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Privatisation has been a costly failure in Britain

economist.com

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Re: Privatisation has been a costly failure in Britain

#241

Post by rightbyte »

dffdsa432 wrote: post #203
arethuza wrote: post #194

Earlier quoted context omitted.

CEOs of corporations of the same size quite often have to find and retain customers in competitive markets - which is hardly the case with Thames Water?

What is your point? $1.5 million is used to attract a CEO who can manage a large corporation. That is less than many players on second tier English clubs who are riding the pine. That is a rounding error when considering $233 billion paid to unions.

CEOs have almost no competitive pressure. They are mostly recruited within the upper class.

Paying more won't net you a better one.

Re: Privatisation has been a costly failure in Britain

#242

Post by danparsonson »

Kiro wrote: post #164
juujian wrote: post #25

Earlier quoted context omitted.

It's even simpler than that. All of these privatized entities are incredibly efficient... at extracting profits from the public. Of course their goal is to extract profits. And you don't extract profits from a rail line by offering the best service. Bonus points if you can convince the government to bail you out and provide some extra cash.

Isn't that the whole point of privatisation? By introducing a profit maximisation goal you (supposedly) create a more efficient operation. I've worked in both the public and the private sector and can definitely understand the argument. In my government job it was way easier to slack off and no-one really cared about the results. There was no actual pressure from above to hit targets. You had your budget and it didn'…

> Isn't that the whole point of privatisation? By introducing a profit maximisation goal you (supposedly) create a more efficient operation.

Right, but efficient at what? The answer is almost invariably 'efficient at making money' - that's the whole point; competition normally forces alignment of incentives, wherein 'better' service (for some value of 'better') results in higher income. Thus a business that provides better service is more efficient at making money - the free market hypothesis. When there is a captive audience, as in the case of public utilities, there is no incentive to provide a better service, but the company goal is the same - make the most money - and they are freed up to do it in the easiest way possible, usually by cutting costs across the board and paring down the services to a bare minimum. This is still efficient in the sense that they maximise income for minimum outlay, but it's not in any way desirable for the customers who are forced to use the now crappy service.

Re: Privatisation has been a costly failure in Britain

#243

Post by HWR_14 »

waihtis wrote: post #146
tnel77 wrote: post #3

When profit becomes the main motivator, quality of services always seem to drop. I get that the government can be annoying, but I feel like there are many services that we should aim to provide as a society where profit isn’t the goal. For example, you don’t need to price gouge people for electricity, but charging enough to cover expenses and future infrastructure upgrades is fine and to be expected. No costly CEO or…

So why not a private non-profit instead of government?

Why prefer a private non-profit to the government?

I like non-profits in some cases. They're great at funneling money into specific causes that people care about. Especially small ones (a local theater group is the go to example) or politically charged ones. But "the trains running" doesn't seem like one of those. Why not have the government oversee it?

Re: Privatisation has been a costly failure in Britain

#244

Post by sweezyjeezy »

wolframhempel wrote: post #9

I am a deep believer in free markets as the most efficient mechanism for distributing goods and services, creating better offerings and lower prices through competition and encapsulating risk in innovation. Unfortunately, none of these apply to the privatization of inherently public commodities that run on top of an underlying network infrastructure. This can be streets, railway tracks or water pipes - whenever there…

> I believe the best way to make this work is by keeping the network itself in public hands and then having a competition of contributors to the network

Even then it doesn't always work out - UK rail services have that system - the infrastructure is maintained by a public body [1], but the operators are private. UK rail is quite expensive, and mediocre in quality compared to our EU counterparts.

One of the issues is that it's basically impossible to have competition on a single rail journey joining two large cities - there's aren't enough tracks to support it without making it unprofitable for operators. So rail networks bid every few years on sections of the rail network, and then have no competition for their term. Again the incentives that make the free market efficient are just not there. A nice video that summarises this mess here: [2]

[1] https://en.wikipedia.org/wiki/Network_Rail

[2] https://www.youtube.com/watch?v=DlTq8DbRs4k&t=1077s

Re: Privatisation has been a costly failure in Britain

#245

Post by iso1631 »

samwillis wrote: post #167
iso1631 wrote: post #137

Earlier quoted context omitted.

Railway tracks aren't privitised and haven't been for 20 years. The trains running on them were - at least until covid broke everything The problem is that the government let companies like Virgin off when they broke their contract, allowing them to bid high, take the profits, then walk away rather than fulfilling their contracted duties. Privatise the profits, socialise the losses. Nethertheless there is tons of com…

You've cherry picked two routes Birmingham/Manchester to London where there is choice, but for the majority of the country there isn't. From my town there is one train company that has exclusive use of the route, and its motivator is profit extraction, not quality of service and encouraging more people off the roads on to the trains. Also comparing trains to cars and busses as a positive competition is missing the po…

> and its motivator is profit extraction, not quality of service and encouraging more people off the roads on to the trains

Which station? Or which TOC?

> Also comparing trains to cars and busses as a positive competition is missing the point that our roads are over capacity

Which roads? I had no problems driving the kids to school this morning, never are. Well that time fro about 2 weeks a year that the cows cross the road at that time of day after milking which adds a few minutes onto the trip.

If you doubled the passenger mileage on rail, you would reduce passengers on the roads about 10%. Rail isn't going to be a fix for general capacity problems.

Re: Privatisation has been a costly failure in Britain

#246

Post by naijaboiler »

Nursie wrote: post #204
wolframhempel wrote: post #80

Earlier quoted context omitted.

So, this might not be my strongest metaphor, but I see free markets a bit like the arena in fight club. Two people fighting, the others forming a circle that pushes the combatants back to the center. We want the "fight" to occur. Economies are complex systems and humans have extensively proven that they're not good at running those. Free markets are the most effective way to facilitate technological progress and econ…

> Free markets are the most effective way to facilitate technological progress and economic growth which indeed benefits everyone - although not in equal amounts. When employed in the right place. It's very much not clear that train networks are that place, in fact I'd say it's quite clear in the UK that train networks are not that place.

exactly. Free markets don't work in situations where there is natural monopolies.

Re: Privatisation has been a costly failure in Britain

#247

Post by VBprogrammer »

wolframhempel wrote: post #9

I am a deep believer in free markets as the most efficient mechanism for distributing goods and services, creating better offerings and lower prices through competition and encapsulating risk in innovation. Unfortunately, none of these apply to the privatization of inherently public commodities that run on top of an underlying network infrastructure. This can be streets, railway tracks or water pipes - whenever there…

It's interesting, I haven't looked into the full history of it so I may not have this quite right, but from the museum's I've visited (Kempton steam museum for example) a lot of London's infrastructure seems to have been built by private companies.

I suspect though that when clean water was a new thing it probably cost a much bigger amount of people's income than it does now.

Re: Privatisation has been a costly failure in Britain

#248

Post by kranke155 »

jack_riminton wrote: post #19
tnel77 wrote: post #3

When profit becomes the main motivator, quality of services always seem to drop. I get that the government can be annoying, but I feel like there are many services that we should aim to provide as a society where profit isn’t the goal. For example, you don’t need to price gouge people for electricity, but charging enough to cover expenses and future infrastructure upgrades is fine and to be expected. No costly CEO or…

Exactly. Fake competition in utilities and services makes no sense. The "privatisation" of the UK railways is a prime example. I use quotation marks because it's just privatising the profits and socialising the losses. "from March 2020 to February this year, the Government paid out more than £7.3 billion in operational support to private train operators" - https://bylinetimes.com/2021/05/18/7-billion-covid-bailout-f.…

Margaret Thatcher of all people didn’t believe privatising railways would do a darn thing and always refused to do it.

Re: Privatisation has been a costly failure in Britain

#249

Post by flanked-evergl »

Machado117 wrote: post #139
fy20 wrote: post #47

Earlier quoted context omitted.

My country recently (2019) privatized the electricity supply. The infrastructure is owner and operated by a government entity, but the company you buy electricity from is a private entity, and you can choose which supplier you use. Generation was already privatized a long time ago. It was advertised as being able to offer lower prices to the consumer through competition, but all it has done is provided more ways for…

Same thing happened in my country. Fortunately someone decided to create a cooperative and now I can avoid contributing to the profit margin of some private company

I once worked for a co-operative, and it was by far the most poorly run company I have ever worked for or with. The control of the company was so far removed from shareholder control that the management was basically only accountable to their creditors (i.e. banks). The company had every corporate pathology you could imagine and then some. It was orders of magnitude worse than a Fortune 500 dinosaur I also worked for.

The cooperative was performing poor profit-wise while middle management lined their pockets. If it was not a cooperative, their share price would have been in the gutter, and someone would have bought up enough shares for cheap to fire the leadership and replace it with people who are competent, and then benefited from the increasing share price of having the company ran competently.

Re: Privatisation has been a costly failure in Britain

#250

Post by kranke155 »

debok wrote: post #52
vidarh wrote: post #24

Earlier quoted context omitted.

While I agree with you entirely, I'll propose an adjustment to the reason for this problem in the case of the UK: When the government is ideologically opposed to ensuring sufficient public oversight , quality of services drops. The problem in the UK is not merely privatisation, but privatisation in a way that privatises profits, often socialises losses, and that substitutes dealing with crises after the fact over str…

Weak oversight with nationalisation is even more disastrous. With a profit motive, the utility is at least incentivised to deliver the service so that they can get paid. If you have government-owned utlity with weak oversight, there is no incentive to even deliver the service. Look at what is happening with South Africa's power utility (and other State Owned Enterprises like their post office and national airline) as…

Let’s take a look at nearly failed state as a counter example is pretty incredible. There are plenty of other examples you can pick vs SA.
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