Privatisation – Provider Profits, Public Pays

by Michael Patrick O'Leary

This article appeared in the Sri Lankan newspaper The Nation in November 2011 but seems to have disappeared from their website.


In 1977,  J.R. Jayawardene cried, ‘Let the robber barons come!’  Peter Mandelson said New Labour had no problems about people being seriously rich. “Liberalisation” of the economy made some people seriously rich.

It has been claimed that the term “privatisation” was first used in the 1930s by The Economist to describe Nazi economic policy. In my lifetime, it has generally been seen as a right-wing kind of concept.

One of the foundation myths of Thatcherism is that the Iron Lady  banged down a copy of Hayek’s The Constitution of Liberty and declared “this is what we believe”. However, Hayek was no Thatcherite.  He wrote: “probably nothing has done so much harm to the liberal cause as the wooden insistence of some liberals on certain rules of thumb, above all of the principle of laissez-faire capitalism.”

Despite the nostalgia of some on the left, nationalised industries were not easy to love. I tried hard, snoozing over the works of Ralph Miliband (father of David and Ed) in Manchester Central Reference Library, but I did not learn to love British Gas or British Steel.

After privatisation, UK public utilities  initially became more efficient and customer-friendly. A customer service ethos briefly crept into public services previously noted for their surly sloth. The man on the Clapham omnibus bought shares and was encouraged to offload  them instantly to make a quick profit. Controlling blocks of shares were snapped up big institutions, many of them foreign. The cliché changed  from “a nation of shareholders” to “selling off the family silver”.

I was a management consultant in the NHS in the early days of the health service “reforms”, which aimed to introduce market discipline. Imposing artificial distinctions between providers and purchasers on a sensitive area like health care seemed to me a crazy idea even then. Dr Hamish Meldrum told a BMA conference: “End the ludicrous, divisive, expensive experiment of the market in healthcare in England. Never has there been a better time to abandon the wasteful bureaucracy of the market”.

It was unfortunate for the UK and the NHS in particular that Blair and Brown were fixated on the idea of PFI (Public Private Finance Initiative). Let Carlisle NHS Trust Hospital stand as an emblem of PFI in the NHS. Reports told of  sewage bubbling out of theatre sinks when nurses were scrubbing up. Sir Stuart Lipton, head of the government’s Commission for Architecture and the Built Environment, said: “The present round of PFI is effectively sub-contracted obligations. It is not that the buildings are being built inefficiently, but the contractor has got nothing to do with the medical process – they are two separate functions, which effectively should be one”.

When the conservative government was ousted, the Blair government pursued PFI with even greater zeal. In the UK, the partnership has been one-sided – the provider profits, the public pays. Despite propaganda about the risk-taking adventurous spirit of the private entrepreneur, the private side of the public-private partnership cannily avoids risk. The government, or rather the taxpayer, carries the risk.

The British Empire imposed western institutions and Christianity on the savages. In recent times the Bretton Woods institutions have imposed the voodoo economics of neo-liberalist orthodoxy on the “developing” world. Because debtor governments are in a relatively weak position and international banks, backed by the World Bank and the IMF, in a much stronger one, complex currency deals invariably produce knock-down sales of state assets to foreigners

World Bank documents recognised that re-building the damaged Sri Lankan infrastructure after the tsunami “may strain public finances” and suggested that governments consider privatisation. “For certain investments,” noted the bank’s tsunami-response plan, “it may be appropriate to utilise private financing.” So money donated nominally to help tsunami victims was actually used to inflict a “second tsunami” on them, handing over their land to foreign corporations and ending their historic lifestyles for ever.

Neo-liberal imperialism leads to the assumption  that poor countries cannot modernize without foreign help. In the 1990s this “help” meant blackmailing developing countries into accepting the Washington Consensus – deregulation and liberalisation of markets, privatisation and severe cuts in the public sector and undermining sovereignty. Health and education are cut  and essential utilities like water are handed over to foreign entrepreneurs. These policies have been imposed without concern for the social effects on the target economies and has left the Bank open to charges that its main objective is to further US interests.

It is bizarre that, in spite of  the crash, some people are still calling for more deregulation and privatisation. In India, the Planning Commission’s Approach Paper to the Twelfth Plan claims to have consulted civil society organisations for six years, but seems to have been deaf to reason. PV Rajagopal, president of Ekta Parshad,  a Gandhian social movement struggling for the rights of landless and economically marginalized people, told the Chennai magazine  Frontline that the slant in the Approach Paper towards more privatisation and PPP was not what he had in mind when he participated. Bill Clinton has been criticising Obama’s financial policies. Although the Clinton years were prosperous, he  helped precipitate the present crisis by deregulating banks and encouraging the mortgage binge.

It surely was not too much regulation or not enough privatisation that caused the world’s financial woes.