Man walks into a column, no.23: Privatisation

I had to think long and hard before posting in the same week that this blog’s founder, editor-in-chief, and my very dear friend Rich had such sad news: a post about anything else risks being trivial, crass. If you haven’t already, you must read Rich’s moving tribute to his dad. What really decided the matter for me was that Rich’s post, as well as being a tribute, was also a call to arms. In Rich’s words:

What drives me, the organisation I work for and hundreds of others like us, is ensuring that everyone has the best chance of being as fortunate as my dad was at the time they need it most – not just in social care, but from public services in general. This is what I’ll work to achieve, in memory of my dad who equipped me to try my best to do this.

So I thought I would post, in this spirit: concentrating on an issue that I feel is of central importance in the debate about public service access and quality (and social care specifically, even though I should stress that I am categorically not a social care expert like Rich). The topic, then: how large and significant a role should private companies be given in running public services, especially those services that involve caring?

This issue has of course come to the fore recently with the problems facing Southern Cross, but it’s been persistently in the air ever since the Coalition came to power, because of the Government’s emphasis on opening up public service markets to independent providers, including private companies, charities and other, more ‘out there’ (technical term) organisations such as social enterprises and mutuals.

There is a definite suspicion, though, that the stuff about charities, social enterprises and mutuals is just a smokescreen for the Coalition’s real agenda: to leverage in private investment in order to take costs off the balance sheet. And there is some evidence to bear this out, take for example the flagship Work Programme, where four large, eminently familiar private sector firms will – it seems – deal with more than half of claimants.

I’m not interested in questioning the Government’s ‘real’ motivations, however – not in this post anyway (if I had a pound for every person who’s assured me that Francis Maude is genuinely committed to his ambitious targets for employee ownership of public services, then I’d have enough money to finance setting one up myself) but to ask whether in principle private companies should be actively invited in, or firmly held at bay.

If like me you watched Question Time from Wrexham last week, you’ll have seen some of the arguments on both sides of the debate aired. We had Simon Jenkins, columnist and chair of the National Trust, stating that private providers should be kept out entirely; Stephen Dorrell replying for the Tories that you get just as bad abuses of people in care in the public sector. For me two absolutely key issues are: the structural disincentives for private providers to invest in staff (numbers and training), and the inherent fluidity of the private company form (my promise is only as good as the paper it’s written on).

On the first, let’s remind ourselves of some really basic microeconomics: companies have to turn a profit, and profit is defined as income being higher than cost. What’s one of the biggest costs of delivering a service (certainly a public service)? Recruiting, employing, training staff. This is true of public bodies too, of course, but unlike local authorities, say, private companies have no built-in commitment to local people, which explains why councils and others make such strenuous attempts to ringfence ‘frontline staff’ posts, whereas private providers so often look to cut back on staff costs to save money, thus increasing profit margins.

Yes, I know that the most enlightened modern companies realise that investing in staff – whether through good facilities, additional benefits or training – is good for productivity and profits in the longer-term, but I haven’t seen evidence to suggest that many of the private providers of our public services have bought in to that concept.

Which brings me onto my second main point: the undermining impact of the fluidity of private sector providers. I am not for a minute denying that there are many companies who are very well intentioned and, indeed, actually provide a high quality service and look after their staff. My point is that the commitment to do so is contingent. Whereas in the public sector and amongst charities too there are constitutional and other governance locks on change of purpose, such checks and balances in the private sector are far more light touch and once-removed (e.g. enforced only through regulation, which as we’ve seen in the case of recent care home abuses is pretty tough to get right).

Anthony Barnett makes this point very eloquently in relation to A. C. Grayling’s New Humanities College:

This is a venture where the main shareholders will be able to sell their stake if the initial returns suggest their holdings are valuable. As we all know the new owners will then demand a higher return to justify the price of their acquisition. This is the logic of the market as it seeks to maximize its returns.

Can private companies provide excellent service quality, taking account of issues such as equitable access, tailoring services to people with different needs? Of course they can. Do they often do it better than publicly owned services? Without a doubt. Are many senior management teams seriously committed to positive values? Definitely. My contention is that such commitments, periods and instances are outliers: swimming against the surging currents of capitalism. Many of my good friends work for private companies. They are not bad people. But the structural constraints of profit-making mean (a) pressure on staff costs, and (b) an inherent instability of commitment to quality of care.

One counter argument is that none of this matters if the people commissioning public services are effective and able to hold providers to account for quality, access, equity and so on. To answer this point properly will take another post or several. For now all I can say is that in the current climate, with cut-backs biting harder than ever before, I think commissioners are probably concentrating more on whether some terrible tragedy will occur as a result of depleted care provision. Now is probably not the time to ask for or expect a whole lot more.

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3 thoughts on “Man walks into a column, no.23: Privatisation”

  1. Good post but a little simplistic in terms of understanding what constitues a ‘public body’ in terms if Human Rights legislation for example. So not understanding the statutory protections that do exist regardless of who delivers.

    It also fails to see the operations of profit already built into public services as these services don’t exist in an economic bubble. They exist in a capitalist world.

    I think the more compelling economic arguments are about the role of public expenditure, not about how the services funded by that public expenditure are delivered. It’s also about the relationship, economically between public expenditure, growth and private expenditure. Taking a one or other attitude does not work.

    Enjoyed the post though

    Noel

  2. Hi Noel,

    Thanks for reading and for taking the time to comment. You’re right that statutory safeguards exist to protect staff and service users whoever owns or runs the service (although I’m not sure that these fundamentally change what is and isn’t a ‘public body’ – things like e.g. equalities legislation, for instance, contain explict distinctions between public and private providers).

    And you’re right also that public bodies/services don’t exist in a vaccuum and are driven to some extent by economic imperatives. But actually I do think there is a profound – and simple – distinction between a company owned by shareholders and run primarily to generate a profit (and I agree it would’ve been helpful for me to clarify that this is what I meant by ‘private company’) and, well, pretty much anything else. The profit motive exerts a powerful force, and one of the consequences is cost-cutting, surely, with less regard for equity, access and so on than in the case of publicly and charitably owned bodies?

    I’m not anti-capitalist as such – I think companies can deliver real benefits, more flexibly, more efficiently, more innovatively etc. It’s just that, over time, they need to be firmly kept in check to avoid the profit motive becoming over-riding, and leading to damaging cost-cutting. And public bodies struggle to do this (the final point in my post).

    I’m not sure I understand your point about the relationshp between public expenditure, growth and private expenditure? Keen to hear more though if you have the time.

    Cheers,

    Phil

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