State of the Nation – Part Three Oh! Privatization
Posted on March 1st, 2018

By Padraig Colman Courtesy Ceylon Today

It was interesting to note that the first condition laid down by Mahinda Rajapaksa for cooperating with the government was that there was to be no further privatization of State-owned enterprises. On my recent visit to London I was able to see at first hand the effects on the lives of ordinary citizens of the mania for privatization, public-private finance initiatives and outsourcing.

The first Thatcher administration successfully introduced a degree of privatization in some large public-sector companies, above all British Aerospace and Cable & Wireless, but this was to raise revenue rather than to follow an ideology. The Ridley Report in 1977 recommended denationalizing British industries. The main aim was to break up the powerful unions rather than to improve efficiency or service to the public.

Energy

The doctrine that emerged from the recession of the early 80s was that privatization would make the large utilities more efficient and productive. It was not just a question of stimulating private sector investment, but also a cultural shift intended to persuade the electorate to embrace ‘popular capitalism’. Many people did buy shares in gas and electricity but Britain did not become a nation of shareholders. Most ordinary people sold their shares immediately to make a quick profit. This meant that the major utilities came under the control of foreign companies (in many cases State-owned companies) who effectively established a monopoly which made fuel bills much higher than under nationalization. A study carried out by the Guardian newspaper in February 2018 showed that the Big Six energy companies were routinely overcharging customers.

Railways

I did a fair amount of travelling by train while in London. The particular company was Southeastern, which is owned by an Anglo-French consortium. Every train I travelled on was delayed. The company was heavily criticized for its performance during bad weather. In 2014, a survey showed that only 40 per cent of passengers believed that a good service was provided and only one passenger out of five thought they were getting value for money. A 2016 survey by Which? magazine found Southeastern to be the joint-worst performing train operating company in Britain.

There have been allegations that Southeastern deliberately runs reduced services to skew its official performance figures.UK rail fares rose by 3.4 per cent on 2 January – the largest increase for five years. UK season ticket fares on city commuter routes can be up to six times more expensive than in France, Germany, Italy or Spain. Dividends of £200m a year are paid out on the privatized railways. Virgin Trains East Coast has been bailed out by the government at a cost to the taxpayer more than £1b. Sir Richard Branson is being rewarded for this failure by being granted bits of the NHS to run.

Water

Even the Financial Times has called the privatization of water “an organized rip-off”. Jonathan Ford recounts how Thames Water was fined a record £20m for discharging 4.2b litres of raw sewage into the rivers Thames and Thame between 2012 and 2013. CEO Martin Baggs received a 60 per cent pay rise taking him to £2m. In 2016, Yorkshire Water was fined £1.7m for polluting a lake near Wakefield and a section of the River Ouse. CEO Richard Flint ‘earned’ £1.2m. Thames Water customers paid £2b of the £2.8b of debt, that the Australian investment bank Macquarie took on when it acquired the company in 2006. Macquarie received returns of between 15.9 per cent and 19 per cent during the 11 years it controlled Thames Water. Ford writes: “Quite why this natural monopoly should not operate through not-for-profit, public interest companies is ever less clear.”

Customer Pays

There is a common theme here. Privatization is supposed to be a good thing because it introduces the discipline of the market to the provision of public services. It is assumed that the private sector will be more efficient and that private operators will be entrepreneurial risk-takers. The way it works out in practice is that individual citizens are having to pay crippling fares and utility bills in order that shareholders (often foreign shareholders) get a handsome dividend and that incompetent CEOs get inflated bonuses. In the event of a huge failure the taxpayer is there to bail out the risk-taking geniuses. The very strange events surrounding two major companies – Carillion and Capita- granted government contracts highlight this issue.

More on that next week.

One Response to “State of the Nation – Part Three Oh! Privatization”

  1. Nimal Says:

    Privatization will done well for the country and people. I worked for an organization that was once government owned where it was hardly productive and as far as I am concerned the employee were given much freedom even to abuse likes of from the ethnic background.
    Since privatization the company moved ahead in leaps and bounds and became one of the productive companies. Any citizen could buy their shares and enjoy it’s good dividends as an income.Dividends of these companies not only help an average citizens from the shares they hold but also help private pension companies which add to their pension portfolios.
    In Sri Lanka we must privatize the airlines,electrics,rail,bus services etc.
    We also must be bold enough to privatize the court houses, the justice system, the hospitals and even the police. Then they will be accountable to the share holders who could put the riot act on these people.
    Starting with our utterly hopeless justice system, directors of the company could make the judges accountable not clearing up the cases that goes on for decades. They could keep an eye on the police that are utterly useless, not serving the people but punishing the people, acting like parking wardens, not catching the criminals.
    Our uneducated and utterly corrupt politicians are not capable of this, running the country honestly and they are not capable of being accountable to the tax payer and the voter. It ‘like the directors could not careless for shareholders, which never be.So privatization is the best for the country, just as in China where the politicians take a back seat and expect the entrapuners to run the country and this concept is worrying some major powers.

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