in villages, free meals and milk in schools, small local hospitals and local doctor surgeries.  The commercialisation of these public services demands they strip out unnecessary costs.  But from a social efficiency perspective these are good ideas. If amenities are removed from villages they become unviable. Hungry, malnourished children struggle to learn and are more likely to suffer behavioural problems, so free school meals and milk alleviate this.  Localised health services will be more easily accessible, personal and responsive to local people.

What is the point of a profit making hospital if health conditions in its catchment area are plummeting because access to services is limited or quality is so low that patients are more likely to die or suffer recurring conditions?  The hospital is a viable business, but a failed public service.  If we compare the performance of the UK’s public health service and the US model of private medical insurance, we see just such results.

Every UK resident is guaranteed medical treatment if they are sick, regardless of ability to pay and this is funded through general taxation. Private medical insurance is available in the UK, but is used by only 8% of the population.

Whilst the US is a world leader in research (where the money can be made), 52 million Americans are without health insurance and face the choice between crippling medical bills or no access to treatment. As a result, 62% of personal bankruptcies in the US are the result of medical costs.

The US has fewer physicians to patients and fewer beds than most OECD countries, the UK included.

The World Health Organisation ranks the UK  18th for overall clinical outcomes, while the US languishes in 37th (below Dominica, Morocco and Saudi Arabia).

This case also demonstrates how cost and social efficiency are not always mutually exclusive.  Despite such an indefensibly poor service, the US is the most expensive healthcare system in the world. The UK spends just 9% of its GDP on healthcare with a decade of downward trend, while the US pays 18.2%, increasing tenfold since 1980.

The issue of social efficiency is entirely missing from the policies of all mainstream parties.  It is simply assumed that commercialising a service will inevitably lead to cost efficiency and that this is somehow equal to social efficiency.  This is muddled thinking.

You Can’t Make a Silk Purse from a Sow’s Ear

 PS5

Businesses don’t fail at public service delivery because they are intrinsically evil, they fail because they are fundamentally unfit to do the job.

It is clear that a business is not created to deliver a public service, and a public service is not intended to be a business.  They are different beasts.  Yet, ever since Thatcher it has been the policy of the British government, and governments around the world to make them one and the same.  This policy is so flawed that one must come to the conclusion that those committed to it are not seeking social or economic efficiency.  Instead, they have an ideological commitment to marketisation – with social and economic progress as a lesser consideration.

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37 thoughts on “You Cannot Run a Public Service Like a Business, and Here’s Why…

  1. I have to say I am very grateful for the time and energy you’ve put in this and other articles, particularly research-wise. Your arguments hold up and make a mockery of self-appointed experts like The Economist magazine polluting intelligent discourse with right-wing mythologies. Your voice is incredibly important, now more than ever.

  2. I disagree with your argument. If businesses are to make profit, they must serve their customers and it’s serving their customers that drives them forward. (except in cases of a monopoly). If the NHS is privatised by lots of small businesses, they will have to compete by delivering quality and value in order to maintain contracts. This juxtoposes with the current situation where the NHS has a monopoly. If I receive bad treatment at an NHS hospital, I cannot choose to go to another hospital. Whereas in a privatised world, I could easily go to another hospital and they’d lose my custom to a competitor. This constant threat of losing custom drives businesses to deliver quality and value.

    A good example of this is the food situation. Asda and Tescos have driven down the cost of food whilst maintaining quality. The tesco value range allows families to feed themselves with healthy and nutritional food for £30 per week if they really need to. The public sector could not give us food at such a cheap rate.

    Also… In the UK with the NHS for some illnesses only 1/5 people are treated. Whereas in the USA, 4/5 people are treated. Obviously in the US, it’s those who cannot afford the care which are left untreated, whereas in the UK it’s a random whether or not you’re treated. Which is less fair, as it does not take into account the amount of tax that has been paid.

    There is no liberty in a society that is run by the Government. Why should we depend on one single organisation for everything we need? That sounds dangerous and tyrannical to me.

    • Thanks for your comment, and I would challenge the validity of the content.

      1. You describe a perfect market, which has never existed. The monopolies present in food, energy, banking, etc have meant price fixing, bailout and increasing prices. I’ve referenced in the piece so will not rehearse here.
      2. On the NHS, you have not referenced your claim. But I will, the NHS saves more lives per pound spent on it than ANY healthcare system in the world outside of Ireland. There is almost universal healthcare coverage in the UK versus the US which has much lower coverage as those who cannot afford medical insurance are excluded. Your final point in that sentence, can you rethink that morally please? FAIR access to healthcare should be on priority need, not contributions to paying for it.
      3. Who said government? Who mentioned a single organisation? Open your mind fella, there are myriad options out there for collective ownership and operation of core services.

  3. http://weownit.org.uk/privatisation

    this is also worth a look.

    While the market is supposed to be an efficient way of providing goods and services thru competition. But the tendency towards monopolies (cf utilities) denies the consumer the choice which is at the basis of such competition while maximizing benefits to share holders.

    The application of a competition model to the provision of a public good like health care is misplaced because in this context the public aren’t simply consumers who will take their business elsewhere if they aren’t satisfied with a provider. In the context of health care, we are patients and clients, whose well being should come first, where’s in a business context, it is the shareholders’ interests which must prevail.

    Privatising health care creates a conflict of interests, with medical staff, who ideally are motivated by a sense of vocation, being at the heart of such a conflict, with the patients’ interests in danger of being sacrificed.

    Meanwhile, the politicians who have engineered a move to privatisation are happily isolated from accountability and responsibility because, of course, these have been off loaded to private providers whose ‘commercial interests’ prevent open and full disclosure, unlike publicly owned providers (ie the NHS) which, albeit somewhat tardily , are subject to public analysis of their practices.

    • The NHS is owned by the British taxpayer. At no time did David Cameron in the run up to the last election say he would nationalise the NHS. HIS words were ” The NHS is safe in our hands”. To then tun around and say we will nationalise the NHS is a step too far. He should put it to the taxpayers in a Referendum, as to whether they wish the NHS nationalising !

      • Hmm. I’m never sure what ‘owned by the tax payer’ actually means, most of all when applied to the NHS. On the assumption that the state owns the physical plant and much of the IP, the NHS is publicly and not privately owned. Furthermore,MIT is the state, drawing on taxes, which pays for both plant and staff and the services they provide. Privatisation evidently means transferring either ownership of physical resources, like buildings and equipment, or the provision of goods (medicines, consumables) and services to private providers — or both. Linked to this shift of ownership or provision is the question of payment: the state from taxes,or the individual from personal income, or via private medical insurance. When Cameron promised that the NHS would be safe in his govt’s hands, I doubt that many voters envisaged privatisation, whether of plant or services, or of payment. Referendum? 2015. It’s called a General Election.

  4. Since the industrial nations have plundered the world resources and the elite whom are behind this program are now intent upon plundering the next resource that they can oppress, this is the general public, as you can see energy as example has been privatized, the instigators of this scam, knew the public would be held at ransom whilst profiteering and plunder could and would ensue, the people who devised this scam were all part of those who would be part of gained spoils, we are in the hands of the corrupt who have no compassion either for the planet nor people, it is hard to know if the general public are culpable in knowing for some time that we are are victims of the sinister, and aided and abetted those who are the depraved.

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  6. Please could you tell me the source of these statements I would like to share them.. Thank you.

    1) A person or entity should not seek to profit from a person’s need to eat, heat their homes, drink water, be treated when sick or have a roof over their head.

    2) A person’s access to such necessities should not be based on their ability to pay.

  7. I’ll tell you where the money goes, offshore accounts where tax is so low they keep practically everything. It’s then passed to every shareholder who probably lives in a villa in the South of France and has no idea about what is going on in this country or anywhere in the world for that matter because they don’t watch TV or listen to any news. Why would they? Their income has and always will be steady till the day they die and where will the money go then? Who knows. One rule of life I have always known is that “You can’t take it with you.” so why do people need to have more money than they could possibly spend in their lifetime while other people suffer in poverty just a few doors down the road. I’m disgusted by the level of cruelness and contempt that this Tory government blatantly spews out every second of every day and to try and still make money from public services is a downright piss take. When people start to get priced out of travel costs they won’t make it to work and what will happen then? Probably more unemployment and Workfare. It’s no wonder people are killing themselves, I have never known such a rough time. We might as well be back in the dark ages. Keep it up, I love these posts and have been an avid reader for months while I sit in my house with my Chronic Pain Syndrome. Yes, I would like to do more, I want to walk to Downing Street and punch David Cameron in the face for the nation and I would gladly do time in prison for it but sadly I can’t even stand up and make a sandwich without crying in agony. If there is any more privatisation in health care and I have to start paying for my prescriptions I might as well die.

  8. The privatisation of Britain is deliberate government policy,in order to reduce this country to third world status,so that the workers can be even more exploited than we are today.

  9. The rail network is costing the british taxpayer close to £3 billion per annum. Even though It is supposed to be privatised. I don’t understand this at all. So where is all the taxpayers money going? Do we even need an antiquated system like the rail network? Seems to me we could do with newer and better roads. Cheaper fuel, and methods of transportation.
    I wonder how much of that money is going to shareholders, and how much is being trousered by the directorships?

    • The rail network is not all private. North Eastern rail is still in public ownership. However, in Italy they have a great rail system; the UK should copy it. The system needs more public ownership but unfortunately our treasury is skint and can’t buy it back.

  10. You left out this part:

    The U.S. leads the world in health care research and cancer treatment, for instance. The five-year survival rate for breast cancer is higher in the U.S. than in other OECD countries and survival from colorectal cancer is also among the best, according to the group.

    As a society it may make us feel better to have universal health care, but access to health care has little or no impact on life or death in the United States.

    Speaking from experience my wife has had 3 brain surgeries for brain cancer (she’s doing very well). 2 of the surgeries were performed by the world’s best brain surgeon at Duke University. We are not rich, but we had access to fabulous health care and the experience was great.

    Those who have to get health care in the United States generally are happy with the health care they receive. Health care needs to be reformed, but a more transparent price structure (like dentistry or lasik surgery) would be a step in the right direction.

  11. You are partly right. Speaking from a Swedish perspective, public organisations are well known to be inefficient, bureaucratic, and to have not the best management making the very best decisions. At the same time, wages are lower in the public sector than in the private, since companies uses wages to compete about employees, whereas the public compete with stability from layoffs and benefits. For instance, nurses are totally underpaid in the public (municipal and county) organisations. Health companies provide them an employment market, where they have better career opportunities. Off course these companies have profit as a goal, that’s also why they are inherently more efficient. They provide the same service to the public, for the same amount of public funding, but make a profit at the same time. Since a public service have no incentives to cut costs, they don’t become more efficient. People want to keep their jobs, so they manage to keep themselves occupied with labour, even they might “do the wrong things”.

    Unfortunately, private companies running public services have a bad track record in Sweden as well. Owned by investment funds, companies go in and run schools, healthcare facilities and nursing homes for short term profit, then all of a sudden their mother company closes down the facility and lay off all employees and leave their customers (the people) without a service on short notice. Or there are a nursing home scandal, where elders are malnursed, due to efficiency cutbacks.

  12. Reblogged this on Grannie's Last Mix and commented:
    I’m old enough to remember when we had proper public services and essential industries like coal and steel were nationalised. I don’t think I’m looking through rose tinted specs when I say things were fairer and society more equitable back then. The rot really set in with Thatcher and now the cancer of privatisation has almost killed the patient. This is a great blog post . Read and learn…

  13. Good discussion, but am not happy with this: “If a service fails to deliver our needs we can hold those responsible to account at the ballot box”. Services don’t deliver our needs; they meet, satisfy or fulfil them. There’s too much of this delivery terminology/metaphor in such discussions.

    • I had’nt spotted this flaw, the ballot box is a very inefficient way of voting for MP’s, who go to make up the government, who monitor public services. Public services are therefore several stages removed from our control through the ballot box

      • Totally agree. I have already said on another site, politicians get elected on agendas, which are public knowledge, but once in power, they have no Accountability until the next general election, five years later. The agenda that got them elected, is usually not worth the paper it is writen on. The ‘hidden agenda’ is the important one, but that is not public knowledge until the white papers start to fly! Five years is far too long for a bunch of crooks ,or imbeciles to govern our people.

  14. absolutely spot on in every analysis and aspect. Shame that the people on power, who also make money from this madness, don’t want this to be known.

  15. No business can borrow as cheaply as governments. Well, not unless that government has effectively been given away to the private sector like Detroit.

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