Sunday, 25 October 2009

Public v. Private

An interesting discussion has broken out after a recent post. A proponent of private enterprise is defending it against what s/he sees as the waste and inefficiency of the public sector. This is a huge area of debate, and I am neither an economist nor a politician; but it's worth setting out my beliefs on the subject, and later (possibly) relating the history of welfare-to-work as an illustration. There are, of course, many books on the subject which will reinforce whichever stance you take.

It is ironic that much of "nationalised" industry in the 20th century was forced on governments by the failure of private industries; coal-mining, railways and steel all came into public ownership that way. The NHS was the result of the failure of the private sector to provide universal cover. At the level of local government, council housing was necessary because the private sector couldn't house people adequately. In case we thought that nationalisation had had its day, we now own many of the banks because private enterprise failed.

Socialists take the view that most industries and undertakings should be publicly owned. That ideology gave way to the view that a mixed economy works best. But the pull to the right has been inexorable (the banks notwithstanding), and the prevailing orthodoxy is that markets provide the best mechanism for all industries and services. Profit is the best motivator. Public servants will always be underworked, overpaid and uncreative. The only actual evidence ever produced for this assertion is the catastrophic failure of the economies of communist countries, which has no relevance to modern, mixed economies.

Political parties took to promising to "reduce the size of the state". In practice, this means sacking civil servants and contracting out the services they delivered. At local government level, councils were, for example, forced to sell off housing and prevented from building more. They were forced to "deregulate" local transport, often resulting in a worse service. When the need for new services arose, it could often make sense to employ private companies to deliver them; "back-office" functions, heavily dependant on IT, could reasonably be contracted out. But often privatisation has been the result of government or local councils being unable to justify employing more people themselves. For instance, when government came up with the idea of direct payments for social care local councils had a choice; they could set up their own departments to deal with this, as most did; or they could find themselves bound by staff-cutting policies and fall back on private companies.

The only "market" in the delivery of public services is the competition between private companies to provide exactly what is required at the lowest possible price. It means that front-line civil servants, usually on very low wages but with job security, are replaced by even lower-paid people on short-term contracts. No entrepreneurship or creativity is involved, and hitting targets takes precedence over shaping an effective service. Large companies elbow out smaller ones, and a handful - Capita, Serco, A4e - come to dominate. Public monopolies rapidly give way to private monopolies.

That's where I stand. If you disagree, please give evidence.


  1. It is all about leadership. The people at the coal-face are drawn from the same pool and it is wrong to blame them. It is the leadership and direction they are provided that makes the difference. Public sector leadership provides a very low bar and many private sector organisations do better simply through a lower level of incompetence.

    I am not that impressed by Serco whose delivery model is to sub-contract. I cannot see what value they add. Capita have grown rather large and lost some of the competence they had when their founders had more influence. I think that A4e still have a lot going for them and I rate Emma Harrison and Mark Lovell.

    I don't want to be an apologist for the private sector. However it tries to respond efficiently to its customer's requirements. I believe that many of the failed private sector delivered programmes are a result of poorly thought through specifications and procurement processes. All too often the private sector is the convenient whipping boy for those who think that society is unfair.

  2. I asked for evidence.
    Your opening paragraph simply asserts that private companies "do better" without explaining what that means.
    Your second makes sweeping statements about the three companies I instanced. But A4e's delivery model is also to sub-contract. You "rate" one or other company without giving any substance to your opinion.
    Your third makes a valid point about specifications. But you end with an assertion that I profoundly disagree with but which is a whole new argument.
    Thank you, anyway, for your contribution.

  3. Any group, private or public, that turn people into objects. private companies turn people into profit and loss. making as much profit as they can, regardless of who it is. Public companies, they run off a higher standard but they also fall into the trap of turning people into figures. rather than profit and loss.

    some organisations need the higher more stable public adminstration, Private has a more fly by night reputation.

    I beleive privatisation is Bad news Slightly more than, government run. i hate the Big brother attitude of the state.

    Which is better. i think there should be a public test, then if that fails, privatise it, unless it shows it fails.. its more complicated, but should give best to all.

    The idea that lowest bids are best, is silly, they frequently lie, and have cost over runs. look at anything like the dome, like the olympics, lowest bidder, yet billions over budget.

    i have to say i am in the middle. for some it works for others it doesnt.

  4. Your nom de plume of 'historian' in itself signifies a difference in our approaches. You appear to know far more than me about different programmes and different providers and how events unfolded.

    My approach is to look at how and why events happen and then infer an outcome elsewhere given similar circumstances.

    The reason I am such an advocate of private enterprise is because of the flexibility, innovation and productivity typical of this sector. This contrasts with the sclerotic approach endemic to the public sector. There are exceptions in both instances however my generalisation I believe is valid.

    Capital will typically flow to successful private enterprise organisations whilst unsuccessful ones will lose money and fail to attract replacement investment. Public sector is far less affected by these pressures.

    As a supplier my organisation has worked for many public sector clients in different departments. Perhaps if we were better people we would walk away from the work. However we had a payroll to meet so we simply shook our heads at some of the things we saw and got on with it. This was not an occasional situation; I struggle to think of a public sector client where we were impressed by all aspects of the engagement. Irrespective of the idiosyncracies of the project my colleagues worked extremely hard to deliver effectively and this ethos contrasted with the general mediocrity of our public sector counterparts with whom we had dealings.

    I believe that most public sector employees care and would like to do a good job. They are ham-strung by a system that makes it very hard to change or take risks and constrains activities with numerous rules that rarely make sense but do need to be followed. The costs of getting anything done in the public sector are so high that an outsourced model should work. And when the specification is clear and the deliverables quantifiable it often does.

    There is also one other point that strikes me. Public sector employment costs are high due to two benefits they provide: relative security of tenure (or at least a good payoff in the event of job loss) and excellent pension rights. Both are appreciated by employees however they are too long-term to act as performance motivators. This contrasts with the private sector where a lower-cost but more immediate bonus can more effectively stimulate performance and delivery.

    Finally, I stand by my comments on the companies in my earlier post. Serco totally outsource FND. A4e outsource where they don't have their own resources however their primary model is to use their own people where they can.

  5. With respect Anon: Historian is looking for concrete examples. How about your local train/bus service? How does it compare now to when it was in public hands?

  6. our public transport have gotten worse, since it was deregulated, we used to have a regualt bus service, then they keep changing routes every 6 months, reducing the amount of buses. Apart from ones to the nearest city one every 7 minutes, me i have to wait at least 30 mins. before it was 4 an hour, now 2, If they turn up.. thats public, v private buses where i live.

  7. Anon, your characterisation of the public sector in contrast to the private sector is a wild generalisation. Private companies, particularly large ones, can be brought down by their change-resistant culture. IBM is a classic example. The public sector, meanwhile, has to adapt and change with great frequency as government requirements change. Of course they do not take unnecessary risks - they are dealing with public money and have to be accountable in a way that private companies are not.
    I reject completely your assertion that "a lower-cost but more immediate bonus can more effectively stimulate performance and delivery" in the private sector. We see too often in the delivery of public services that bonuses for hitting targets lead to ignoring the needs of the client. In the welfare-to-work field, providers which didn't pay such bonuses did just as well as, and sometimes better than, those which did.
    You are giving your opinion based on your own experience, but without any examples to back up those opinions.


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