The Tide Is Turning Against Privatisation

Seumas Milne writes:

Privatisation isn't working.

We were promised a shareholding democracy, competition, falling costs and better services. A generation on, most people's experience has been the opposite.

From energy to water, rail to public services, the reality has been private monopolies, perverse subsidies, exorbitant prices, woeful under-investment, profiteering and corporate capture.

Private cartels run rings round the regulators.

Consumers and politicians are bamboozled by commercial secrecy and contractual complexity. Workforces have their pay and conditions slashed.

Control of essential services has not only passed to corporate giants based overseas, but those companies are themselves often state-owned – they're just owned by another state.

Report after report has shown privatised services to be more expensive and inefficient than their publicly owned counterparts.

It's scarcely surprising that a large majority of the public, who have never supported a single privatisation, neither trust the privateers nor want them running their services.

But regardless of the evidence, the caravan goes on.

David Cameron's government is now driving privatisation into the heart of education and health, outsourcing the probation service and selling off a chunk of Royal Mail at more than £1bn below its market price, with the government's own City advisers cashing in their chips in short order.

No amount of disastrous failures or fraudulent wrongdoing, it seems, debars companies such as G4S, Atos and Serco from lucrative new contracts in what is already an £80bn business – and one with an increasingly powerful grip on Westminster and Whitehall.

You might think this would be an open goal for the opposition – and no case more so than the scam for siphoning off public money that is Britain's privatised rail system.

Rail has been the ultimate dysfunctional selloff.

Shoehorning private markets into a natural monopoly has delivered fragmentation, rock-bottom investment, annual costs of £1.2bn, the most expensive train fares in Europe, and more than double the level of state subsidy than under British Rail.

The East Coast mainline, by contrast, has provided a far better service under public ownership and delivered £800m to the exchequer (not unlike the publicly owned Scottish Water).

So naturally the coalition is going to sell it off, while Labour is in a tailspin over whether to back the highly popular demand for renationalisation.

Ed Balls, now keeper of the flickering New Labour flame, insists public ownership would be "ideological". 

The rail profiteers and corporate barons, alarmed by Ed Miliband's plans to freeze privatised energy prices, agree.

So Labour is toying with a halfway house, where franchises continue but the public sector is allowed to bid to run them as well as the privateers.

That sounds like an expensive dog's breakfast.

Rail renationalisation has the advantage of being not just popular but entirely free – as each franchise can be brought back under public control as it expires.

To resist it in those circumstances can only be about the power of corporate lobbies or market ideology.

But the need to break with 30 years of cash-backed dogma against public ownership goes well beyond rail. 

The privatised industries haven't only failed to deliver efficiency, value for money, accountability or secure jobs.

They have also sucked wealth, rentier-style, out of sitting-duck monopolies, concentrated economic decision-making in fewer and fewer hands, deepened inequality and failed to deliver the investment essential to sustainable growth.

At a time when the entire corporate sector is sitting on an uninvested cash mountain and productivity is actually falling as a result, the lack of a publicly owned economic motor to drive recovery is dire.

In the case of energy, the privatised system is failing to deliver the most basic goal of investing – to keep the lights on.

The alternative of tougher regulation, seen as the acceptable political alternative, means trying to do by remote control what's far better done directly and won't fix the problem on its own.

Experience has shown that you can't control what you don't own.

As the Glasgow academic Andrew Cumbers argues in a paper for the thinktank Class, it's only by huge incentives and perverse subsidies – such as those paid to Danish and Swedish state-owned companies to meet renewable targets – that the government is able to coax the privatised monoliths to do what the public sector could have done itself far more cheaply.

The case for new forms of public ownership in the banking sector and utilities – energy, water, transport and communications infrastructure – is compelling.

A core of socially owned and democratically controlled enterprises could set the pace of investment, reconstruction and the shift to a greener economy.

It's a policy that has support from the majority of the public but is regarded as beyond the pale by the business-as-usual elite. It would be prohibitively expensive, they claim, and a throwback to a better yesterday.

In reality, there need be no net cost to the public purse.

Even if full market compensation is paid, that would be in the form of a government bonds-for-shares swap. 

Interest would have to be paid on the bonds of course, but it could be funded with a slice of these companies' profits.

But Britain's City-focused governing class has also failed to notice what's happening in the rest of the world. 

From Latin America and the United States to Western Europe, in both the global south and north, privatised public services, utilities and resources are being steadily brought back into public ownership.

In the past decade, 86 cities have taken water back into social ownership. In Germany alone, more than 100 energy concessions have been returned to public ownership since the 2007-8 crisis.

Even as austerity is being used to try to breathe new life into privatisation, the tide has started to flow in the other direction.

The new wave of public ownership is taking innovative, sometimes hybrid, forms, and overcoming weaknesses that hobbled earlier nationalised industries.

But in Britain the power of City and corporate vested interests engorged on the profits of privatisation is a powerful obstacle to this essential shift.

Pressure for a genuinely mixed economy – something previously regarded as the commonsense mainstream – is bound to grow as the costs and failures of unbridled capitalism mount.

Rail can only be the first step.