Privatisation has been a costly failure in Britain

What I see everywhere, not just in Britain, is the same old story over and over again: privatizing the profits, nationalizing the losses.

It was advertised as being able to offer lower prices to the consumer through competition, but all it has done is provided more ways for private companies to extract money from the general population.

Previously electricity prices were overseen by the government, and I don't really understand how a private company could do that any cheaper. There was already a market for the spot price that electricity was sold at by producers, so all the entity you bought it from had to do was balance the books. Any excess would have been put towards the balance for the next period, but now it goes to the owners of the company.

That's absurdly generous.

Even some of the supposed privatization successes really werent (e.g. British Steel, British Telecom). Even in markets where competition is possible, if the product or service is basic enough, keeping a state run competitor helps inflict market discipline on private actors who need to be kept in check. The UK property is a clear example of where this is direly needed but the cult both prohibits it and has its greedy eyes on the NHS.

Can't get more inefficient than that. What's next? Privatization of trash?

I have actually seen this with recyclable trash, several companies with different colored trash bags that pick up on different days littering the street. I'm glad some towns have already banned this. Worst part is that they let people mix all recyclables in one bag and then sort at the facilities adding another huge inifficiency. This is a huge eyesore in Switzerland where people will give you the "stare" if you through shit in the wrong bin.

However, I would like to keep my water supply so somebody has to sort this situation out quickly.

I too believe that free markets are the solution to a great many of the conundrums of organising a society, but I also believe that a strong and socially conscious (by which I mean its prime directive is the enhancement and improvement of living conditions for all of those under its jurisdiction) regulatory hand is necessary.

The U.K. has plenty of regulations, and toothless enforcement of practically all of them, to the extent where ignoring them and the ensuing fines are just a cost of doing business.

With firm regulation, a free market could operate both profitably and fairly to run public services.

As long as there’s a commingling of commercial and political interests, however, this is an improbable reality. The changes would have to start in the culture of government.

In general public services exist as public entities because they would otherwise necessarily be monopolies, and the only lever the public can therefore have is some kind of democratic process.

In the case of UK privatisation it’s clear that the policy was merely a wealth-pump designed to extract value from a captive set of consumers.

We tried this with the railways in the UK. In the mid 90s the tracks and signalling and most of the stations were transferred to a publicly owned and regulated company (Railtrack), while private businesses competed for franchises to offer train services. But within a few years the government was unable to resist the temptation to privatise Railtrack too. After that we had the inevitable phase of regulatory capture, followed by financialisation of the train operators, leading to position we had at the start of the pandemic where the operators were basically competing to offer minimal services for maximal revenue by subsidy farming.

In the absence of regulatory institutions that are able to withstand commercial pressures^W greed, then this approach will always fail.

In the UK, regulation of privately-delivered public services has failed due to decades of government by parties that view regulation (and public ownership) as simply undesirable.

One area -- in fact, the only area that I can think of -- where privatisation has mostly worked in the UK is the telecommunications market. Here the networks are in private hands, but the providers are forced to offer somewhat equitable access to their competitors, e.g. by sharing masts, poles and underground ducts. That, plus the relatively low cost to entry of setting up as a new player, seems to be enough to keep prices down and service levels up.

This wouldn't work for transport of or on rail, road, water or gas, because there's no realistic way to force different entities to share the same infrastructure; you can't reasonably set up two parallel gas networks, or run two independent sets of rails. In those cases I agree that we have experimentally proven that socialising the infrastructure was/is the most efficient option. Now we need a government with the political chutzpah to accept that.

The problem is that the government let companies like Virgin off when they broke their contract, allowing them to bid high, take the profits, then walk away rather than fulfilling their contracted duties. Privatise the profits, socialise the losses.

Nethertheless there is tons of competition on transport in the UK

1) To get from Birmingham to London you can choose 3 different rail providers giving 3 different cost/value returns. Faster more frequent ones cost more.

2) On top of that you can also take a coach, hire a car, drive your own car, or of course not travel at all

3) Manchester to London you can fly, take the coach, drive (car hire or your own car), take three different trains ranging from £50 return and 3 hours to £180 return and 2 hours.

"Railway tracks" isn't where the competition is, transport is, and there's tons of competition. I remember I used to commute from a commuter town into Manchester. I could take the train during the peak, or I could take it off peak, or I could take the slower train from a different company, or I could drive, or I could take a commuter bus.

When it comes to the last mile of say BT, you used to have a monopoly, it would take months to get a replacement handset connected. Today though "a phone line" isn't what you want, internet is, and there are options

1) BT/Opeanreach connection (fibre or copper)

2) Non-BT fibre (in many cities)

3) Wireless ISPs

4) Satelite ISPs (Starlink/Oneweb or Geostationary)

Each has benefits and drawbacks

I would agree that the last mile of water and possibly electric provision shouldn't have been privitised. Treatment works though -- why not? There's no real limit on the number you can have.

When it comes to long distance electric again why not. There is a lot of money to be made transporting Electricity in Scotland and selling it to the south east. Let multiple companies do that.

The problem is planning permission and nimbyism means it's impossible to actually build new lines.

I believe it's not done like that, because there is little opportunity to make huge profit on such privatisation. Would you rather own the entire rail network, or buy some trains and have to pay rent for rail access? No one will invest in the latter without financial history of operations in such environment.

To do privatisation properly the state should breaker up the infrastructure from the services. Split the services into separate companies (then do we want them to compete or each will have it's niche? Usually it's the latter). Restructure and run those service companies until they're profitable. Finally sell them, or better yet over the span of the years get the employees to get a sizable ownership share, give local go another sizable share, sell the rest on the stock market.

That IMO is roughly a good way privatisation could work, but it takes more than one electoral cycle to do it right, and which government wants to create gifts for their opponents? So we usually don't see anything like it.

This sounds sensible the first time you hear about it. The reality is pretty awful.

This happened to the national railway company in Norway (NSB). The result was lack of investment, poor service, and a bureaucracy where nobody seems to be responsible for anything. Which means that rather than concerns being addressed, they get ignored. Because when, for most things, you can blame someone else, nothing gets fixed because nobody is really in charge anymore. As a consumer you do not really deal with one company anymore - you have to deal perhaps half a dozen companies that do not work well together.

NSB went from a somewhat poorly run public sector organization to an entirely dysfunctional failed NPM experiment. The reasoning behind this was about as sane as suggesting we terraform Mars rather than try to not screw up the Earth.

I have seen this in the private sector as well. I worked for a telco for a decade, and they are very similar to how New Public Management works in the public sector. (Which isn't too odd since a lot of them are former state monopolies, so they will be prone to the same sort of defective reasoning you see when NPM is applied in the public sector).

You fragment, outsource and then pulverize accountability. Telcos are usually fragmented from the outset. The restrictions on ownership models, a large telco will typically have separate companies with entirely separate cultures, technology stacks and business processes for every country they operate in. Yet within those countries they will fragment further - ensuring that you have siloed organizations working at cross purposes. Usually due to very localized prioritization to achieve goals that affect bonuses, ignoring the large picture.

One thing that is very striking in telcos is that it is really, really hard to find people who actually understand telecoms technology within them. And they rarely have much control over the technology. Which most of the time has exorbitant operating costs and extremely slow evolution when compared to large internet companies.

In the telco sector it tends to lead to an inability to make sensible use of capital to act on opportunities and evolve the business. You have companies that make a lot of money, but because of how leaders are incentivized and promoted, nobody wants to take risks and evolve new business areas because that might affect short term profitability or personal compensation for leaders. And even if you have leaders who want to, they will typically have very little manouvering space and anything that doesn't have a quick payoff will typically be sabotaged and then axed.

The way you "solve" problems in the telco sector is typically through mergers and acquisitions. The latter often having a very low chance of realizing much value. I've also seen a lot of examples of companies just selling their operations when, due to failure to respond to how markets develop, just have to give up and find new markets where their outdated strategy still works. (One way to look at this is to see what happens when a market reaches various saturation milestones).

And here you have a problem: different electricities are not equal. Suppose you have two large electricity-consuming areas (cities) physically separated by huge nothingness. One electricity plant can make roughly 1.5x demand of one city. There are two options: 1) build a plant physically near each city and 0-0.5x capacity interconnect between cities 2) build two plants near one city and have 1x capacity interconnect.

The question is how do you distribute costs of required infrastructure? This is a very non trivial problem, apparently. You may have sort of free market for "generic electricity" i.e. power/energy, but then the cost of transmitting that electricity falls on the grid and it may be a very significant cost burden. You may discount electricity of each provider by the network cost, but that cost is in practice dynamic, even more so with renewables. On one hand that would incentivize building of microgrids and small plants, but on the other hand that would disincentivize construction of base load generators, which are necessary for stability of the grid, especially with microgrids.

Datacenter connectivity faces the same problems. Say you need 1 gbps gateway to app, 10 gbps app to db, 40 gbps db to storage. How do you allocate network interconnects and node placement in racks? If some team has a spare storage shelf in another part of the dc, do you want to allocate that to app server in another part of dc without physically moving servers and instead routing extra 40 gbps fiber? Who pays for that?

Even then it doesn't always work out - UK rail services have that system - the infrastructure is maintained by a public body [1], but the operators are private. UK rail is quite expensive, and mediocre in quality compared to our EU counterparts.

One of the issues is that it's basically impossible to have competition on a single rail journey joining two large cities - there's aren't enough tracks to support it without making it unprofitable for operators. So rail networks bid every few years on sections of the rail network, and then have no competition for their term. Again the incentives that make the free market efficient are just not there. A nice video that summarises this mess here: [2]

[1] https://en.wikipedia.org/wiki/Network_Rail

[2] https://www.youtube.com/watch?v=DlTq8DbRs4k&t=1077s

I suspect though that when clean water was a new thing it probably cost a much bigger amount of people's income than it does now.

Even in that configuration, companies often have trouble fronting the money required to build a sizeable power production infrastructure. It can be seen in renewables, where investors build a lot of renewables production, but don't really care about what will happen once these renewables produce a large share of the network's power, and don't research and develop the missing pieces or the expertise to maintain.

You could argue that the public market regulator needs to better incentivize private companies to build the right thing, but at this point, the real value is the regulator's planification, not private companies buying and installing Chinese PV. So you have a capital-intensive private industry with little value-add.

People that need insulin need it regardless of price, so a 'free' market has the property that the price increases until the 'customer' is broke and then dead. It creates corporate structures that are based more around a 'leech' model. There is no incentive to create better or more efficient products.

This goes for basic food, housing, healthcare, transportation, education and so on and so forth.

So much life hardships would disappear if this was our reality and all it needs is political will.

I agree that it’s in the people’s interest to own the infrastructure. But the management of the service on that infrastructure should be auctioned into the private sector with oversight from the government.

Under capitalism, private capital predominates; it decides the laws and the commons. If you think you've found a way around this, it's only a matter of time. We call it capitalism for a reason.

It makes sense that energy production should be competitive. But for energy supply I can choose from dozens of companies that all supply the same gas/electricty, using the same pipes. These energy supply companies are really just billing operations. The actual supply of electricity is done by National Grid, another private company, but with no competition. Same for gas, and Centrica.

I can't even discriminate between them based on whether they're likely to go bust; when an energy supplier goes bust, some other supplier is forced to take on all their customers. That is an incentive to not run the company finances responsibly (whther you're the one that goes bust, or the one that is forced to take over).

Regulators are consistently hopeless. Regulatory capture is part of it - half the executives in these companies used to work for the regulator. But part of it is that you simply can't make a competitive market just by having a regulator tell you how much profit you're allowed to make.

Natural monopoly? The market is inefficient.

Inelastic demand? The market is inefficient.

Negative externalities? The market is inefficient.

Markets are just a means, not an end. We should apply them judiciously, not religiously.

In my town, most of our utilities are public utility districts that are a private company with a publicly elected board of directors.

Our electric company, SMUD, is fantastic with excellent customer service and much cheaper rates than PG&E.

I called SMUD about a tree that was leaning towards a power pole during a storm and they cut it down within 4 hours!

I’ve been to some board meetings to complain about some shenanigans with our water district, and it’s pretty cool to see public oversight in action.

"When Dr Beeching wrote his 1963 report, half the UK rail network carried only 4% of the passenger traffic, a third of the passenger fleet was used less than 20 times a year, and the railway employed 475,000 staff. British Railways annual deficit was then £87 million, or £2.3 billion in today’s money.

Today’s rail network is more intensively utilised and employs about a quarter the number of people. Yet in 2018/19, operational funding (i.e., less HS2 and enhancements) cost the taxpayer £4.7 billion or twice that of Beeching’s highly inefficient railway"

https://www.railengineer.co.uk/is-rail-affordable/

Also on the busiest West Coast mainline route London-Glasgow most trains still take around 5 hours the same as in the 1970s but with less legroom, more uncomfortable seats and highly extortionate ticket prices.

There are more people proffesing their beliefs in this thread, than in most discussions about the Catholic church.

In this entire thread noone considered - "let us have a look, which country has best railways" and maybe learn from Spain and China.

In public discourse, ecomomy is treated like a religion.

"Distributing goods and services" also sounds as if these were inherently available in infinite quantities.

Problem is, they use finite resources. Such as oil, gas, soil, people.

So you are probably right and your belief is not a belief but a fact, but I strongly disagree with the implicit statement that this would maximize human wellbeing, present and future.

What is the empirical evidence for the efficiency of "free" markets (free from "externalities" too?), and what do they minimize, what do they maximize?

Thank you to everyone who flagged me and now I can't respond or comment in this thread <3

"from March 2020 to February this year, the Government paid out more than £7.3 billion in operational support to private train operators" - https://bylinetimes.com/2021/05/18/7-billion-covid-bailout-f...

When the government is ideologically opposed to ensuring sufficient public oversight, quality of services drops.

The problem in the UK is not merely privatisation, but privatisation in a way that privatises profits, often socialises losses, and that substitutes dealing with crises after the fact over strong oversight during, because of a string of governments that have not just been opposed to government ownership, but that has been opposed to regulation.

You could strip away the profit motive by making these all non-profit stakeholder led organisations of some sort, and you'd still have a massive problem because of the lack of proper oversight.

Fix the oversight issue and maybe some degree of privatisation would work (though I agree many of these services should still not be operated with a profit motive), but the double whammy of weak oversight and privatisation is disastrous.

The other issue of course is in a public setting, there is no motive for efficiency.

Obviously there are cases where the government fails and that can't be given a free pass, but this is too often assumed to be the outcome and the only solution is privatisation.

Even in the UK where there is the feeling that government is totally incompetent the NHS keeps providing at least a baseline level of medical care expected from a western country. This is despite being sabotaged at every opportunity over the last 12 years by the Tory party.

you must mean immediate profit

Do people prefer to buy the package of ground beef that's $9/lb or the one that's $5/lb? When faced with a choice, most people want the cheaper one, disregarding the harmful externalities that make the lower price possible. Nevermind that the more expensive one is better for their bodies and the environment. Most people and corporations are married by the same motivation: to make and save as much money as possible with no regard for the harmful effects.

If profit-seeking consumers shift their motivations, profit-seeking corporations will naturally starve, and something higher than profits will prevail. But people won't change. Nobody is going to vote for the government to ban the cheaper but more harmful beef farm.

* The volunteers being a limited group of decision makers.

Especially when it comes to our healthcare system.

Thatcher even said that the eventual goal of the UK was for all the labour to be highly skilled. The vision is a nation of software devs, engineers, financiers, lawyers, and managers driving their car to work or paying whatever for the expensive train ticket.

We even have a pipeline that takes you directly from university graduation to these high end jobs. These jobs then re-educate you with their own bespoke courses.

Basically, the point of austerity was always to try and starve all of the public aspects of the country. It is almost all by design.

And the west pushed this Privatize All The Things model into the former Soviet bloc, too, where mass brutal privatization of the huge portfolio of state assets created the kleptocrat economic they have there now.

Nobody ever denied that the free market is efficient. The question is: efficient at what?

https://en.wikipedia.org/wiki/Thatcherism

Or talk to a few older folks about Britain in the 1970's and 1980's.

In hindsight, much stricter regulation regarding reinvestment of profits would have been a good idea.

The regulatory structure of the privatized industry says the water companies can only make profits if they make capital investments, and so the amount invested in water infrastructure in the UK (particularly England) has duly gone up a lot since privatization and has been comparable or higher to other nations since.

From this point of view, it's less about choice and markets as a way to structure the regulation and ownership so that capital investment actually happens.

Due to this, they followed the model of minimizing infrastructure, equipment, and crew expenses which left them with slow service only good for a sliver of shipping. The freight RRs are efficient from a monetary cost standpoint but people are willing to pay more to get something quickly and they can’t compete on speed.

If someone else owned the tracks, and leased capacity, the track owner would try to maximize the use of tracks and clear trains quicker and provide new services. We’d see the complete opposite effect, the return of passenger trains, improved signaling, and maybe even electrification.

They changed tack on climate change and ecosystems disasters about a decade ago. After that it was pretty obvious the current trend on full economy scale climate action (starting from Wall Street using ESG in major fashion as a criterion) was coming.

The Economist is a bit like RT - denying that everything is going wrong in Kharkiv to a point but beyond a certain threshold they eventually stopped and admitted reality.

I'd be curious to see what their views were about Thames Water privatization were in the past before all this stuff came out. That'll give a clearer picture of their true views.

https://www.economist.com/by-invitation/2023/07/06/thames-wa...

Although they went quite far to be clear it wasn't written by them.

That said I've not found the economist to be dogmatic when it comes to privatisation. They typically come across as quite practical to me.

It's a post-ideological era that we live in. Nobody cares about taxes, incomes and the like any more.[2] The conflict is now red vs blue.

[1]https://www.theguardian.com/commentisfree/2021/may/20/great-...

[2] Apart from the occasional oligarch who buys a newspaper because he really cares about his own taxes.

Truly astonishing that nothing like the Norway model was done. Those oil reserves could’ve transformed the country, surely?

I've spent my entire life watching private shareholders rape companies sold off by successive Conservative governments.

I've grown up hearing of workers buying homes on minimum wage and that the majority of families could support themselves on a single income. Yet despite huge advancements in automation, computing, and productivity I do not live in such a world.

I've seen the ways in which private business treats people who have no other choice: with no regard for their wellbeing, their humanity, or the law.

Private business serves as a useful means of parallelising and (somewhat) decentralising decision making, but unless brutally controlled it ravages society.

    Privatization can, and has, worked well in several monopoly utilities, where the privatization is structured appropriately. Forced percentages to be set out for infrastructure improvements, profits capped by regulation, debt cannot be piled on willy nilly but has to be approved by a regulatory body, and finally common access allowing for competition.

It would make sense that policy has to constantly be evolving in a free market.

Infamous example are leveraged buyouts, i.e. finance the takeover of a company by putting the company in debt. I think Twitter was an LBO.

My impression is that in Japan, there are social repercussions for people who work for a company that acts against society. Which is why we see public apologies from executives when things go wrong.

On the other hand, your ability to fuck over wider society seems to be a point of pride in many western countries. See the various scandals in the UK over COVID contracts, or PPP fraud in the US.

I'd like to see proper consequences for those people, of the kind that gave us the term Boycott at the very least.

Though I don't know if that was because there was a huge boom of Internet access around that time, and telephony prices would have dropped anyway, or if that was one of the examples where it did work, inherently.