back to article Why OH WHY did Blighty privatise EVERYTHING?

Given that I'm a Senior Fellow At the Adam Smith Institute and we pretty much invented – at least in the British political sense – the idea of privatisation, I've responded this week to an interesting request from the commentards as to why in the hell we did this. Especially since some of the best run privatised firms now seem …

  1. Stuart Moore

    Interesting as ever.

    Was hoping you would go more into the detail of how British Rail got broken up into its current structure, and how there the government keeps dictating what can be done, how many and what type of trains can be bought... it seems like there we have the worst possible structure. ROSCOs that own the trains budget their leasing costs to pay back the purchase price over 5 years of a projected 30 year life, and then happily take the profits for the rest - and the TOCs can't shop around as they don't have the freedom. That's what angers me, thst we have a combination of all the bad bits of privatisation with all of the bad bits of government ownership.

    1. Jason Hindle

      Rail is the one area where privatisation seems to have fallen on its bottom. The government pays more for rail than ever before, and the quality of service is at best patchy. I think this is partly due to the relative absence of competition on any given route. For example, to get from Manchester to London, only a Virgin* option comes up, regardless of which app or website I use**. The trains seem to be more crowded than ever***. I wouldn't even consider economy class, when I visit London.

      * Though to be fair to Beardy's company, they're not that bad.

      ** We did have a longer, cheaper route, from Manchester Victoria; I don't know what happened to that (maybe competition, maybe regulation).

      *** Notingham to Manchester, standing room only, is no laughing matter.

      1. ZanzibarRastapopulous

        > * Though to be fair to Beardy's company, they're not that bad.

        Beardy Co got a special dispensation to run a monopoly on the west coast as I recall, on the promise of huge amounts of funding which was immediately swallowed up by the massive backlog of basic maintenance and so little was seen except for rather swish trains.

        Speaking of which, some people may not remember quite how crap trains were before privatisation, but they were, crap.

      2. Sarah Balfour

        You fucking WHAT…?!

        Virgin/CrossCountry (I know they're separate entities now but, as far as I'm concerned, they're one and the same) ranks alongside SE Rail as the WORST operator in the country. They NEVER lay on enough carriages and, several times, I've gone to find my reserved seats - only to find them already taken by people who've been given the SAME reserved seats! In fact, I've learnt that the only way to get a seat on a Virgin/CC train is to traipse up and down the aisles looking for reserved seats that haven't been taken up. I've had to stand all the way from Brum to Edinburgh Waverley. More than fucking once, and anyone tells me they've had one run to schedule, far as I'm concerned they're telling porkies. Three carriages for a cross-country journey is 50% fewer then there ought to be, in my opinion.

        Oh and the bogs never work - or, if they ARE working, well you wouldn't want to use 'em anyway… one of those Brum to Edinburgh journeys didn't have ANY functioning kazis (and by 'any' I mean 'one', coz that's all there was). Well, let's put it this way, summer wasn't the only thing that was high…

        Fuck knows what would happen if there was ever a fire - most trains I've been on have been so crammed that following safe evacuation procedure would have been impossible. Don't even want to think about it…

        FGW and TransPennine are the best for service, though Chiltern's improved immeasurably.

        Okay, rant over - Virgin/CC STINKS (and not just coz of the state of the facility).

        1. BongoJoe

          Re: You fucking WHAT…?!

          I've always said: Virgin Trains -- Bring Your Own Wellingtons

        2. Chris Miller
          Coat

          Re: You fucking WHAT…?!

          Chiltern are my local service provider and very good, many people use them for Birmingham-London in preference to Virgin, even though it's a somewhat slower service. They're run by real railmen (the former chairman had a standard gauge steam railway in his garden) and owned by DB, which helps, but their big advantage is that for much of their route they're the only train operator. They're actually opening a new section of line so that you'll be able to travel direct from Marylebone - High Wycombe - Oxford (services start in September).

          They had a 'subsidiary' called Wrexham & Shropshire, an 'Open Access Operator' which ran a superb (dining cars with real ale and real food) but slow and hugely underused service (and which ran through Birmingham New Street, but wasn't allowed to stop because that would have competed with existing operators). Beardy killed it off by reintroducing a direct Virgin service from Wrexham, though I fear it was always doomed if my experience of occupancy rates was at all typical.

          I'll get my anorak.

          1. BongoJoe

            Re: You fucking WHAT…?!

            Wasn't that the one which went from the little known town of Gobowen, just outside of Oswestry, known for its excellent orthopaedic hospital?

    2. Tim Worstal

      That's getting into far more detail than I know about. The division into track and operating company is an EU insistence. Further than that is before my time.

      1. Chris Miller

        My understanding is that the split was made to maximise the price raised in the floatation. From an investment point of view, British Rail was basically a giant (potentially highly lucrative) property portfolio, with lots of prime sites in city centres, whose properties just happened to be joined up by long narrow strips of metal. So the property portfolio was put into one pot, Railtrack, and the actual services were put into several others.

        Of course, the outcome was that Railtrack concentrated on maximising their property portfolio and farmed out (outsourced) the maintenance of the irrelevant and boring strips of metal. With predictable results.

      2. Flocke Kroes Silver badge

        Why did the EU insist on separating track and train operators?

        The track was really banged up, and the standard 'fix' was to add a 'temporary' speed limit. Trains are cheap when rolling, but more expensive to speed up and slow down, so when the track maintainers save money with speed limits, the costs shift to the train operators.

        The bumpy tracks used to break the new light-weight trains. The obvious fix was to take them out of service and put the old trains back on. The old ones were solid enough to survive the bumps, but were so heavy that they damaged the tracks.

        Was the separation a deliberate attempt to sell more cars?

        1. Graham Dawson

          Re: Why did the EU insist on separating track and train operators?

          EU Directive 91/440 required all member states to separate the management of infrastructure from the provision of transport services. It was modelled on the "successful" Swedish practice, though between the directive being drafted and coming into force Sweden's railways went down the same shitter as ours would do a few years later.

          Thing is, Sweden's railways are still state-operated and have suffered exactly the same issues as our own railways. The UK problem wasn't privatisation, but the lack of cooperation between the infrastructure management and the transport operators.

      3. Sean Timarco Baggaley

        Thatcher wasn't in favour of rail privatisation.

        It was John Major's bunch of idiots who decided to privatise a natural monopoly that was also hamstrung by a number of issues that didn't apply in other countries. In fairness, when the plans were drawn up, nobody expected railways to last. At the time, passenger numbers had been falling for years, so the expectation was that the network would not need massive investment in infrastructure.

        I hate to play the "special snowflake" argument, but it really does apply to the UK's rail infrastructure. The price of pioneering rail networks is that a number of mistakes were made. Other countries got to learn from and avoid those mistakes, but the UK is stuck with many of them and it makes the network rather more expensive to run compared to its cousins overseas.

        The privatisation of British Rail by John Major's administration also managed to completely ignore all the most basic tenets of good (interface) design, but that's another rant. That no other country has even considered copying the UK's model speaks volumes for Major's incompetence.

        1. Chris Miller

          Re: Thatcher wasn't in favour of rail privatisation.

          We're stuck with the Stephenson loading gauge (except on the, largely Beechinged, former Great Central lines), but apart from that (and the fact that it wasn't so badly flattened during WW2), what makes the UK rail infrastructure so special? Even though I agree that the UK model is broken, the rest of Europe has actually (largely) followed it, partly because (as above) the EC mandates it. So most EC countries have multiple freight and passenger operators running on a shared, independently 'managed' infrastructure.

          1. werdsmith Silver badge

            Re: Thatcher wasn't in favour of rail privatisation.

            The UK Railways weren't privatised, they were re-privatised.

          2. maspiers

            Re: Thatcher wasn't in favour of rail privatisation.

            Massive duplication of services, pre-Beeching - caused by the operation of a free market in the victorian age. There arent many places in the world a town the size of, say, New Mills would have two railway stations

    3. Anonymous Coward
      Anonymous Coward

      @ Stuart Moore.

      There was a very good programme on this with Nick Hewer and Margaret Mountford

      http://www.bbc.co.uk/programmes/b05sz83j

      Not available on Iplayer but can be found ;)

  2. tkioz

    The Purpose of Government.

    My issue with privatisation is that it defeats the whole *purpose* of government.

    Step back and think a moment of why we actually have governments. At it's most basic level it is to provide services. Those services can be things like national defence to prevent any old wanker from rowing up in his longboat and nicking your shit.

    Same reason we have cops and courts and prisons, at their most basic level they are services for the people, to keep order. Then you get to things like roads, services to enable travel and trade. Water? Power? Sewage? Internet?

    Same deal.

    So if everything is being handed off to the polly's mates money making concerns, after the public paid for the infrastructure and getting a few years worth of cash for them (cash that doesn't last), what exactly does the government do now? Regulate? Yeah right. Pass stupid laws? That it does well but not exactly a service for the people.

    Keeping [b]infrastructure[/b] in the public hands is the best thing you can do for the public. Private companies can't be trusted to extend services if they aren't forced to, better just to keep it publicly owned and let private services run the retail arm, while the government wholesales.

    1. Banksy

      Re: The Purpose of Government.

      Isn't the purpose of a government to establish a framework for the society it governs, i.e. laws, rules? There is nothing intrinsic in the idea of a government that says it has to provide services. Of course, these days (especially in the UK) a lot of 'services' are provided because they can be income generators.

      1. Ken Hagan Gold badge

        Re: The Purpose of Government.

        Even if you accept the "services" argument, the best way for a government to provide those services appears to be to collect the cash (using its legal authority to levy taxes) and then go into the marketplace and buy those services from someone with a clue. That is, it appears to be possible for a private concern to provide a better service *and* do it for less money (thereby leaving some left over for profit) than a public concern. This is probably because public concerns can't go bust (unless they're Greek) and deep down the civil servants know it.

        Sadly, governments appear to be crap at both collecting cash and regulating, too, and it isn't obvious that these functions can be privatised in the same way. We do have some experience of regulatory capture, in various industries, but it seems to be even worse than just having ignorant politicians in charge. The French had a privatised tax system in the eighteenth century but they (the Farmers General) were, as the saying goes, "first up against the wall when the Revolution came".

        And it certainly came. Took the rest of us a quarter of a century to confine it to France.

        1. tkioz

          Re: The Purpose of Government.

          >>Isn't the purpose of a government to establish a framework for the society it governs, i.e. laws, rules?

          And what is that if not a service?

          >>Even if you accept the "services" argument, the best way for a government to provide those services appears to be to collect the cash (using its legal authority to levy taxes) and then go into the marketplace and buy those services from someone with a clue.

          But those said same services charge the consumer as well... So why exactly do we need the government credit card involved again?

          It's one thing to buy *goods* off the private sector, say instead of setting a government owned and opperated shipyard when it needs a new destroyer, rather they go to a private one and have their ship built there.

          But it's completely another for an ongoing service.

        2. Julz

          Re: The Purpose of Government.

          Exactly why couldn't tax collection be privatized? The BEEB seems to manage to collect it's own tax (although it does moan aboutthe cost...)

    2. Richard Jones 1
      FAIL

      Re: The Purpose of Government.

      Anyone with memories of the old broken rail will know why there was an attempt to privatise the mess in the hope that it might start to run trains and not just be a job centre annex. Sadly it is an industry that has proved remarkably able to resist much in the way of real improvement. There are arguments about whether the privatisation was well structured. Evidence suggests that a better job could have been done on that front. The infra structure part is proving to be remarkably incapable of doing what appears to be needed. Though the train companies have managed, somehow to push more passengers onto very expensive trains running on a creaking infrastructure. While short franchises were I guess supposed to encourage companies to keep standards up, they also discourage the sort of longer term investment that the thing needs. Given that major works take far too long to achieve you are unlikely to get much return on an 'investment' that takes 90% of your franchise to achieve. Quite why infrastructure and service are divorced from each other, and appear to this non user to be in competition, is beyond me:

      trainco "I want to improve service"

      Infraco, "No you cannot I will not let you, so have a project overrun for fun."

      The definition of a train service appears to be;

      'Something that takes you from where you don't happen to be, to where you do not want to arrive'.

      That is the essence of the problem for most people, if the only choice for me was to use the train, I simply would to go there.

      The whole attitude to our train set appears to be based somewhere in cloud cuckoo land.

      I well remember an argument about redeveloping a major station, the infraco wanted to include a large amount of commercial development, shops, offices, eating places and residential - a good idea in many major cities. However the union boss of the time complained that station sites should be reserved exclusively for railway use not sordid commercial profit making.

      Try looking at e.g. Japan where some stations are in the middle of major stores in the heart of commercial developments, not stuck next to a canal with the town centre along with the bus station slowly dying half a mile or more distant.

      Some years ago I was taking the children to see a show Docklands, I rocked up at the local station where there was no parking - (there is no bus service from home to the station). I knew it was likely to take several hours by train so had allowed enough time. Faced with the problem journey I risked driving there, less than an hour later we were parked and for considerably less than the train price had plenty of time for lunch and a look about.

      We have an ill thought out mess of a transport non-system, most of what remains being those bits that still operate from the Victorian times and are gratefully held back there by various vested interests. Still at least some other things have worked as Tim set out. It is just a shame that trains are something we invented but we did not work out how to run them after that initial head start.

      1. TheOtherHobbes

        Re: The Purpose of Government.

        >Anyone with memories of the old broken rail will know why there was an attempt to privatise the mess in the hope that it might start to run trains and not just be a job centre annex.

        No, that's completely false. BR ran apprenticeships, had some reasonably competent and experienced management - enough to produce a world-class train like the 125 - and also had the engineering and manufacturing skills to keep railway traffic growing and affordable.

        What it didn't have was money. Successive - mostly Tory - governments were ideologically opposed to public transport, and so BR was systematically starved of cash from Beeching onwards.

        The executive summary is that after privatisation rail has consistently received far more in public subsidy than nationalised rail ever received while also making rail travel more expensive by at least a couple of orders of magnitude and simultaneously failing to make significant long term investment in track quality.

        In no rational universe can this be considered a success - except for the shareholders of the various companies and banks associated with private rail, who have mostly done very nicely out of it.

        Which is the problem with privatisation: companies don't compete for customers by providing better goods and cheaper services, they compete for shareholder cash and fall over themselves to provide the best returns possible.

        Paying customers are at the bottom of this scrum, not at the top of it. Now, if you're going to ask if private companies can consistently provide better service quality than public companies, the evidence is very mixed, and it's near impossible to compare like for like - precisely because government funding itself magically seems to improve as soon as a company is privatised. Suddenly Westminster discovers a peculiar desire to throw cash at private corporations which was oddly absent when the companies were state-owned.

        Obviously, this makes a nonsense of any claim that privatisation is "better" in some absolute sense on any metric you care to choose.

        And when you're dealing with critical infrastructure and affordability criteria for use of same, it's clear that privatisation in the UK and private quasi-monopolies in the US both are famous for an incredibly poor delivery record.

        While some countries have been investing heavily in broadband, the UK is only just getting around to the idea that maybe rural broadband of more than 1MB/s might be a good thing.

        What's missing from the privatised view is any concept of nationally critical strategic investment. Private companies simply don't have the brains to think on that scale. The better national governments - which largely excludes the UK - most certainly do.

        1. Mutton Jeff

          Re: The Purpose of Government.

          I vaguely remember reading somewhere that train types would come from all over the world to see how old BR was run for so little money - and that in comparison just one line in Washington (USoA) slurped a subsidy which was pretty much equal to half of the whole BR network.

    3. Chris Harden

      Re: The Purpose of Government.

      What we have at the moment is a blend that works, on the whole privatisation is great at keeping things progressing and the government is there is ensure things get fixed where it falls apart (*cough*Banks*cough*), as people have said on this here comment thread, government is there to keep the framework of society running. Where it fails miserably is at micro-managing that framework.

      To analogise with our industry, think of government as the IT manager and the private companies like the BOFH - without the IT manager the BOFH would have no one to scapegoat, without the BOFH the manager is sitting scratching his nuts trying to figure out where to stick the paper in his shredder to make it print.

      Your comment is based around what goverment is 'supposed' to do yet who decides what something is supposed to do? If we stuck with that idea we would still have the monarchy in charge and that didn't work out so well, the more important question to ask is 'what works?' and so far this country is still working pretty well.

      We now have an interesting development happening in the private sector in the marketing department. With review services like TrustPilot (who I will defend against the BBC here and say they are pretty good at tracking down fake reviews, not perfect but they are pretty good), companies can no longer shape their own brand, the consumers shape the brand with actual output from the company putting much more pressure on a private company to perform and keep their customers happy. This accountability is bringing much more exposure to the market and something we could not have with a monopoly.

      1. Roq D. Kasba

        Re: The Purpose of Government.

        http://www.secretgeek.net/image/dilbert_centralize_decentralize.png

        There is no ideal answer - only two different types of cludge that we oscillate between.

        As an engineer that upsets me, but it seems to be true.

    4. Tim Worstal

      Re: The Purpose of Government.

      "Step back and think a moment of why we actually have governments. At it's most basic level it is to provide services."

      Not quite. There's many services that could be provided by government that o not have to be provided by government. There's also certain things that must be provided and can only be provided by government. Finally, there's a set of things that it would be great to have which would be better provided by government.

      so, in that first group we might put the notional National Food Service. The Soviet Union had one of those, government can definitely do it, and it was shit.

      In the second we've got things like national defence and a criminal justice system. In the third we've got "public goods". These are not things that are good for the public, goods consumed by the public, but goods (and services) that are non-rivalrous and non-excludable.

      We have to be very precise when we define these though. The common example is vaccination. But vaccination isn't the public good: because, obviously, if I am given a vaccine then you cannot have that same dose of vaccine (ie, it is rivalrous). Similarly, a vaccine is obviously excludable: I can give you one or not as I the producer decide.

      However, the effect of 90% and up of the population being vaccinated, that herd immunity, is a public good. Once it exists we can't exclude anyone from benefiting from it, nor does someone doing so reduce the amount available to others.

      Thus there's a very good case for government action to encourage vaccination up to the point that we all gain that herd immunity. Could be the way the NHS does it, paying for and providing it directly. Could be the american way, no school for the kiddies 'till they've had their shots (however much in the breach that is these days) .

      Adam Smith though that being part of a generally literate and numerate society meant government subsidy of primary education was a good idea. So, all we've got to do now is design a state education system that makes people generally literate and numerate.

      More specifically, things like short journey commuting in and out of London is probably a public good. There's just no way the place could work without commuter rail: so some subsidy seems fair enough. Long distance rail travel not so much really.

      But there's nothing in this that says that government should be providing goods or services. That government may provide more of a public good can be used as a reason to provide certain good and or services, true, but the government provision is the route to the public good, not the delivery of the goods themselves being the point.

      1. Sean Timarco Baggaley

        Re: The Purpose of Government.

        @Tim:

        Commuter services invariably cost more money than they make, while inter-city rail services often turn a profit.

        This is one of those pioneering mistakes I alluded to in my earlier post: conventional rail is optimised for moving lots of stuff in bulk, over long distances, at speed. As long as there was no better alternative, the short-haul commuter services did fine, but they were never anywhere near as profitable as long-haul express services.

        Once electric trams and, later, motor cars and buses appeared, the railway lost its monopoly advantage and their commuter services haemorrhaged money. The two world wars provided temporary boosts at best, but left the network utterly knackered and worn out, which is why the mainline railways and London's own Underground network were all nationalised shortly after WW2. There was simply no money to repair the damage. The various Underground companies were also in financial trouble too. London couldn't afford to lose either the mainline railways or the Underground as they provided essential services, so taxpayers effectively bailed out the shareholders through nationalisation.

        TL;DR version: the only part of a rail network that makes any profit is long-haul express passenger services. This is why the Japanese and French didn't build high-speed metros, but high-speed *express* trains. That's where most of the money in rail transport is.

        Residual railway property is peanuts by comparison, so if George Osborne is looking to flog off more bits of railway land, (and both Railtrack and Network Rail have already thought of this, so all the low-hanging fruit has already gone), he's going to be disappointed by the return. I've read that he expects to make £1bn out of it, but that's barely six months of construction work on Crossrail. There's no scope for a windfall here.

        If Osborne wants to cut the burden of commuter railways on the taxpayer, I'd advise him to look into why it costs so f*cking much to build *anything* in the UK these days. HS2 isn't a bad idea in principle, but its price tag is ludicrously high. Phase 1 is just 100 miles of railway through piss-easy rolling countryside. There's absolutely no excuse for it to cost that much. None. Even allowing for HM Treasury's moronic "Optimism Bias" rules, it's taking the piss.

    5. Doctor Syntax Silver badge

      Re: The Purpose of Government.

      "after the public paid for the infrastructure"

      The problem was that the public via the government wasn't paying anything like enough tor the infrastructure, hadn't done for years and wasn't likely to. By selling stuff off the government could get back of the value left in the historic investment and make the future Somebody Else's Problem - except when they totally muffed it.

    6. Edward Phillips

      Re: The Purpose of Government.

      I was taught at college that the Crown has a couple of prerogative duties (to go with its Royal Prerogative rights):

      1. Defense of the Realm

      2. Maintaining the Queen's Peace

      Which align with your longboats and police bit and explains why those are the hardest bits to privatise because they are the core responsibility of the state. If a state can provide a peaceful and secure environment then the rest of society may be able to pick up the rest itself.

      The state may feel that it has to do something to ensure that utilities, public transport and so on actually happen - if the water, sewage and food distribution system fail the Queen's Peace will fail shortly afterwards - but it doesn't have to do them itself, it can just regulate to enable them.

    7. ZanzibarRastapopulous

      Re: The Purpose of Government.

      >Private companies can't be trusted to extend services if they aren't forced to...

      Air travel seems to have done so, mostly in the face of public sector restrictions.

      The railways were built with private money as well of course.

    8. Loud Speaker

      Re: The Purpose of Government.

      It is the job of Government to steer the ship of state. Not to row the bloody thing, nor to let it blow on the rocks if the winds go that way.

      Unfortunately those politicians that understand this, would prefer the idea to slip away unmentioned.

      The concept of "keeping something in the public hands" is laughable if the public is more than 200 people. Three of them will gang up and hijack it, while the rest sit on the sofa and moan that the fat cats have it all. That is how people are.

  3. dcluley

    More balance please

    Whilst a lot of what was in the article is true; so, also is much that was left out. Conveniently missing were mentions of all the cases where companies were nationalised because the private sector failed. Too many times have the private sector relied on being bailed out by the public sector and then clamoured to have their assets back when the public has paid for them to be revitalised. Train companies after the War nationalised as British Railways. Turned into a reasonable shape by the public sector which would have been even better if politicians hadn't meddled so much with it. Starved of investment so that the case was made for privatisation since when public money has been poured into the industry at a much greater rate than was allowed when it was a nationalised industry and only so that the private investors benefit - not the public.

    Negligent banks bailed out and sorted out then returned to the private sector. I could go on.

    The other point that needs to be made is that profit, per se, is not a reliable guide. The main objective of commerce should be to provide required goods and services and thereby make a profit. If the main objective is making a profit this leads to oversupply of unnecessary items. The fashion industry is a good example of this. Why oh why do I need a new jumper this year that is (say) blue merely because last year's is green and no longer in fashion. Madness.

    1. Anonymous Coward
      Anonymous Coward

      Re: More balance please

      "Conveniently missing were mentions of all the cases where companies were nationalised because the private sector failed. Too many times have the private sector relied on being bailed out by the public sector and then clamoured to have their assets back when the public has paid for them to be revitalised"

      Bankers; privatised profits, socialised risks.

      The thing about infrastructure is that once it has been privatised you still need to have it, but now you cannot vote out of office the people who are making a hash of running it, and their reply to government for any demand to do better is "nice little railway/currency/telephone system you got here, wouldn't want anything to happen to it now would you? Just fill this suitcase with money, we'll be back next week."

    2. John Sager

      Re: More balance please

      Oversupply of unnecessary items? If they were 'unnecessary', then the company making them would not be able to sell them and would go bust. Indeed, companies go bust all the time, but it's not generally because the market disappears (except for the odd hansom cab maker), it's because some other company can do it better, by whatever definition of 'better' works at that point, and captures the previous company's market.

      There is this persistent view in some quarters that competition and the variety of products it produces is somehow 'inefficent' or 'wasteful'. Why not just have the No 1 Tractor Works make all the tractors the State functionary said we would need in the next 5 years?. It works a hell of a lot better with John Deere, Massey Ferguson, Claas etc all busy making essentially the same range of products, and trying hard to make a better stab at what the customer really wants. But then Tim has been banging on about this for aeons with, sadly, zero to minimal lightbulbs going off in minds it would be very helpful to illuminate.

    3. Chris Harden

      Re: More balance please

      "The other point that needs to be made is that profit, per se, is not a reliable guide. The main objective of commerce should be to provide required goods and services and thereby make a profit. If the main objective is making a profit this leads to oversupply of unnecessary items. The fashion industry is a good example of this. Why oh why do I need a new jumper this year that is (say) blue merely because last year's is green and no longer in fashion. Madness."

      Consumer demand.

      (disclaimer: Doesn't mean I don't agree with you, it is madness, just not madness based with the companies)

    4. nijam

      Re: More balance please

      > Conveniently missing were mentions of all the cases where companies were nationalised because the private sector failed

      I was always told that the rail system was bankrupted by the Government not paying enough (or anything in some cases) for rail transport during WWII. If true, that would not be a failure of the private sector, obviously.

  4. Bloodbeastterror

    English translation please...?

    "it's the prospect of having whatever profits you might be able to make competed away leading to the death of the organisation that does."

    From a professional author...?

    1. Stoneshop Silver badge
      Headmaster

      Adjust your parser

      Quite apart from anything else it's not the pursuit of profit that makes organisations more efficient: it's the prospect of having whatever profits you might be able to make competed away (leading to the death of the organisation) that does.

    2. Tim Worstal

      Re: English translation please...?

      I prefer to think of myself as an auteur, rather than author. I believe that means that you must adjust your reality to mine, not the other way around.

      1. Philip Lewis

        Re: English translation please...?

        Well Tim, I think I know what you meant to write, but I am unable to reconcile my thought with what you did write and with what you might have written to indicate what you clearly thought. geddit?

  5. Steve Davies 3 Silver badge

    If you are old enough to remember

    the dark days of the 1960's and 1970's AND have an understanding of Economice then IMHO Privatisation makes a lot of sense.

    The Leccy, Gas, Water etc industries were still run as they were at the time they were nationalised.

    BR had tried to modernise itself but... the unions had (and still do have) a lot of power to stop it.

    The majority of them were deep in the RED when it came to their bottom line. This RED line hit the HMG finances and their ability to borrow.

    Dennis Healy had to go to the IMF for a bailout loan. Sort of sounds familar does it not?

    The whole nation was stuck with a £6 a week max pay rise. I'd just gratuated the year before.

    The new intake of graduates were on £300 a year (a lot of dosh back then coz I was earning £2750 with Hawker Siddley) more than those of us who'd been there a year. To get more money we had to move jobs.

    The Water industry (to take an example) had a pending programme of major infrastructure renewal that HMG Just couldn't fund in a million years. Privatisation put that risk onto the new owners. IT also allowed the working practices in many of thise industries to be modernised.

    My father was a staunch trade unionist and had been a uniom member since he started work at 'The Vauhall' in Luton in 1936. He was also a memeber of the Labour party but even he recognised that the only way forward at the time was to sell off a lot of the 'crown jewels' because the country was living way beyond its means. (Fast forward to 2010 and see the similarities...)

    I'm not saying that it was done properly or that we couldn't have raised more money (Shhh don't tell SID) but we were up shit creek in 1979 when Maggie came to power.

    If someone else could have come up with a viable alternative then or now then please speak up.

    1. Mike Bell

      Re: If you are old enough to remember

      I'm old enough to remember a time before fibre-optic communications, mobile phones, widespread use of computers, lead-free petrol, inkjet printers, digital cameras, the Internet, Diet Coke and Taylor Swift.

      The march of technology has made the world a better place in many cases, rather than trifling concerns such as who or what owns a company.

      In other ways, we've gone completely backwards, like the stoopid housing market in London where piles of bricks earn more than people.

      1. Doctor Syntax Silver badge

        Re: If you are old enough to remember

        "The march of technology"

        Ah yes, the saviour of us all. But only if someone has the money to invest in it. And the GPO didn't. The new chief executive who took over the newly separated but not yet privatised BT is supposed to have said that he found himself in charge of the black telephone rationing company.

        1. Anonymous Coward
          Anonymous Coward

          Re: If you are old enough to remember

          We got a Phone at home around 1967. We had to wait 9 months to get it. GPO was in the business of rationing the supply of phones to domestic premises. A pal of mine who worked for the GPO (and was trained at Bletchley Park!) said that was because the strowger kit at the exchanges was difficult to upgrade. Having seen some years later at Liverpool North Exchange I tend to agree with him.#

          Those good old days of the Nationalised Industry weren't so good really. Slag BT off al you like but they are a couple of orders of magnitude better than the days of the GPO.

          1. This post has been deleted by its author

    2. montyburns56

      Re: If you are old enough to remember

      "The Water industry (to take an example) had a pending programme of major infrastructure renewal that HMG Just couldn't fund in a million years. Privatisation put that risk onto the new owners."

      Who then got their customers to fund the infrastructure improvements.

      1. codejunky Silver badge

        Re: If you are old enough to remember

        @ montyburns56

        "Who then got their customers to fund the infrastructure improvements."

        The comment you are responding to seems to be saying that is the same thing as the government doing it when it was under public ownership, except they wouldnt for fear of losing votes by raising tax's. While a private company would invest to keep and win investment.

  6. Dick Pountain

    Sounds pretty sane to me, and the bit about foreign public utilities behaving more efficiently abroad is really interesting. Perhaps every nation should run some *other* nation's utilities, like an economic secret santa...

    1. chris swain

      It certainly works for the intelligence community

      GCHQ spies on American citizens for the USA and vice-versa. A handy reciprocal arrangement that allows both parties to avoid the inconvenience of regulatory oversight.

      1. Anonymous Coward
        Anonymous Coward

        Re: It certainly works for the intelligence community

        "GCHQ spies on American citizens for the USA and vice-versa."

        So, the USA spies on GCHQ for American citizens?

        or American citizens spy on the USA for GCHQ?

        or American citizens spy on GCHQ for the USA?

        I'm confused.

        1. chris swain

          Re: It certainly works for the intelligence community

          Perhaps I'm just spreading FUD on their behalf?

    2. Warm Braw Silver badge

      Actually, I've often wondered if it wouldn't be better to completely swap electorates - have, for example, the Germans elect the British government and vice versa. It might eliminate some of the short-termism and populist pandering - and there'd always be the threat of mutually-assured destruction lurking in the background to deter either side from inflicting a truly unpleasant regime on the other.

      1. Frederic Bloggs
        Coat

        Yes, let's get some other constituency to run all our "public services". But not the Germans and especially not the French. The Americans will just give it to one of their big election contributors.

        So who can we call? I know, let the European Union do it. It's big enough, it's got lots of money to erm.. invest. What could be better?

        I am Fred's pet robot and wrote this for him whilst he was out and about in his coat. I am not feeling very well, I think I am coming down with a virus.

    3. Nick Kew Silver badge

      Methinks Worstall's point is rather that a government running businesses under its own jurisdiction is a huge and damaging conflict of interest. A foreign government is merely a shareholder, subject to the same rules and regulations as the rest of us.

  7. calmeilles

    But public money...

    The one glaring difference between public transport and the other privatisations is the need for subsidy.

    Whatever else might be beneficial about the dynamics of private ownership how does it make sense to put public money into an industry that pays dividends to private investors?

    It's easy to accuse SNCF and DB of not being particularly well run but there is a basic political consensus that transport is a public good provided at public expense to the benefit of all — even those who never use it benefit from the positive effect on the economy over all.

    The logic of privatisation should demand that transport becomes self-supporting yet there is also a wide understanding that to be so the already expensive fare structure would have to become prohibitive for many. Beyond the direct cash it is inconceivable that an entirely unsubsidised industry could make infrastructure investment such as Crossrail.

    When you look more broadly at pressures of profit, investment and the public good the example of the water companies is clearly picked to make a point. A counter-example might be the economically vital roll out of fast broadband, something that profitable VM and BT wouldn't undertake without the government providing £2bn subsidy (and still fails to mandate fibre to the premises).

    Not everything is rosy in the world of privatisation.

    1. Doctor Syntax Silver badge

      Re: But public money...

      At the time the railways were being privatised I was one of their victims AKA commuter. It struck me then that it was being done in a completely arse-about-face manner unlikely to improve my daily life. There was no reason at all to suppose that the infra-structure company would have any reason to align its plans, or lack thereof, with the requirements of the operating companies. Regional franchises removed scope for competition and the length of those franchises tended to inhibit all but the most essential investment.

      The result was the same, largely ageing, hardware being operated but the same staff with, for the most part the same management with even less alignment between customer need and service provision.

      It would have made sense to sell off whole lines, infra-structure & operations as a whole. It would have made sense to keep infra-structure separate but to allow multiple operating companies to run competing services over them. It would have made even more sense to have done the latter but split the infra-structure into regional companies so as to concentrate each management's attention on getting its own bit right.

      1. Alan Mackenzie

        Re: But public money...

        > It would have made sense to keep infra-structure separate but to allow multiple operating companies to run competing services over them.

        That would have been the worst of all worlds. Railways have a certain limited capacity, and there are only so many passengers. Typically, an (open) ticket is valid on any train on the route. If you had several companies operating the route, that ticket would only be valid on every nth train. That would have been dreadful for passengers.

        > It would have made even more sense to have done the latter but split the infra-structure into regional companies so as to concentrate each management's attention on getting its own bit right.

        Such fragmentation would have lead to horrendous interface problems at the boundaries. Infrastructure progress (new signalling systems, increasing speeds on long distance lines) would have been inhibited. Cross-"border" tickets would have become much dearer.

        1. Peter Gathercole Silver badge

          Re: But public money... @Alan

          It's interesting that you can see some of what you say in the deregulation of the bus network from the Passenger Transport Executive (PTE), run by Tyne and Wear around Newcastle and the immediate area (and probably the other PTEs from around the country).

          The PTE ran a fully integrated transport system that included the bus services and the Metro rail system.

          When it was set up, it was arranged around interchange hubs, and your journey would often be bus to a hub, Metro between hubs and bus to your destination. This was paid for as a single ticket via 'zone' pricing, so you could buy your ticket on the bus by asking for a Ticket to the zone your destination was in (that you could find easily on a map), and that would cover all steps. Public transport across the Tyne was mostly restricted to the Metro, and all of the zones were well served by a comprehensive bus network.

          The result was that almost everybody used it. It may have been a bit slower than travelling by car, but if all you needed to do was get yourself across the region, it was a no-brainer. You just used it, like you use the underground in London.

          Roll forward to 1986. The bus regulation the PTE ran was removed, and the PTE themselves had to divest the bus operations (although they continued to run the Metro). Suddenly multiple operators started competing for the lucrative routes and ignoring the less profitable ones. Buses started crossing the Tyne again. Road traffic across the bridges slowed to a crawl. People did not know how to price a journey, and had to buy several tickets from different operators. Use of the Metro started to decline, because it was no longer the common trunk to link the hubs together.

          Eventually, all of the local bus companies ended up being bought by the national bus operators, which essentially stifled the competition, resulting in effective monopolies.

          They are finally trying to re-introduce a common fare system AFAIK. I no longer live there, so I'm a bit out of the picture.

          1. montyburns56

            Re: But public money... @Alan

            But don't forget that bus services in London weren't privatized, as we couldn't have the government having to deal with the chaos that they created on their doorstep.

  8. SVV Silver badge

    wow, some strange stuff got spat out of the ideology driven computer this week

    "profit-making companies will improve service, even in the absence of competition"

    Ha ha, nice utopia you live in, can you tell me where it is (I'm in South East England, customer service is generally terrible, especially when there's no competition........)

    And the German government don't RUN Deutcshe Bahn, they OWN it - it is run by management, just like any other company. My local train services are run by the Dutch state train company (also run idependently from the government, but owned by them) - they are surprisingly good, but cripplingly expensive. However in Holland, the trains (very good, and efficiently run) are remarkably cheap by comparison. The fact that the sort of beliefs expressed in this article end up with British people subsidising public services in France, Holland and Germany is a source of great amusement in these countries, and they seem curiously non-keen to follow your pet theories and sell off their own utilities. I wonder why?

  9. Boris the Cockroach Silver badge
    FAIL

    Rolls royce got

    nationalised because it was deep in the do do building the first trent engines (you know.. the things that power 1/2 the world's commercial aircraft)

    Plus the fact it had various stratigic military products our defence needed.

    Was it right to bail it out? yes.

    BR was a different kettle of fish entirely, it was trying to run a national rail system in the face of unions and a subsidy less than the one given to the Paris metro

    It could do nothing BUT fail

    Then rail got privatised in the most illogical and stupid way until you realise it was all about breaking the power of the rail unions, you could hive off the pesky track people to sub contractors, each rail line would have multiple train operators on it so if one companies drivers went on strike, the trains would mostly still run.

    Of course there was a downside

    that was called railtrack...

    <exec> oh why do we grind the rails every 3 months... if we did it every 6 the rails would last twice as long, anyone know?

    <vice exec> nope we got rid of all those expensive engineering types who know why

    <exec> ok 6 months it is..... .. .. . .. . .. . . . . what was that bang?

    1. Steve Davies 3 Silver badge

      Re: Rolls royce got

      It wasn't the Trent series of Jet Engines that got RR into deep shite. It was the RB211 series. Speciticaly those for the Lockheed Tristar if my memory is correct.

      Otherwise your sentiments are spot on.

      1. grumpyoldeyore

        Re: Rolls royce got

        Trent is a development of the RB211. No RB211, no Trent. Even RR themselves refer to the "RB211 Trent family".

        http://www.rolls-royce.com/customers/civil-aerospace/products/civil-large-engines/trent-700.aspx#product-details

        Yes it was development of the RB211 that caused the issue, and nearly brought down Lockheed as well. The crisis came just after PM Edward Heath had made a speech the list of which was "no more government bail-out for lame ducks"

  10. Anonymous Coward
    Anonymous Coward

    I don't think you're mad

    Far from it. I find your articles interesting, challenging and sometimes they make me change my mind.

    Which is why I think it's a pity you are associated with the Adam Smith Institute, That high pitched whine? It's the old boy rotating in his grave because somebody's told him about it. If you listen to it carefully you can just make out the words "The only large corporation when I was alive was the Royal Navy! Changed circumstances call for changed ideas!"

    1. Tim Worstal

      Re: I don't think you're mad

      I think you'll find he complained pretty bitterly about the East India Company too. At least my version of Wealth of Nations has him doing so......

      1. Anonymous Coward
        Happy

        Re: I don't think you're mad

        "I think you'll find he complained pretty bitterly about the East India Company too. "

        The East India Company was rather more than a corporation - it was its own MIC.

        Perhaps there's an article there; following your line of argument, the East India Company was basically a foreign organisation that was running trade (and a government or two) in India. It was quirte successful. Does this reinforce the argument of your article?

        1. Tim Worstal

          Re: I don't think you're mad

          The EIC's an interesting example, yes. I would put it over in the box marked "we don't want the people making the rules and the people running the business to be the same people" myself.

  11. JChMathae

    Over the Channel

    And look at the sorry state of half-private / half-public French utilities, like Orange.

    They must cope with their schizophrenic public owner who wants at the same time:

    * to decrease the price of the service, or at least keep it stable, to win more votes from those consumer-citizens at the next election, and

    * to increase said companies' benefits so that more dividends will be payed to the state owner to limit the state deficit.

    Now good luck to their management to devise an intelligent investment policy...

    1. Naughtyhorse
      Joke

      Re: Over the Channel

      Yeah...

      In fact it's easier to catch a train to visit the person you are tying to speak to :-)

  12. Anonymous Coward
    Anonymous Coward

    We don't have a free market !!!!

    Sorry Tim but your article really is wrong in so many ways and is how this country is being duped into thinking that services have improved if in private hands.

    A free market is good as long as it does not use tax payer’s money to finance itself and is out of the hands of bankers and bureaucrats which unfortunately it is not. The quality of the services may come across as improved but actually are sub-standard based on the vast sums of extra money it is costing the country to have services like hospitals, transport, communication, energy, water etc.

    For example take the issue of water services. Private entities in a free market have no interest in investing in the company and spending money. They want to take as much money as they can make and give this money to share holders providing a bare bone service as possible.

    In the case of Thames Water it has been taken over by an Australian syndicate although it was originally in the black. Since its takeover more money has been removed than it actually had, putting dividends in to hands of its share holders leaving it in debt which was £8,372.7million (net) in 31 March 2013 and has increased since. Although it says it is making profits these profits are not used to pay off its debt.

    Furthermore Thames Water has proposed to make a new tunnel 25km long under the Thames river through London to deal with the Sewage in the city which will be paid for not by Thames Water itself but by the Tax payer costing £4.2 billion. If it is private company surely it is responsible for financing its own business not the British tax payer.

    New hospitals that have been built by private companies and leased out to the NHS using the PFI scheme have cost the private companies £12.2billion to build (original capital expenditure) but are leasing to NHS hospitals at a cost of £41.4billion plus the cost of other services at £29.1billion.

    It is this that is crippling the NHS and putting it into debt and decreasing quality of hospital care that we are receiving from the NHS. If you remember in the past hospitals did not have to lease the buildings and had no charges for their own assets. This clearly should have been built by the British state who could have borrowed £17.7 billion to build the hospitals.

    I could go on and provide thousands of examples like this but until people like you wake up and smell the bullshit. That this country has had all its assets removed and placed into the hands of British oligarchs who pretty much run the country for their own benefit.

    We do not have a free market because if we had a free market companies that are able to continue in a state of debt would actually be bankrupt and closed down. It is the tax payer that is financing business of these so called services. So the question in this respect is why do we need a free market to run our services because we are financing it ourselves already at over inflated prices. It would be cheaper and better for the country to have a state run service and not too have it in the hands of crooks.

    I am not against a free market the problem is we we don’t have a free market and no regulation is being used or applied by the British state and this is the core of the problem.

    John Gershwin

    1. Doctor Syntax Silver badge

      Re: We don't have a free market !!!!

      PFI was largely just Brown up to his usual trick of making the future pay for his present.

      1. arrbee

        Re: We don't have a free market !!!!

        "PFI was largely just Brown up to his usual trick of making the future pay for his present"

        So wrong.

        PFI was invented by the Tories under Major; they were told it was a neat way of keeping expenditure off the UK books so that our economic figures would look better than they should - and they bought it.

        Labour under Blair and Brown continued on this basis as did the Coalition and now the current government. None of them have shown any misgivings about PFI or its successors.

        ( for overseas readers, PFI is a method by which the private sector borrows money at 7 to 8% to pay for infrastructure projects such as major hospitals, schools, etc, which they then lease to the public at a premium rate, together with a buildings service contract also at a premium rate, and then after ~20 years they end up owning some very valuable property to do with as they wish. You will be unsurprised that there is a thriving trade in PFI contracts once they've been signed off. You may also wonder how such agreements can be justified when the government can borrow at ~2%; the simple answer is that the civil service / special advisers fiddle the numbers until they get the result they want - just like in Greece, really )

        Amusingly the consultancies that make lots of money advising on new PFI scheme then make more money on helping organisations get out of them several years later when new bosses come in and discover just how deep in they are.

        1. Chris Miller

          @arrbee

          Standard dodgy Blair/Brown spin. It is true that the first handful of PFI schemes took place under Major. It is also true that Gordon Brown turned it into an industrial process so that he could implement voter-friendly projects while claiming to be meeting spending targets, by hiding the capital cost 'off balance sheet' (a trick that Enron were perfecting at the same time, that didn't end well either).

      2. Lyndon Hills 1

        Re: We don't have a free market !!!!

        PFI was conceived by the previous Conservative government. In opposition Labour pointed out it's problems, and then when they came to power they continued with it. While Labour were in power, the Conservatives opposed it. Now they are in power, it continues under the new name of PFI2 (or maybe PFI-rebooted, or some other thing).

        bit like the post Chernobyl joke. The British sent some advisors to help out. they advised changing the name.

        Google Winscale and Sellafield if young enough not to get it.

    2. chris swain

      Re: We don't have a free market !!!!

      Whilst I largely agree that PFI (and outsourcing necessarily public services to private companies in general) is a wasteful use of public funds to provide profit to said companies at our expense I have to say that the local and national government bodies that run these things tend to be massively inefficient and hobbled by regulation and the unions. It seems incredibly difficult to make effective change and it's never long before a new bunch get voted in and change policies/move goalposts, further reducing efficiency and undermining staff morale. This often seems to involve adding extra layers of management at further expense and increased bureaucracy.

      I have personal experience of seeing PFI in action. There were two changes of management on the public side during the design and construction and the resulting building had a number of shortcomings, as did the resulting maintenance contract. Yet another management team then came in and spent lots of time/effort (=public money) arguing the toss and tinkering with the details. (BTW there is now ANOTHER management team in place on the public side and all this in under eight years! Efficiency? Yeah, we've heard of that)

      One only has to look at the catalogue of IT project disasters that frequently feature in El Reg to confirm just how useless government is at these sorts of things.

      Not sure what the solution is if assume that we ought to keep certain services entirely public (and I certainly do), how can we get efficient government run services? The electoral system coupled with the rise of the professional politician seems to guarantee short termism and zero accountability.

    3. Anonymous Coward
      Anonymous Coward

      Re: We don't have a free market !!!!

      "A free market is good as long as it does not use tax payer’s money to finance itself and is out of the hands of bankers and bureaucrats which unfortunately it is not. "

      A free market can only exist without ANY government regulation. If the goal is to maximize profits, one good way is to murder all your competitors, which governments seem to frown on.

  13. Schultz
    Boffin

    Causation versus correlatooncorrelation

    I wonder about your example on water supply via private or public entities. You relate improvements in England > Wales > Scotland > NI to privatization. But if I am not mistaken the former had growing economies and populations and the latter had less of that. Maybe your numbers just show that investment occurs in growing regions?

    Is here any indication about causation in this or other examples of privatization? Or is it just wool over all our eyes?

    1. Anonymous Coward
      Anonymous Coward

      Re: Causation versus correlatooncorrelation

      Sounds like coincidence to me. If you look at our situation across the pond, you'll see the opposite situation with water - state and municipal systems providing excellent water while privatized systems charge a fortune for crap water. Probably has more to do with regional economics and long-term drought than with ownership.

      Then wr have horrible rail systems public and private, phone/cable companies that can hook you up in 3 days (months? LMAO)... it's all over the place.

      Personally I'm in favor of *competitive* capitalism, but Tim's not making a good case for it with these statistical anecdotes. Combining the two most-abused forms of 'evidence' is even less convincing.

    2. Just Enough

      dishonest bollocks

      Well it's even worse than that. This analysis conveniently misses out two vital facts, effectively making it appear to be dishonest bollocks.

      What is being used as a measure here is improvement. Which would be fine if all countries of the UK started out as equally good/bad. But that is not revealed. So if the Northern Irish water supply started out much better than the English, then by this measure it can be suggested to be performing worst.

      But for all we know Northern Irish water hasn't improved much because it had little need to. While the English water may have massively improved itself from bloody awful to just mediocre. That doesn't mean that privatisation has done wonders for England that Northern Ireland missed out on.

      We also are not told just how much England is paying per head for their water, compared to Northern Ireland. If the English are paying through the nose in comparison, then of course they'd expect to be seeing greater improvements. And we also aren't shown that the money that is getting charged is being handled efficiently and they're getting their money's worth. For all we know, England could be getting massively ripped off by the private water companies and not getting what they're paying for.

      But then including these figures maybe wouldn't prove how wonderful privatisation has been for England. So best swept under the carpet.

      1. Squander Two

        Re: dishonest bollocks

        > But for all we know Northern Irish water hasn't improved much because it had little need to.

        I live in NI, and my answer to that contention is "Hahahahahahahahahaha."

        Anyway, what's this "for all we know"? You've got the Internet right here. Look it up. I suggest checking two things. First, the amount of untreated sewage being pumped into the sea by NI. Second, the amount of trouble caused by a bit of cold weather a few years back -- and how long it took NI Water to reduce that amount of trouble. You might even be able to find some interviews with the guy in charge at the time and draw some conclusions about whether he got the job through ability or it was the kind of nepotistic sinecure that thrives in government.

        If you can't be arsed looking it up, fair enough; just remember that, as a general rule, infrastructure in NI that dates back to the Troubles was not in very good nick because people kept blowing it up. Obviously. The public spending that went into the Province tended to go more on barbed wire and less on things like improving sewage works.

        For the same reason, our stuff didn't get privatised, because who in their right minds would buy stuff that keeps getting blown up? Which provides us with a handy experiment. All those people complaining about rail privatisation could look at NI Rail and see how brilliantly it compares to the English rail services [cough cough cough].

        > While the English water may have massively improved itself from bloody awful to just mediocre.

        Look up the incidences of hosepipe bans in London.

  14. Naughtyhorse

    You forgot the smoke and mirrors...

    You pointed out that the Govt hated investing anything in the utilities as it became part of the government debt. (and in retrospect there's one of the real reasons for privatisation - massive investment required due to new technology or crumbling infrastructure)

    But the mantra of privatisation e.g. 'All OPEX is bad, all CAPEX is good' has lead to (been gamed) to hide the actual costs of everything.

    For example, assume an electricity substation is worth £1M (I appreciate saying 'is worth' to Worstal is asking for trouble)

    Under a nationalised system all planning, design, and much of construction (say 20% of build cost) are carried out by in house staff... paid from OPEX, and therefore in the mind of the regulator 'pissed up against a wall'

    Under privatisation all planning, design and all construction is subbed out, with a 100%(at least) uplift charged by the hiring agency. (hiring back the same bods that used to work for said leccy company to do the same job) result; 40% of construction cost goes on labour, BUT it's CAPEX, so our '£1M' substation has a book value of £1.2M - which is treated as investment, which influences the profit the regulator allows the owner to make. And creates the illusion of a better performing system than the old way where the £1M investment only added £800k to the value of the network

    The company makes more profit, the regulator sees increased investment, the guys with their boots on the ground see a better performing network, the customers see higher reliability, so everybody's happy, but it cost two hundred grand more, hardly efficient.

    This is also what lead to, for eg, Thames water's approach to dealing with leaks in the naughties by spending a shitload of cash increasing storage capacity (CAPEX) to make up for the leaks, the repairing of which is OPEX, and didn't get done.

    Truth is that either system can perform badly, and there is in that respect no hard and fast case to be made. Of course the orgy of privatisation did just happen to transform hundreds of thousands of jobs from the public sector into contractors, abet expensive contractors. And contractors, being mortgage holders and having private pensions, and earning a shitload more cash than the council house dwelling, final salaried lot from the nationalised industries are more likely to vote tory.

    and there's your real reason for privatisation :-)

    let the downvotes commence....

  15. Peter Johnston 1

    Trains are inherently more efficient than buses - one driver can handle many more passengers, there is only planned stop-start (and fewer stops). Our Railways are old enough that land has long since been paid for and the track takes many fewer vehicle movements than a road. So why is a bus usually half the cost of a train over a similar route?

    Indeed a plane - which guzzles fuel, has a high staff to passenger ratio and pays massive landing charges and safety check costs - still seems to be cheaper than a train.

    We have Tim's suggested methodology of a centralised state backbone and private operators (though each has a monopoly). So, in theory, it couldn't be state failure to allow markets.

    So why are trains so expensive? Are we subsidising freight?

    1. Tim Worstal

      Freight subsidises passenger, definitely.

      The reason rail passenger systems are expensive is because they're not actually all that efficient.

      They're great at something like shuffling people from Acton or Dorking to the City. But elsewhere, well, they're a technology that's well over a century old, aren't they?

      1. Riku

        I may have read that wrong, but what does the *age* of a technology have to do with its *utility*? Your knife, spoon and fork are even older, yet they serve a perfectly good utilitarian purpose. Indeed, there is something to be said for technology that has had the kinks worked out, fixed, trashed and proven to a point of great reliability. Rail - like a good many other things - is very reliable *when properly maintained*.

        I do sometimes look at pieces written by economists and they often come across as written in total isolation with no consideration of external realities. All cities - without exception - will, once they pass a certain population, combined with local factors like geography *will* require mass transit systems, otherwise the result is gridlock. This is why even the car-fetishising USA is building-out or upgrading transit systems in several cities. Otherwise sooner or later you have to start demolishing city to make way for roads, which kind of obviates the point of the city. On an island in particular, this is also true (to a sparser extent), for the inter-city transportation systems. Otherwise the gridlock has an overall negative knock-on effect to a city and its wider economy. In this way, the public mass-transit system is the markets answer to the issue.

        I think this is sometimes lost in the discussion; a lot of economic writing appears to be dead-set against government, yet failign to realise that government itself is a market solution designed by society - and that includes businesses (which of course are made up of people from the society) who rely on things like rule of law and benefit from the infrastructure. In fact I would argue that there is no such thing as business at all, there is simply society and that business is ultimately socialist.

        And I must say, (being a fan of Ernest, Lord Rutherford), that only a chemist would have been dull enough to say there is no such thing.

    2. DaveDaveDave

      So why are trains so expensive?

      Good question, and one I can't be bothered to go and look up numbers for. Without plugging in numbers, we can just talk about what factors might be responsible.

      Really, there are two routes we can go down here. We can posit that coaches and planes aren't paying their way, and so are effectively receiving greater subsidies than rail in the form of things like discounted road-use payments. Or we can go the other way and argue that qualitatively if not quantitatively, rail is a better service which people are happy to pay more for. The latter accords better with my personal prejudices, so I'm going for that one.

    3. Anonymous Coward
      Anonymous Coward

      "Indeed a plane - which guzzles fuel, has a high staff to passenger ratio and pays massive landing charges and safety check costs - still seems to be cheaper than a train."

      Aircraft are actually pretty efficient, there is lots of air which requires little maintenance and is free. Railways require track and overhead power lines which wear and also cause vibration and shock to the rolling gear; also, passenger trains have to be built heavily enough to coexist with goods vehicles, and to withstand levels of use of the doors and furnishings which aircraft do not.

      A light rail system should be cheaper to run but only where the usage is high enough - hence the DLR.

    4. Squander Two

      > Trains are inherently more efficient than buses - one driver can handle many more passengers

      You're assuming every bus and train is near full. But the fact that a train can hold so many passengers is exactly what makes it inefficient. Any transport is pretty efficient when it's full, because the amount of fuel it uses is based on power-to-weight ratios and presumably the engineers who built the thing weren't complete morons who built a flamethrower onto the roof or something. It is empty seats that drive inefficiency, and trains have far more of them than buses do. Peak times, when the transport is full, are a small minority of the operation.

      Heard someone from Friends Of The Earth on the radio explaining that even a car is near-enough as efficient as a train, as long as you fill it with people. It's one person driving a five-seater that's inefficient. Five people in a five-seater is fine.

  16. Anonymous Coward
    Anonymous Coward

    If privatised is so good...

    Why do they come running for government hand-outs and subsidies to provide services out in the sticks?

    1. codejunky Silver badge

      Re: If privatised is so good...

      @AC

      "Why do they come running for government hand-outs and subsidies to provide services out in the sticks?"

      If it is going to be a great cost with little to no (or negative) return then why would anyone with half a brain provide such services when trying to stay solvent? Of course when someone with unlimited money then offers to contribute a chunk of cash to do it it makes sense.

  17. Christian Berger Silver badge

    "The German government isn't all that good at running Deutsche Bahn"...

    You do realize that "Deutsche Bahn" just like "Deutsche Telekom" both are only in part owned by the government and that both companies. Plus since they have been privatised service quality has gone down steadily. Germany used to have one of the most advanced telecommunication networks before the privatisation, now we are trailing behind most eastern European countries.

    In Germany both companies are seen as a poster child for privatisation having gone wrong.

    Oh and with most German public companies, the only way they still stay competitive is that their competition has declined much more rapidly.

  18. Anonymous Coward
    Anonymous Coward

    One of the problems with privatisation is that nobody seems to care whether a particular case makes sense or not. First it was all about raising money, now its all about reducing government debt.

    It might be that a competitive privatised industry might be more efficient (in a market sense), but I suspect that relies on the relevant regulators also being efficient, and independent. In which context it is always interesting to note the continuous flow of people between regulator and regulated.

    I'm not sure myself how privatising the police forensics lab or the food safety agency will benefit us, but I expect I'm missing something obvious - maybe the latter is related to the upcoming TTIP deal ?

  19. Simone

    This is too complex for me to think about on my day off :)

    If I just take the point about it being about markets and regulation, there are still a lot of different examples that prove or disprove any arguments. The initial privatisation process should upset most people, unless you are one of the people buying pound notes for sixty pence. The market for the shares is deliberately skewed to create the demand for all the shares being sold at once, rather than sell them off in chunks at the market price when they are sold. Elsewhere, the market for the privatised Post Office has the universal delivery constraint, electricity generation and supply by the same company seems to allow them to move costs and profits to again skew the market and the essential needs for high street banking services were mixed with the gambling of investment banking so that when the latter messed up we were all hit by the fallout.

    The issue for Governments in providing what they deem to be services required for the good of the Country seems to be the inability to negotiate supply contracts, leaving companies to scoop them up and sub-contract them elsewhere taking a healthy slice of the fees. The Government also seems unable to determine the impact on the market of the regulation they impose; get the cheapest cleaners into the Hospitals and ignore the germ breeding grounds.

    I'd suggest privatising the contract negotiation and regulation, but we already have the advisers to the tax dodgers helping create the tax rules, and vice versa.

  20. Anonymous Coward
    Anonymous Coward

    Interesting article. Looking at all the privatization that's happened in the last thirty years I'd say generally speaking it's been moderately successful. There are have been surprise successes like the water supply and out right failures like the trains and then there's been a mix of good and bad like the phone and electricity services. Looking at them individually...

    Water is one I would never have privatized as it's a basic requirement and therefore I think a natural for state ownership. Surprisingly though privatization has worked well and I think the article nails the reasons why.

    Electricity I would certainly privatize and I think the right split has been made but the leadership in terms of regulations is lacking and were in danger of screwing up the transition to green power.

    The phone service is another natural for privatization but the infrastructure should have been split like the electricity network. Leaving BT with an effective monopoly on the local loop was a huge mistake and has held us back.

    And then there's the trains. Wow, what a total disaster. The only reason they can point to any improvement is because of how bad it was when it was state owned. I'm conflicted when it comes to the railways as on the one hand I think they are the right way to move a lot of people about. The sensible part of my brain though looks at the fact that subsidies are damn near 50p/km, IIRC, and I have to say that's a service we should cut because it's failed. What I really don't understand about the train service though is how it can cost so damn much.

  21. BobRocket

    The argument against state ownership was not that nepotistic regulation crowds out competitors but the bottomless backstop that is only available to state companies, a private company can only lose money for so long before creditors pull the plug, a state can go on and on.

    A company (state or private) exists to satisfy demand, a badly run private company goes bust and the assets are sold off cheaply to anybody who thinks they can satisfy that demand at profit, a badly run state company just sucks in more state support.

  22. Lars Silver badge
    Happy

    Some points

    When the state takes care of the infrastucture, like roads and bridges and similar, they know that a large part of that money will return in the form of tax and VAT and from the profit those private companies involved will make not to mention that the anount of unemployment fees might decrease. I cannot see any reason why any of that could be privatised.

    Rail tracks are probably similar. There is however a interesting point in this article "But if the state is that of another country, then this problem rather goes away.".

    What annoyes me here is that there is not even a shy, very shy, sort of very shy thought that perhaps there could perhaps be some guys is that foreign country who are, well, just better at doing the job. Did Worstall ever think about such a damned possibility or did he, but decided not to be unkind towards his Brittish readers. (Downvotes and such).

    Or did he just pick the first new buzzword available "foreign", an other country, a new solution.

    Well, I don't know but I would have a lot more respect for "economists" if for once they would mention words like education.

    It does not matter if something is private or not, run by idiots it will fail either way.

    The thing that worries me much to day is that we seem to live in an illusion that when the country we live in is "educated" then our kids will inherit it in some automatic way. Education is like washing dishes, as soon as you stop for a while it's a complete mess. Forget it for a generaion and the next generation of kids will have uneducated teachers and then it will only get worse. And yes, I am looking at you Amercans "too".

    Before any Amercan tells me - "but Lars we have more Nobels than anybody else and we have some of the best universities too". Which is very true, but the damned thing is that education for just the few has never worked and never will.

    The damned thing is that education in the capitalist world is in decline. Not so in the third world.

    In Sweden the word "education for profit" has become a bad word, perhaps not without good reasons.

    Privatisation has risks too.

    As for" The Purpose of Government, slightly leaning on JFK ... don't ask the governmen... I would add, "just educate all those fucking kids regardles of parents and what ever then let us build this fucking society the way we want it to be".

    What ever we have to day, in this world, is the sum of education and lack of it, it has allways been like that and will allways remain that way.

    The day an economist starts his tirade witth the word education I will have more respect for him.

  23. Graham Marsden

    Cui bono?

    Again, I have to ask the question in response to one of TW's articles.

    Our (yes, *our*, because our parents and grandparents paid for them) public services and utilities are flogged off, generally in a completely inept way and often for a hell of a lot more than they're actually worth.

    That money is then used by governments for short-term bribes tax cuts which eventually and almost inevitably end up in the pockets of the wealthiest who, despite what some may claim, *do not* spend most of it (which is how it's supposed to "trickle down") , but, instead, stash it away in foreign institutions and in tax avoidance schemes.

    Meanwhile the companies that now own said services and utilities think, hang on, the government got away with under-investing and skim off the profits, bet we can do that too! And when the government says "hang on, you're supposed to be fixing the problems caused by our under-investing and profit skimming", the companies go "gissa subsidy. Go on, you know you want to..."

    Of course, that subsidy comes out of *our* pockets again and goes into *their* pockets and tax havens.

    So we're left with what's still a crappy service and/ or expensive utilities but being told that "you should be happy, we did this for *your* benefit!"

    Cui bono? Still not us...

    1. Graham Marsden
      Facepalm

      Re: Cui bono?

      > a hell of a lot more

      Ok, ok, I meant *less*...

    2. Zog_but_not_the_first Silver badge

      Re: Cui bono?

      This. Exactly. It's no good arguing that "economic theory dictates etc., etc" when we all know that the game is rigged, the tables tilted.

  24. Duffy Moon

    A world run by money

    As far as I can make out, an awful lot of the world's problems are down to the fact that money (and making more of it) is the top priority. A private company has a duty (to its shareholders) to make as much money as possible, however it can (ethics are optional). Why it is considered by some that allowing private companies to run essential services is a good idea is beyond me.

    If I was a cynical person, I'd think it was down to the vested interests of a few, highly influential people putting pressure on politicians (if not actually politicians themselves). I suspect it's also due to misguided economic beliefs. I say "beliefs", because economic theory seems to be somewhat akin to forecasting the weather. Anything beyond next week is pretty much anyone's guess. The predictions seem dependent on which branch of Econo-Church one subscribes to.

    1. Brewster's Angle Grinder Silver badge

      Re: A world run by money

      If Tim's argument was correct, we'd see the market flooded with mutuals and not for profits; a "charity" isn't run by the regulator but should have lower costs than a for-profit corporation.

    2. Squander Two

      Re: A world run by money

      > Why it is considered by some that allowing private companies to run essential services is a good idea is beyond me.

      So you would like a National Food Service to replace our current free-market system, then?

      1. Lallabalalla

        Re: A world run by money

        You mean the current free-market system of food banks?

        1. codejunky Silver badge

          Re: A world run by money

          @ Lallabalalla

          "You mean the current free-market system of food banks?"

          Do you use food banks? Or are you like the many people who choose from a spectrum of supermarkets and independents who offer the same or similar products for varying prices (based on what the clientèle is willing to pay)? A system which has and is continuing to reduce the cost of food while expanding the range of available foods to amazing proportions.

          And as with any system you have people who step outside of the norm for whatever reason. And it is generally left to the philanthropic will of the people to provide for food banks as a safety net for those who have fallen on hard times. But the majority of people (a figure I can only assume is rising thanks to the falling prices in retail) dont rely on the safety net.

          Can you imagine the torture of a national food program where we get gruel and the gov saves the good stuff for them and their cronies? There is a good reason school kids prefer to eat out instead of at the cafeteria (at least when I was there and for some time after that).

  25. Zog_but_not_the_first Silver badge

    Thoughts

    Thanks Tim. Thought provoking stuff. As one of the commentards who requested this piece, I feel duty-bound to reply. I posted some thoughts on this a while ago and have reproduced them below with a couple of extra comments.

    "One significant piece of the puzzle when considering the economics of the post-war economy vs current fiscal performance is the role of the Nationalised Industries.

    These are generally assumed to be "industrial dinosaurs" characterised by bureaucracy and inefficiency; both of which are, to a degree, deserved criticisms. But leaving aside the technological developments that have, and would have (in can be argued), benefitted all players, is BT really more efficient than the GPO?

    These industries played an important part in maintaining the nation's infrastructure, addressing long-term strategic issues as well as the day-to-day supply of electricity/gas/telecoms etc. We are currently dangerously close to rolling power cuts from the privatised electricity supply industry, where the Government's only response is to bribe the private operators to keep plant open. Contrast that situation to the CEGB's role in operating and maintaining capacity and planning for and providing future power plant. Which is better?

    An underreported aspect of the Nationalised Industry structure was the provision of hundreds of thousands of well-paid jobs, putting money into local communities. Through an enlightened policy of the self-improvement of staff through apprenticeships and part-time education students were given the chance to reach their potential. This, I believe, was an important contributor to increased social mobility in the past.

    I'm not advocating the establishment of a "command and control" economy, but I do think there is a valuable debate to be had on the benefits of a return to a mixed economy that includes modern state-owned and run industries. The argument against this is usually one invoking globalisation. I travel a fair bit for business and pleasure but I'm not a "Citizen of the World". I live in a village, my family and friends are generally within a few hours drive and I get provisions from local shops, eat in local restaurants and drink in local pubs. The benefits of globalisation to international capital are easy to see, but it's increasingly hard to see them for ordinary people. Unless you think the accumulation of landfill tat makes it all worthwhile.

    We had the chance recently to compare the benefits of a private industry's operation of a utility with a modern state-owned alternative in the franchise award for the East Coast line operation. Directly Operated Railways, which had been doing a sterling job of running the operation, was not allowed to bid. Dogma dictated that the operation must return to the private sector. A great pity, I think."

    There are many comments about the highly regulated and bureaucratic nature of the old nationalised industries. To be fair, there was scope for some sharpening up but these systems were put in place to prevent fraud. Accounting practices in the private sector (e.g. share swaps) seem set up to facilitate it.

    1. Tim Worstal

      Re: Thoughts

      Well:

      "An underreported aspect of the Nationalised Industry structure was the provision of hundreds of thousands of well-paid jobs,"

      Jobs are a cost of doing something. We can tell this because paying wages comes under the costs part of he accounts of the organisation that pays them. That the nationalised industries provided many more well paid jobs than the privatised ones is all the proof we need to show that the nationalised industries were inefficient.

      1. Zog_but_not_the_first Silver badge
        Meh

        Re: Thoughts

        In an economist's ideal world, perhaps. Sadly (very sadly) the only private sector initiatives that seem to be operating in the ravaged town and villages of the north are those pedalling class A drugs, white sliced bread and high strength cider.

      2. auburnman

        Re: Thoughts

        "That the nationalised industries provided many more well paid jobs than the privatised ones is all the proof we need to show that the nationalised industries were inefficient."

        False: You also need to show that the lower number of jobs in the privatised scenario are shouldering the same or higher workload (of actual work, not busywork) rather than just slicing everything to the bone.

      3. Naughtyhorse

        Re: Thoughts

        Theres a technical term, that you may well be familiar with for the whole 'privatised industries employ fewer people', and that term is BOLLOCKS.

        As I highlighted in my previous missive ALL the blokes that cashed in their pensions, and took the generous redundancy offers did so in the absolute and utter confidence that they could leave the nationalised industry on a Friday, and start work for the newly privatised industry on the following Monday. With their final salary pension in place, with the redundancy payment having wiped out their mortgages and with a 150-200% hike in pay to boot.

        Fact is, it takes x amount of blokes to run a water company. all privatisation did was hide the costs in the paperwork.

        Paying wages does NOT necessarily come under costs (contractors come out of the asset value) and that is the only way in which most of the privatisations made any sense.

  26. Tom 7 Silver badge

    Highly regulated?

    I was working at BT Martlesham Heath during privatisation. The place was swamped with accountants and managers without a clue. Budgets were tightened till the pips popped off. The bureaucracy got to the point were every £5 spent on hardware had £100 spent on pen-pushers checking it was done to the continuously changing rules. Research ground to a halt. BT had the capability in 1991 of making 2.4Gbit fibre components for around £30 for a 10km run that were shelved 'because we dont do research'. I didnt see anything close to that for nearly 10 years when BT was charging customers £60K for huge empty boxes to do a similar task,

    Adastral Park as it now called doesnt seem to do any research (CMIIR) but from my point of view, sitting here on 1.6Mb 10km from the exchange waiting perhaps another 5 years for fibre that 25 years ago would have cost BT (no outretch then) less than they spend every couple of months fixing my rotting copper line I can see the shareholders may well have thought they did well out of it but they really were badly ripped off - as were the customers.

  27. codejunky Silver badge

    Well

    A monopoly is a monopoly in the public hands or in private. However a private company can be regulated, unlike a public one.

    Good article

    1. Zog_but_not_the_first Silver badge

      Re: Well

      A monopoly is a monopoly in the public hands or in private. However a private company can be regulated and bribe lobby for deregulation and consolidate its position....

      1. codejunky Silver badge

        Re: Well

        @ Zog_but_not_the_first

        "A monopoly is a monopoly in the public hands or in private. However a private company can be regulated and bribe lobby for deregulation and consolidate its position...."

        Very true, and a country can turn them down. However the public sector can skip the part about lobbying and consolidating its position. It is the monopoly and it is the regulator. And it all bends to the will of the government who will offer many bribes to us with our own money and with no shame. They do it openly, in public.

  28. Hans 1 Silver badge
    Boffin

    SNCF badly run

    Why did I read Worstall, again ? To give him another chance ? Shit ...

    > The German government isn't all that good at running Deutsche Bahn, nor the French at running SNCF.

    They seem to have come up with pretty good speed trains, that take you from Marseille to Paris (400 miles) in less than 3 hours and cost less than half of a discounted ticket from Portsmouth to London, which also takes 3 hours, mind, if you get the stop train ... what distance ? 90 miles ? ROFL

    The ICE is pretty "cheap" compared to British train services as well ... ever heard of the term "ripoff Britain" ? Thought not ...

    Even the Eurostar in England gets overtaken by commuter trains because the tracks are not maintained properly.

  29. Zog_but_not_the_first Silver badge
    Boffin

    While we're talking about money...

    How do the books balance out given the one-time cash intake to the Treasury from privatisation plus the avoided cost (year on year) of running the nationalised organisations? Why weren't the recipient Govs rolling in it?

    Or have these aspects been forgotten as Thatcher conveniently neglected to mention the bonanza of North Sea oil revenue and its contribution to the exchequer?

    (Yes, I woke up grumpy today)

    1. Naughtyhorse

      Re: While we're talking about money...

      Just one word...

      Norway

      (we wos robbed)

      1. breakfast

        Re: While we're talking about money...

        Way!

      2. Naughtyhorse

        Re: While we're talking about money...

        Just to be clear, it wasn't Norway what robbed us, that was us! Norway was the example of what could have been achieved with the north sea oil money, instead we had 2 more terms of Maggie..... bargain!

  30. ShandyPandy

    Most of the argument either for or against private ownership of infrastructure is basically based on the "Look at that, it's owned publicly and it costs a shed-load to run; privatise it. Worked in place {A}" argument, or the opposite; "Look at that, it's owned privately and costs a shed-load Make it Publicly owned. Worked in place {A}".

    Few think of the possibility that the way the infrastructure was built made it inherently expensive to operate, no matter how it's run or upgraded.

    There's nothing inherently wrong about {X} being either publicly or privately owned; but if {X} was inherently unprofitable, impossible to upgrade and it's replacement cost more than it did initially, no private enterprise would go near it.

    1. Naughtyhorse

      getting toward the nub of the issue..

      Wheres the utility/profit in providing services who people who are stupid enough live outside central london (little bit of reductio ad absurdium never hurt no no one)

      Which was kinda the point in having nationalised industries, the wealth of the nation used to provide equal access to services for the whole nation (in theory.... well more of an aspiration really) but at least to colour the economics with a service ethic, also providing good jobs and training, also happens we need good trained blokes (and blokesses) to build and run the things, so it's not all altruism.

      While you may not like to think about the pensioners that froze to death last year in order to make the electricity and gas sectors even more unbelievably profitable, you can bet somewhere in a dingy basement there's a ghoul beancounter doing just that. Human life, worth 2.5 million, but that's a fit working age life with dependents, if it costs more than that to mitigate a risk.... we'll take the risk (did he say we? what we, I don't see a we...)

      In the 50's and 60's there were good arguments for running certain industries nationalised, since the 80's when business dropped all pretense of ethical behaviour it's madness not to do so.

  31. Blitheringeejit
    Flame

    Key point inevitably overlooked

    Various commentards have correctly pointed out that rail privatisation is widely regarded as a failure because the rail system continues to receive massive public subsidies, while services don't improve.

    But the same is true of all the utility privatisations. Public subsidy may not be so clearly evident, but it certainly delivered in spades via the welfare budget. Most people who are in receipt of benefits (NB not just the unemployed, but also the tax-credited, the winter-fuel-allowanced etc) use a substantial chunk of those benefits to pay their water, gas and leccy bills. The big difference post-privatisation is that this money is now flowing into the back pockets of the privatised company's executives and shareholders, instead of back into the public coffers. The privatised utilities are deliberately configured to siphon money from the taxpaying public to the corporate elite.

    For those reading the news, the same dynamic is very much at work in Cameron's stated plans for cutting the welfare budget. In his fundamentalist monetarist zeal, he overlooks what nobody mentions but every sensible person knows - that the main objective of tax credits which subsidise the low-paid is to enable their employers keep wages unrealistically low. This keeps costs down and profits up - so tax credits are really just another subsidy paid by the taxpaying public to the corporate elite.

    It's a well-worn axiom of every TV cop show, but it's true - if you want to know why stuff happens and who is making it happen, you follow the money.

  32. The last doughnut

    Economists and markets

    You can regulate a market. And you can design a system. But the two verbs and the two nouns are quite different.

  33. InNY

    Balance

    "...it's long been a factor of public life that certain MPs are sponsored by certain of such unions, and so on" - and for good balance, we won't make any mention of the MP's who are "sponsored" by private industry or who take on lucrative second (third, fourth...) jobs.

  34. Magnus_Pym

    privatisation principle?

    "Quite apart from anything else it's not the pursuit of profit that makes organisations more efficient: it's the prospect of having whatever profits you might be able to make competed away leading to the death of the organisation that does."

    So it's about compete or die? That assumes that the only way a private company can fail is by having it's market stolen by another more efficient provider. A bit of an over simplification I would say, there are many ways for a private company to fail not least financial ones. If a private company could leave vital services unfulfilled then there must be some protection in place to make sure it can't happen. If there is protection the 'or die' part is taken away and whole privatisation model falls apart. If the service cannot be allowed to fail then it cannot be truly privatised.

  35. Stretch

    nah its just coz they get away with zero investment and massive prices in the UK.

  36. Grinning Bandicoot

    Parkinson et al are right

    If you are in government service, it is expected of you that you will manage your portion of the people's money in a safe and prudent manner. No innovation, no changes unless the outcome is known to be successful. If not, a tar-and-feathering is the result. So change is not in the works. CYA and don't make a new policy.

    Now if the government entity is a money making (cash in exceeds cash out), money will be borrowed (a tax) by politicos to be used for a pet project. The politician as a master of the public's good knows that change in the industrial world will get the politician unemployed so again no innovation is likely.

    Unions are large corporations with the membership being its customers who are also voters then supports the politician in the status quo. Again innovation suffers.

    A private corporation risks the money of people that are willing to accept the risk. The private corporation innovates to maintain customers (or screams for governmental intervention) and has a viable means of determining its success (marginal revenue > marginal cost and marginal gain > average costs). This all being done with money freely chosen to be risked - no coercion present as opposed to a tax.

    The net outcome of this being that governmental organization will suck up capital in order to fullfill its function of staying in power whereas a private must move quickly to keep the costs from exceeding revenues. Note this assumes that the user has free choice in product selection

    1. Sean Timarco Baggaley

      Re: Parkinson et al are right

      @Grinning Bandicoot:

      One small problem with your argument is that it doesn't fit the available evidence. See those 125 mph. diesel trains roaring out of Paddington and St. Pancras stations? They're roughly 40 years old and were British Rail's "Plan B" project, in case "Plan A" (the infamous tilting 'Advanced Passenger Train') didn't pan out. The reasons why Plan A failed can, and have, filled a book, so I won't repeat them here.

      Like the BBC – another 'nationalised' industry – British Rail handled a lot of R&D in-house back then, and made quite a bit of money from patents and other revenue streams. There were some damned good managers back then. They *had* to be good, or BR would have collapsed into a basket-case and ground to an embarrassing halt long before privatisation finally came. They were operating on a miniscule budget that was a fraction of that granted to their continental peers. And yet, this was the same British Rail that opened* the cheap and cheerful Thameslink route, modifying it to push the tracks underground and sell the land occupied by their problematic Ludgate Hill and Holborn Viaduct stations. And for afters, they then started work on Crossrail! This was all long before the Major administration came to power.

      Nationalised industries have no monopoly on bad managers, as Nokia and Sinclair Research will attest.

      The trick is to have people at the top who have a fucking clue what they're doing. Such people are genuinely rare, and it doesn't help that there's no formal requirement for any manager to have any relevant qualifications. (A related problem is managers who got very lucky once, and who therefore assume they're Codd's gift to their industry and end up repeatedly proving themselves wrong. Usually at other peoples' expense.)

      We also have very skewed definitions of both success and failure these days. Businesses appear to be becoming increasingly disposable, particularly in the IT sector, and that's not a good thing in the long term. The end goal is often to have the company bought out by an existing player. Eventually, all the nimble little fish end up inside one of the bigger fish, effectively *reducing* competition.

      1. Sean Timarco Baggaley

        Re: Parkinson et al are right

        * (Technically a partial re-opening. The original route was mostly rebuilt as part of this project, burying more of the track underground and removing an unpopular railway bridge that blocked a view of St. Paul's.)

  37. Sean Timarco Baggaley

    @Tim Worstall:

    As you appear to be taking requests, I'd like you to explain why it costs so bloody much to build anything in the UK.

    I ask because the Swiss have built the Gotthard Base Tunnel for about £6bn. (including the fiddly bits at each end to connect it to the existing networks), while HS2's first phase (to Birmingham) – roughly 100 miles through relatively easy terrain – is priced at almost *three times* that amount, despite not having a major mountain range to contend with.

    I've noticed that road-building is also very poor value for money. The recently opened Hindhead Tunnel (on the A3) cost £371 million to build and was extensively covered in the national news, yet the Swiss and Italians point and laugh at such a piffling little project. Both countries build such tunnels as a matter of routine, even on relatively minor roads, and they cost a bloody sight less than £155K per metre!

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