Apologists, failure, and always being wrong about privatization | What's Left 2018-01-21 Volume 104

by Editors (What's Left) last modified 2018-01-21T22:11:27-05:00
The fight against privatization is framed by liberals and the right-wing as a clear and unsubstantiated ideological position of the left. And, no matter how much research is presented exposing how privatization of state services and programs costs more and has no positive (but, in many cases negative) impacts on quality of services, the dominant narrative is privatization works. But, at this point, believing that privatization leads to increased efficiency and lower costs is akin to the denial of climate change and thinking vaccines cause Autism. Decades of real life examples, economic analysis, and trial and error policy show that there are so many ways that do not work when it comes to privatization. So, why do people still believe this nonsense?

Click here to join the free weekly What's Left email newsletter.

One only has to look at the response to the collapse of Carillion to see how committed to the lie the apologists of privatization are.

Carillion was—as a company—the product of ideologically-driven neoliberal privatization programs in Britain and in many countries that followed Britain's policies in the 1980s. It was a fully financialized outsourcing company, it took what were non-profit in-house services of government into the profit-driven private sector. The story of how Carillion collapsed should have thrown the entire system of privatization into question. The entire agenda, oversight, fake budgeting, complicity between government and investment banks in papering-over the problems with the business model. It was such a sham that there was an industry of investors that grew betting against the company's stability.

Instead, we are faced with article after article across all media explaining away the issue. We are told Carillion was different than all other monopoly public-sector contractors. But, how it was different seems to rest entirely on the order of letters used in its name.

When it comes to contracts that Carillion were responsible for, the public pays irrespective of success or failure of these contracting companies. If the outsourcing "works", it means that the public has paid more than it should have to line investor pockets. If the company fails, the public is still on the hook for providing what are usually necessary public services and investors still get to line their pockets.

As now with Carillion, when these schemes fail, the socialist call is for public works, not bailouts or re-tendering. Our focus should be to save the needed projects and the workers' jobs and reject the temptation to focus on cost containment. All the costs were the result of the original outsourcing. It is almost always more expensive in the near term to undo the privatization damage and bring this work in house than just to re-tender the process to another out-sourcing company.

Crises are not the optimal time to bring things back in house efficiently. The public sector likely does not have the capacity to coordinate some of these projects and would have to either hire or contract with a management firm to develop that capacity on the fly. However, this would also be the case for any company taking over the contract through an expensive and rushed re-tendering process. And, it would simply delay the inevitable renationalization.

Unions and critical economists—including those in finance that bet against these companies—have highlighted the nonsensical costing process that allows these contracts to run so close to the margins. These companies cannot be trusted to provide sustainable business models as the entire system is built on under-cutting each other through fake bids. Carillion's model was to do this and then try to extract the tiny profits from the under-bid off cutting corners, under-paying workers, and engaging in pyramid-like financing schemes.

This process was so bad and transparent that nearly a quarter of the outstanding shares of Carillion were shorted—including by Soros. Many in Finance saw it coming, but not those regulating the system and definitely not the auditors providing the government the data. Or, so we are told.

Other contracting-out companies are trying to say that they are different, but we all know that these are just slight variations on the Carillion theme. Indeed, with the collapse of Carillion, we have a near monopoly situation in government out-sourcing services. There are only a handful of companies left who do this work. As the Carillion story unfolded, you might have missed that Capita—the UK's largest outsourcing company responsible for things like military recruitment to software services—issued additional profit warnings and faced a collapsing share price for basically the same reasons Carillion collapsed.

Some of the reports indicate that some parts of the government knew that the company's numbers were fake in its bids, but signed contracts anyway. Activists should call for a government commission to look at the practices and skill level within the public sector at evaluating the companies that are bidding on contracts. If a company is not fulfilling their obligations and having contracts ended early (road clearing in northern Ontario) then why is the same department assigning that company contracts for only slightly different work?

We know the answer to this, but it would be fun to try to get a government to actually do a study and try not to admit it. It might at least give some space to poke holes in the dominant narrative.

Also wrapped-up in this is the pension coverage for workers at these companies. Carillion's liquidation is a way that the investors are relieved from the obligation to the workers pensions. The company has also made the odd claim that it taking over the pensions was not a contractual obligation, but instead just something nice they said they would try to do. It looks as though it did not try too hard as it had a half-billion dollar pension deficit for its workers while paying-out over three-hundred million in dividends to shareholders. In the UK, the question is whether the affected workers have lost both their jobs and their pensions because of neoliberal government policy.

The kicker is that while the governments of the world scramble to contain the problem of tens of thousands of workers losing their jobs, the need to maintain the services Carillion provided, and deal with the political fallout, the company said it would keep directors on payroll. 60,000 employees will likely not fair so well, including 30,000 sub-contractors who will likely not be paid for work already completed.

Privatization is a dead-end that has special additional costs for the public all the while capitalists skim profits off the top from dividends, bonuses, and short positions when it goes under. When this many capitalists are making so much money is it really a wonder why the taxpaying public are lead astray about what is actually happening?

Carillion and the ‘dead end’ of privatisation | Michael Roberts

Capita Slumps on signs of difficult 2018

P3 corporate collapse highlights risks of privatization

Document Actions