On the privatisation of public services: An objection on principle

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Amidst all the excitement surrounding the recent privatisation of the Royal Mail, the delivery of public services has been on my mind*. It’s long given me a sense of unease watching the current government increasingly privatise our public services, and up until now I’ve been unable to put my finger on why. I’ve begun to realise that it’s essentially the contrasting bottom lines upon which private and public these sectors operate that troubles me.

Fundamentally the bottom line for private business is profit maximisation, rather than provision of quality services. To some extent the two go hand in hand, but it is crucial to acknowledge this motive for profit, because it prompts decision-making all the way down. Public services should be, as the name suggests, a service for the public, not a service provided to maximise private profit. Don’t blame the people at the top of corporates for making decisions with profit at heart, blame the legal business model (company limited by share) which means they are legally obliged to maximise shareholder profit. They’re just doing what they must.

You can see the problem in other public services e.g. provision of healthcare. There is no money in prevention, and from a business point of view prevention makes no sense – if successful enough you put yourself out of business. In contrast, there is a lot of money in pharmaceuticals though – a point made by a healthcare professional in a seminar I went to recently. In order for these pharmaceutical companies to survive they need to sell more drugs, it would be bad business if they prevented health problems from arising in the first place as they would soon find themselves out of business. There’s a real tension there between what is good for people and what is good for business.

A justification for privatising services is that competition drives up quality, and so the market naturally filters out all but the best services. There is truth in this, but it is a blinkered perspective. The market also favours companies with the best advertising, who are the best at making people feel inadequate without their product/service. The market favours companies manufacturing products with a short lifespan, so that people have to keep replacing their products every year irrespective of whether they are actually still adequate for the job (iPhone 11 anyone?). The market favours companies who use whatever methods they can get away with to maximise their shareholder profit, including exploitation and tax evasion. The market is not a barometer of what is in the best interests of the public, and a blunt tool when it comes to ethics in decision-making.

There is also the question of ownership to consider. Public services remain in the hands, in theory at least, of citizens. How do we feel about the Government of Singapore being one of the biggest shareholders in the Royal Mail?

Of course, I am in danger of taking a blinkered anti-business view myself. The private sector is less susceptible to the political infighting and jostling that can so harm public services. And it does open it up to competition, which drives up innovation and efficiency. Without this the quality of service can stagnate. Another advantage of using business to provide service for the public, is that if it is an effective service then it stands a good chance of making profit, and thereby growing as Michael Porter points out in this talk, and CSR is gradually becoming a much more fundamental part of how we do business. It is also important to acknowledge that government is responsible for regulating industries too, although it is debatable where the power of balance really lies here.

Public services have weaknesses too. They can end up as government cash cows, as occurred with our eastern rail services. The government, like business, is concerned with its economic turnover and operates each year with a budget deficit. The loans they attain from banks to make up this deficit grow in interest every year, increasing the pressure and forcing them to compromise around their implementation of public services.

In my view, social enterprise could have a crucial role to play here in the future in terms of providing a better balance of service. Community Interest Companies are worth keeping an eye on, as they balance public interest against economic goals. However, the social enterprise sector is not yet generally big enough to take on large public service contracts. B Corporations are also opening up the opportunities for business to serve the public.

Public sector, social enterprise and charity all have their flaws, but to me all are preferable models when it comes to delivering services for society compared to for profit business, simply because of the bottom line. So my objection is a philosophical one. Public services at least are somewhat democratic, and if the public are not happy they put pressure on government to improve. Charities will likely die out unless they are having a significant and demonstrable social impact now, likewise social enterprise. However business, at the moment at least, has one bottom line – maximise shareholder profit. In my view, that’s not a good enough motive from which to create a service for the public.

*This article has a good debate on the pros and cons of privatisation: http://www.independent.co.uk/voices/debate/royal-mail-privatisation-the-pros-and-cons-8814217.html

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Do economics and business make unsustainability inevitable?

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I believe that the most fundamental root cause of many of our current social and environmental problems lies with our institutions – primarily our institutions of economics, business and governance. Poverty, climate change, mounting debt…these can all been attributed, to greater or larger extents, to the institutions that modern civilization is built upon; institutions that are cracking and creaking as they prove increasingly insufficient for the challenges of the modern world.

Let’s look at sustainability. We have an economic system that requires constant growth in order to survive. We have a business system that has to play by these economic rules and thus also requires constant growth. This is a model of business (the corporation) whose bottom line and primary purpose is to maximise its profit. Neither of the business or economic institutions take any consideration of social or environmental impact, although this is very slowly changing. Both of these institutions in fact treat our environment as unlimited income (rather than finite capital) and, it could be argued, require natural resources in order to run effectively – in order to meet their inherent need for constant growth. Neither institution takes in to consideration the possibility of limits.

So, our economic institution, and by extension our institution of business, requires constant growth yet takes no consideration of limits. Our civilization and entire way of life is dependent on such institutions. Every nation (with the possible exception of Bhutan) and business on the planet is chasing economic growth, with almost no acknowledgement of the possibility of limits. When this is understood, it seems of little surprise that our path is so unsustainable. It seems quite clear that our impact on the planet, particularly in the form of climate change, and our inability to manage our resources sustainably is a result of the institutions we have built our world upon. Such problems represent a very serious threat. Overshooting limits has had a role in every civilization collapse in history. And here we are, building modern civilization upon institutions which take no consideration of limits. Clever.

It does not take a physicist to tell you that infinite growth in a finite system is impossible. Simple common sense is enough. And yet, this is what our institutions demand. Currently, in order to achieve sustainability we are fighting against the institutions which define modern society. They have served us well for a long time, but are becoming increasingly outdated. To succeed, it seems clear that these institutions will need to undergo significant change.