Analysis in 2020 found that privatised (sic) water companies paid £57bn in dividends to shareholders since their foundation in 1991 to 2019. Now they say they need better infrastructure to stop piping sewage into rivers, lakes, and sea.
Up here in Toronto, Canada, we privatized half our trash collection, dividing the city in half. The West has private collection, the East has public. When it went into force, the arguments were strong: private was cheaper. Now, a few years later:
Private collection on the west side of the city now costs more per household than collection in east Toronto by city workers. https://t.co/l8XUEAdgK8
— Toronto Star (@TorontoStar) November 9, 2021
Oh, hey, what a surprise. It costs more and they pay workers less than the City does.
Let’s keep this simple, as free market fundamentalists who usually understand nothing about markets often say, “There is no such thing as a free lunch.” TANSTAAFL.
Private companies have to make a profit. Public companies do not. Private companies are not miraculously more efficient, to be cheaper than public companies, they have cut costs. Often that is wages, other times it is not paying to maintain or upgrade infrastructure required to keep sewage out of the water.
For anything where we know how to do it; where there is actually little room for innovation, and where the service provided is about the same for everyone (this includes almost all universal or near universal insurance, all utilities including water and power and internet) public provision is more efficient and private provision can only be cheaper by cutting costs you don’t want cut. That includes, of course, pushing costs into the future: the trash company in Toronto knew it’d raise prices in the future, it undercut for a few years to get its foot in the door.
Once you do privatize it can be difficult to take something back public. You’ve sold the assets, and the people you sold them to are making money and don’t want to sell back. Especially at lower levels of government you may not be able to force them to, or force them to at a reasonable price. In addition, they now have a constituency of rich people who need them to continue (investors, executives) and who can use their money to lobby and bribe officials.
As a rule, most privatizations are fraud, and the politicians who do them are corrupt, helping out friends and donors and doing well out of the process. Most politicians who do this should be treated as criminals and thrown in prison for defrauding the public, corruption and fraud.
(About half of the neoliberal agenda initiated by Thatcher and Reagan was and is just “privatize everything you can so the rich can get richer.” It’s not capitalism, it’s rentierism and corruption and makes economies weaker, not stronger.)
TANSTAAFL. There is no free lunch, if a private company can make money off a public asset, it’s been sold to them for less than its worth, and the people who will pay in the end are taxpayers.
If it is a public good, it should be provided publicly.
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different clue
Does East Toronto have the legal permission to re-municipalize its garbage collection? Or did its rulers sign the kind of contracts which make re-municipalization illegal?
DC
Portugal here. Around 2012 the mail service was privatized.
Back when it was state-owned it was always contributing with millions in profit for the state. It had its issues with distribution that came down to the person doing the deliveries. The administration was managing the company like a private company with some outsourcing, trying to claw back benefits but after the privatization? They went full “let’s milk this cow dry”!
They distributed dividends that didn’t match the company’s results just to maintain an inflated stock price. There were a couple of years they even borrowed to distribute dividends above the profits! At the same time, they had the brilliant idea of creating a bank (like the UPS is thinking)! Since they managed pensions, why not branch out for commercial banking services? Great idea, right? So, they squeezed the company dry with inflated dividends and the MF bank. For years the bank accumulated losses but now it’s finally generating profits. Stock prices are below what they were when it was privatized (and like the Royal Mail, it was sold at a price that didn’t match its true value), prices have increased a lot, quality decreased A LOT, tons of outsourcing, paying peanuts to everyone, cutting open hours, asset stripping by selling premium real estate left and right. You now have to pay a premium to ensure your packages arrive otherwise you’re gambling with massive delays or plain loss of mail. And this is the company the state uses to send you important letters like taxes, health service, court orders and whatnot.
And let’s not talk about customs service. Packages below a certain value didn’t stop at customs but those rules changed at the same time as Brexit occurred. The state didn’t hire extra workers (of course not, there are still limits on public hiring from the austerity 10 years ago) for the customs and the mail service who deals with the distribution didn’t also. The amount of complains just skyrocketed. I don’t import anything outside the EU now because I don’t want to deal with the customs and distribution nightmare.
Now the government has its hands tied. Nationalize the company? The EU would eat them alive. Even if they could nationalize it, how to split the bank from the mail service when it shares the same buildings, services, etc.? They’d have to pay through the nose after all the asset striping… I can’t imagine a solution for the mail service.
Plague Species
West Toronto, different clue. East Toronto trash collection is still done by the government.
Great article, Ian. Spot on.
Mark Pontin
FYI, Ian, a lot of the specific thinking about how to do privatization came from a small clique in the US, mostly at MIT in the late 1960s-1980s. In particular, one guy called Robert Poole Jr., then at MIT, literally invented the term ‘privatization’ and was at the center of it.
https://reason.org/author/robert-poole/
https://en.wikipedia.org/wiki/Reason_Foundation
Read his bio. Poole has been very busy over the decades behind the scenes, writing papers and books, and inserting himself into government policy-making in the US on every level.
In the UK context, all Thatcher’s waving and banging of Hayek’s ROAD TO SERFDOM was actually secondary to the influence of Poole’s book, CUTTING BACK CITY HALL (1980). The book provided the specific mechanics for how privatization was carried out in UK in the United Kingdom.
Michael Hudson, who was also behind the scenes at this time because he was working as Herman Kahn’s wingman at the Hudson Institute, corroborates Poole’s influence, so this is not just me pulling this out of my backside.
Poole is by training an MIT-trained engineer, as is Charles Koch (two masters degrees in Koch’s case, one in nuclear and one in chemical) who was there in the 1960s. So a lot of the neoliberal infection was actually incubated at MIT.
Not incidentally, a lot of things have gone on at MIT, including Noam Chomsky on the faculty. But on the down-low MIT gets something like 60-70 percent of its funding from DOD-related contracts and grants, much of it for black projects. Threaten that and you soon find out where the power lies; tenured professors, who are former Pentagon scientists, like this guy —
https://en.wikipedia.org/wiki/Theodore_Postol
have had security agents turn up at their on campus offices, and been roughed up and their offices pulled apart if they’ve tried to blow the whistle on some of MIT’s DOD scams. I talked to Postol a couple of years later and he was still deeply shook up and intimidated by what had happened.
Mark Pontin
Privatization really was and is all about giving corporations and the rich who own shares in those corporations license to loot the general population and national assets, rather than doing the work of creating and delivering products or services.
Back in the Thatcherite day, the contortions the UK government had to go through to privatize water delivery were something to behold. Privatization and neoliberalism take very bizarre intellectual turns once you start digging behind the scenes into what the hardcore believers cleave to.
In recent decades, something Poole and that gang are pushing — besides Charles Koch’s fondest dream of privatizing the US post office, which is almost achieved — are various toll road and highway schemes where we wouldn’t be able to go anywhere without paying corporations and the rich for the privilege.
This is right in line with what I’ve witnessed. Back during the dotcom boom, I worked for a magazine called RED HERRING, which had been started by one of the sons of Kleiner of Kleiner-Perkins, one of the original Silicon Valley VC partnerships. As a concomitant of that, a right-wing economist called David Henderson — like Charles Koch, one of the earliest members of the Mont Pelerin society in North America — got a monthly column. I used to get reports from the editor along the lines of, “This month David Henderson is having a nervous breakdown because the flagstones of the sidewalks haven’t been privatized.”
Strange stuff. It’s a religion — a savage, anti-human one.
Art
Generally, but perhaps not without exception, anything not presently being used to make a profit as a business can be assumed to be impossible to run as a business and make a profit.
That is not so suggest that these unprofitable tasks are unnecessary or that they do not benefit a majority of society.
Buzzard
My purple county has public trash collection. Our neighboring very red county has it privatized; residents pay a monthly fee to the company. But one of the advantages to privatizing a service is that your taxes go down, no? Well, in my state we have a “piggyback tax” levied by each county. The other county’s piggyback tax is 10% higher than ours.
So they pay separately for trash collection, AND they pay a higher county tax. What a deal!
Privatization is nothing more than a scam to make money for a few insiders. Employees and customers get hosed.
Hugh
Privatization is always an excuse to loot. In the US, this goes back to Ronald Reagan’s first inaugural address of January 20, 1981: “government is not the solution to our problem; government is the problem.” In the 40 years since, private enterprise has shown again and again that it can do lots of things worse than government: healthcare, internet, everything from space flight to garbage collection. But privatization is part of the theology of the neoliberal and libertarian canon. So facts and evidence don’t count: Paying more and getting less? You don’t like that? Government could do it better? What are you, a socialist or something?
bruce wilder
Corruption of politics is such a perennial problem, you would think the deep thinkers observing politics would have some ideas: better concepts of the public good, how to recognize and pursue it; better critiques of what ought to be obvious sophistry apologizing for economic predation; better ideas for institutional safeguards and counterweight.
We talk as if “privatization” was an unusually persuasive “idea” that alone vanquished the legacy of the New Deal and Social Democracy in intellectual combat among 15-second soundbites.
I think the rise of a well-funded neoliberal right and “left” locked into a sealed echo chamber, where no alternative is ever admitted did have a lot to do with the decadence of American politics, embracing the whole seamy, clubby network of policy academia, “think-tanks”, political media as well as partisan operatives and politicians seeking office. Outside of that circuit, our ideas and thinking are not just marginalized but deeply impoverished. That, as Ian demonstrates with the clear A-B test of the OP, we are at the Emperor’s New Clothes stage of emprical testing, where the only puzzle left is how to get out of here, is no comfort.
Mark Pontin
“…the only puzzle left is how to get out of here….”
Leave the country?
Plague Species
I hear Belarus is nice and welcoming.
Plague Species
Even the three branches of Government, Judicial Executive and Legislative, have been effectively privatized when you get right down to it. Regulatory capture is effectively privatizing another substantial chunk of it. For the rest of it, there can and probably will be sponsorships like with sports. The Library of Congress — brought to you by Meta.
Mark Pontin
Nah. Not Belarus.
bruce wilder
no, not leave the country
escape the state of shared consciousness so buffetted by disinformation that there is no good sense left
belarus is cheap
different clue
@ plague species,
Thank you for correcting my unfortunate reversal between East and West Toronto.
The question still remains . . . . does the private pickup side of Toronto have standing legal permission to re-public-ize any time it wants to? Or is it locked into private pickup for years or decades to come?
different clue
@Bruce Wilder,
Probably there should be extensive rolling teach-ins and whatnot for re-teaching and re-learning all the decent thought and knowledge existing up to and through the New Deal era. There are a lot of wheels in there which do not need re-inventing.
It was, after all, solid and legally protected enough that the Top Wing Overclass had to spend several decades and over a trillion dollars on spin mills, legal-change engineering, etc.
We could re-create time and space to solve some of our problems by repealing all the anti-New Deal legislation and erasing all the anti-New Deal rules, plus all the Free Trade Agreements and memberships. That wouldn’t solve the problems, but it would remove the strictly legal and reg-legal barriers to being able to solve them.
Now . . . whether we could do any of that without first a successful movement to round up and exterminate every member and supporter of the anti-New Deal/ pro-Free Trade classes and communities remains to be seen.
Purple Library Guy
Beyond the profit that needs to be skimmed out, it’s even worse with infrastructure projects than with services. Anything capital-intensive requires borrowing, and the interest rate becomes a huge component of the total cost. Governments generally pay lower interest than private companies. So, privatize something, or PPP it, and the borrowing will be done at higher interest, making the whole thing more expensive.
And there’s a tertiary problem, attitude: Any company which is willing to undertake this, and able to get government to give them the contract, despite both parties knowing that they are a more expensive solution than the public alternative, is by definition both willing and able to scam the public. So there’s clearly no intent to do the job as well and cheaply as possible–the point here is to make money, and the method is political corruption. So it’s going to soak the public purse for as much as its influence-peddling will allow it to get away with. So you can take the theoretical minimum of how much more expensive private provision would be due to the brutal basics of shareholder value and interest rates, and then add “whatever the public can be suckered for”.
StewartM
My example has always been “Joe the plumber”.
Joe the plumber is a friend of yours. He works for a plumbing company. You need some plumbing work done at your house.
Which is cheaper–1) to pay Joe’s company, which includes Joe’s costs and the cost of parts plus the overhead of his company, of his boss and the stockholders, or 2) simply say to Joe “Hey, if you’re free on a weekend, come over and bring your tools and I’ll pay you for the parts plus pay you the same pay you get from your boss”?
Funny, even the people who scream about “Socialism!!!” can see that option 2 is the cheaper cost.
Mark Pontin
Bruce W: …’escape the state of shared consciousness so buffeted by disinformation that there is no good sense left’
I haven’t personally suffered from that since I was six years old. And I don’t suffer from any inability to go my own way: I walked from journalism (and a mortgage note in Oakland) in 2008-2010 partly because it was already intolerable for all the reasons you complain of and partly because it was clear Google/Facebook were going to eat journalism’s revenues and things would only get stupider and more dog-eat-dog.
But that ‘state of shared consciousness so buffeted by disinformation that there is no good sense left’ sounds like an accurate description of the US itself. Back in the day, the Moronic Inferno was one phrase that Saul Bellow picked up from Wyndham Lewis for it. Sounds harsh, sure. But here are two questions:
[a] If in 2000 someone had described the stuff that’s regularly splashed in the news in 2021, and the inciting events — the GFC, the Trump election, blah blah blah — that brought those things on, would you have believed that the US would fall that far?
[b] And now in 2021 can you tell me how it gets better? Can you in fact even see any way the US does not degrade further?
Steve Ruis
I have yet to get a coherent answer to my question “How does extracting profits from a public enterprise make it better?” The answer, of course, is that it does not. The people pushing privatization extol the virtues of competition in “free enterprise” but how much competition is there in a public water or sewer works? (Answer: none.) Similarly, these privatizers work assiduously in their other endeavors to achieve monopoly status by driving out competitors and making start-ups very expensive. They say they are in favor of “free markets” which create level playing fields and then work in the exact opposite direction. Level playing fields are for chumps, they want a competitive advantage, hard-wired in if possible.
bruce wilder
@Mark Pontin
The satirical farce, Idiocracy, as a documentary?
Slavoj Žižek, the Slovenian philosopher, says that the idea of a political center is a right-wing myth. For the left, politics is conflict between interests and classes, but the right likes to pretend that politics can be supplanted by technocrats getting things done by the best technical means.
It offends me this notion because I really am a fan of intelligent compromise. Even on the subject of the OP, I would not subscribe to Ian’s blanket denunciation of privatization: public monoliths are also not efficient; some separation of control at critical interstices would be the right call, if we were able to task honest “disinterested” technocrats with a design.
The idiocy lies in letting a mayor named Tory say “this will save money” and not examining the proposition critically.
The U.S. completely lost the political capacity to critically examine, recognize and punish criminal incompetence in the Reagan Administration. The Iran-Contra affair was breathtaking in its stupidity as well as its blatant illegality in defiance of Congress. It was the last “real” cleansing scandal. And, it was the last, because of its ultimate result. The bad guys won. I remember a spontaneous classroom discussion at graduate business school, and fully half the students (who ALL had opinions mind) could not understand why what Oliver North did was both illegal and, as policy, incredibly stupid and corrupt.
For the young, the U.S. sold weapons and weapons parts to Iran at inflated prices to fund right-wing terrorists in Nicaragua. Not part of that scandal, but not incidentally, the CIA ran cocaine smuggling for a similar purpose. Since Reagan posed Iran as an enemy terrorist regime, this former operation was embarrasing enough to some members of his cabinet that the operation was exposed, but the defiance of Congress made heroes to the right of the numbskulls carrying it out.
The inability to see a fraudulent plan or argument as genuinely outrageous and the inability of Congress to govern has just ballooned since then. George W Bush made aggressive war on several levels of false pretense and turned the Occupation and “reconstruction” that followed into a vast corrupt, catastrophe, and . . . crickets. Did people just gaslight themselves? Everyone stopped caring?
The only prominent politician who has ever gotten notice for blaming any of the authors for the consequences was the useless idiot, Trump. And, the cringeworthy Trump was embroiled in the completely fake Russiagate, which demonstrated if nothing else that the base constituency of the Democrat Party is without either scruple or a frontal cortex.
So yeah, Ian can post one “Emperor’s New Clothes” essay about neoliberal falsities forever and none will do anything to restore the capacity for critical thinking so necessary to pursuing the general welfare and public good intelligently.
Synoptocon
The contract for West Toronto currently comes up for renegotiation in 2023. The current cost differential comes down to about $4 annually per household, apparently driven by a combination of public collection becoming more efficient and private collection becoming more expensive. Having lived through this transition, I’m pretty okay with private collection as we’ve seen noticeable increases in service quality (though I have my doubts about relative job quality).
The unspoken issue in any potential reversal, I suspect, would be the capital costs. When GFL came in it was striking how all their equipment was brand new – the notion that the city is going to be able to easily cough up the required monies from the currently constrained budget strikes me as questionable.
Ché Pasa
At least since the Thatcher/Reagan Era, Ian’s points about privatization have certainly held true. Some of the real horror stories have yet to be told, but the error was in thinking that government services could be contracted out to private companies that would theoretically do a better job at less cost to the overburdened taxpayer. Well, no. By and large, that isn’t what happened.
But maybe because of Veteran’s Day ceremonies or whatever, I was leafing through my modest collection of books, magazines and pamphlets published during and immediately after WWII. Relevatory and topical, I thought. The bulwarks of the US and much Allied war effort were private companies (many of them the same multinational we excoriate today for every manner of sin). In a sense, the War was privatized. These companies supplied all the materiel, equipment, weapons and tools to conduct the War, and they were showered with praise and honor for fulfilling their patriotic duties. Not only did they supply everything needed to make war, they also supplied the necessities — but not much else — to the civilian public.
They did all this under extremely tight regulations according to contracts and public laws. They were only allowed a certain level of profit, for example. They followed labor regulations. They followed supply and construction specifications. They had to get approval for changes. They were punished if they failed to follow their contracts or failed to follow regulations.
This went on throughout the War and for some time afterwards, and despite complaints, it was a system that seemed to work.
Most of the remnants of that system were gone by the time of Reagan, et al. Getting rid of whatever was left of it, and turning over public services to private companies seemed to be the priorities of the governments they headed along with removing regulatory constraints on companies, banks and financial operations.
There is actually no “system” any more.
What’s happened has certainly enriched an Overclass, entrenched class divisions, and made a mockery of government’s role. It’s ensured oligarchic rule far into the future.
We aren’t yet, though, living quite as rough as our WWII ancestors did.
How much longer it will be before we do is the question, and how much rougher will life be for our descendants?
Willy
I’d think the sweet spot between personal responsibility and social responsibility should be debatable, but not endlessly, even in an overpopulated increasingly technologized world.
As for debating with the faith-based reasoning, I’d also venture that the implicit philosophical foundation of American Christianity used to be Pascals Wager. Back then, even blind faithers were open to the credibility of scientific institutions as long as betting on the side of unprovable spirituality was allowed to be seen as rational. And scientists were in turn, more open to spirituality.
But try debating with die hard blind faithers today. They’ll imply that they own the truth and that you’re demonically possessed. Today, the eternal life of them and theirs depends on the downfall of established scientific institutions. In that world, even if Mammon controls all, then God must certainly be behind Mammon. Privatization is good as long as God gets to waterski behind as many yachts as he can acquire.
I don’t think this dynamic is unique to American Christians. It almost seems a human corollary, considering history.
Joe
could this socialize/ privatize be a cycle in which the asset is invested at public expense. When up and running sold via insider/revolving door dealing to a private concern. Run to squeezer out every penny for the owners meanwhile maintenance differed until the service is no longer functional. As a vital and political concern, taken over(purchased) by the public via a politician’s brilliant policy to get the thing to work, nice fat bond with lotsa interest paid by the taxpayer. Restored by the taxpayer, sell to capitalist concern, rinse and repeat. Sounds like something they teach at school of the Americas in Statecraft class or whatever they call it nowadays. Englands Train system comes to mind as an example.
Trinity
Bruce, there’s plenty of critical thinking going ‘round, as Willy just illustrated. The problem is that their reasoning isn’t “our” reasoning. All this does is highlight the fact that the people who do make decisions that affect us all are corrupt as hell.
And as Che also pointed out, the problem isn’t a lack of critical thinking. The problem are the politicians who are easily bought. Just wanted to add to your excellent post, Che, that those companies were able to do all that without computers on every desk or the internet. We need to remember that all this junk (and most technology is junk now) isn’t necessary, except to the people selling it. They have to lie or withhold important information from us in order to get us to buy it (or fund it) and they have the MSM assisting them in that endeavor.