Looting the public

August 25, 2014

NOTE: Images in this archived article have been removed.

Image Removed

PFI (Public Finance Initiative), outsourcing, and privatisation have all been strategies to shift money from the public sector and the taxpayer to the financial sector. But they are now running up against political limits.

I think we’ve got to the point where we have to name British politics for what it has become: a wholesale looting of the state and the public, with the complicity of the political class, to reward the financial sector. I’ve tried all of the other explanations, and none of them work better. It is the only explanation that fits the facts. I’ve been thinking about this for a while, but what finally triggered me to write was a relatively minor tweet from the Cabinet Office:

We’ve launched the Government Property Finder to help you find & challenge use of govt-owned property: ow.ly/AweTS#GovSavings
Cabinet Office (@cabinetofficeuk)
August 20, 2014

While it’s sensible to make sure that public assets aren’t standing idle, the Property Finder is related to the Government’s “Right to Contest”, explained this way in a story in The Guardian:

Under a right to contest introduced in January, anyone can force the government to explain why a building or plot is not being used fully. If the department that owns it cannot justify its current use, it will be forced to release it for sale.

Hashtag GovSavings. It will be forced to release it for sale. And in turn this made me wonder if I could identify a single decision made by George Osborne or the Coalition that didn’t benefit the financial classes – and the 1% – rather than the rest of us. I came up with one, the raising of the minimum wage, where the Chancellor was outmanouevred by Ed Miliband. (In case you’re wondering about the raising of the income tax threshold to £10,000, just no.)

Leeching the public sector

So, back to the looting. How else to explain the reckless chain of privatisations and proposals, most of which raise little or nothing to deal with the alleged debt crisis that is their supposed rationale? Or the continuing devotion to PFI, proven to be a long-term leech on public sector finance? Or the dismantling of health provision by the Health and Social Care Act? Or the addiction to outsourcing even to organisations which breach their agreements, kill the people in their custody, or commit fraud?

I’m not going into much detail on any of these, since other people have done it better.

On privatisation of the Royal Mail, for example, both the Commons Select Committee on Business, Innovation and Skills and the National Audit Office have been pretty damning. Or, as Chris Blackhurst put it in the Independent:

We now know that 16 investors had preferential treatment in last October’s privatisation. They were given a larger allocation of shares than others, in the expectation that they would prove to be dependable, long-term investors. … Twelve of the Lucky 16 sold their holdings immediately – something postal workers could not do, since they were required to keep their shares for three years. … Who were these 16? Four were hedge funds (three of them based in the US), not exactly known for sticking with businesses through thick and thin. The three US hedge funds have not hung around – they’ve cashed in and are long gone.

In other words, even if you are in favour of selling off most of the Royal Mail, the way it was done meant that investment bankers prospered, or even profiteered, at the expense of the public.

The unequal benefits of PFI

On PFI, the New Statesman has recently published a piece that points out that the unequal outcomes of the PFI programme (the finance sector gets the lion’s share of the benefits) is the major reason for the so-called financial crisis in the NHS.

The NHS is riddled with extortionate debt from decades of misguided PFI deals. NHS hospitals owe £80bn in PFI loan unitary charges – in other words, the ongoing costs of maintaining PFI hospitals and paying back the loans. Next year alone, trusts will make some £2bn in repayments.

In other words, nothing to do with increasing demand, ageing population, and all the other stories that are trotted out. And one of the reasons for this; the returns to the funders of a PFI contract are lavish:

Joel Benjamin of Move Your Money points out: “Typically the unitary charge is three to five times the capital cost, and on more egregious PFI projects as high as seven times”.

Odious debt, anyone?

And briefly, on the Health and Social Care Act, as Allyson Pollock wrote recently in The Guardian, the use of private sector providers repeats the financial sector trick of privatising profits and socialising both losses and risk.

The dirty secret of outsourcing

On outsourcing, Open Democracy has been relentless in monitoring the abuses of our outsourcing culture. The dirty secret of outsourcing is that the gains were a one-time one-trick pony caused by technology shift – outsourcers funded the IT investment, then took the revenue gains or cost savings as their margin. Now it’s just another intermediary taking its cut, and the squeeze on serice delivery costs and standards has been well-documented. One jaw-dropping piece of evidence on outsourcing and wage costs from the High Pay Centre:

The significance of contract security organisation, G4S, entry into the FTSE 100 on average wages is irrefutable. Salaries were so staggeringly small at G4S that the average yearly earnings for all companies in the FTSE 100 plunged from £31,000 to £26,000. (My emphasis).

But when you hear (as I did recently) a senior private sector executive say he could see no benefits from their outsourced services, you know the game is probably up, even though you also know that the government will be the last to understand this and the last to act on it.

The other half of the equation

And then there is the other half of the equation. If you are going to direct money from production capital to finance capital – fictional capital, as it is sometimes called – the result is going to be increased inequality and flatter or depressed rates of growth. I know that the City of London continues to tell politicians that it is a productive sector, but everyone outside the elite, and some within, know that this is largely untrue. This is the reason that Adair Turner’s comment about “socially useless” finance produced such howls (man pricks lavishly inflated PR balloon, names object inside for what it is). It is increasingly clear that the “resource curse” model of finance is a better guide to its impact on the states where it dominates. I hope to write more on this in the future, but in the meantime, follow the link.

Turning toxic

So why is this looting going on? Well, possibly because it can. New Labour made its own deal with the City without properly understanding how long a spoon it needed to take with it, or possibly without enough of a moral centre to stop the deal turning toxic. We got the explosion of PFI, and quite a lot of outsourcing, from that.

The Conservatives have their own reasons. With collapsing membership, they are bankrolled by hedgefunds, bankers, and private equity, so do what they need to do to keep them sweet. And they believe in destroying the state, or at least the ‘New Toryism’, exemplified by the Bullingdon Club cabinet, does. So creating advantage for finance goes conveniently hand in hand with ideological purpose.

The last fling

But it is also possible to see this as the last fling of the neoliberal project: they’re doing it while they still can. The pattern of financial crises is that it takes some years for politics to catch up with the shock to the system caused by the crisis, but it does catch up. And I think we’re getting to that point in this crisis.

I realise that this may strike some readers as unfeasibly optimistic. But it’s striking that polls repeatedly find support for taking services back into public ownership (here and here), while the current “People’s March for the NHS” from Jarrow to London has clearly struck a social media nerve, to judge from <a href="https://twitter.com/hashtag/march4nhs“>my Twitter feed. In Scotland, the future of the NHS is becoming increasingly central to the independence referendum.

And in Hammersmith & Fulham, where I live, the Conservative “flagship” council found itself well beaten at the polls in May, to widespread surprise. The reason: it had behaved locally as the Coalition behaves nationally, in not defending local health services, in trying to hand over state school buildings to a free school, and in cosying up to developers without generating new affordable housing. Even affluent voters in the borough found this hard to take.

From rumble to resonate

There are still a couple of gaps here. The first is that these issues still need some framing to make them sharp enough to resonate, than than just rumbling along below the surface. The second is is a political party with scale which is willing to articulate these discontents consistently and clearly. The Greens have been doing so, and are being rewarded with increased poll shares but still have too local a base to be the lightning conductor.

And I’m aware that there is an alternative scenario, under which political parties fail to articulate this emerging public view, and instead simply maintain the distance between the political class and the rest of us, draining the legitimacy of the political system as they go. But as Peter Turchin argues in Secular Cycles, elites tend to split when a large enough fraction conclude that risks attached to the status quo are too high to tolerate any longer.

In other words, it needs a bit of political courage, or desperation, and it needs a simpler story.


Broken trust image via shutterstock. Reproduced on resilience.org with permission.

Andrew Curry

The Next Wave is my personal blog. I use it from time to time to write about drivers of change, trends, emerging issues, and other futures and scenarios topics. I work for the the School of International Futures in London. (Its blog is here). I started as a financial journalist for BBC Radio 4’s Financial World Tonight, before moving to Channel 4 News during the 1980s. I still maintain an interest in digital media and in the notion of the creative economy.

Tags: financial crisis, privatization, public ownership, the commons