In 1995, I took a contract at the Bradford and Bingley, working on a project that was to determine those people who qualified as members and who would, therefore, be invited to the annual general meeting.
This was at the height of the “carpet bagging” phenomenon, where people opened accounts with companies that were about to become PLCs, so that they’d benefit from an initial windfall, usually of a few hundred pounds. As a result, there was a lot more scrutiny on the mailing that year and the criteria for membership was being very closely observed.
As part of my work, I had to liaise with the legal team at the building society, and it was an older chap – whose name I’m afraid I can’t remember – who sat me down and explained the situation to me from first principles. He told me how all of the profits the Bradford and Bingley made went to benefit the members, thereby reducing mortgage rates, for example. If the members voted to privatise, he went on, then the profits would go to shareholders and, furthermore, future decisions about the company’s strategy would be made with a view to maximising short-term dividends and not long-term business growth, which would have benefitted the members.
And that makes a lot of sense when you think about it. One of the reasons given for the success of Lidl and Aldi is that they are family owned companies, that can make a decision that will benefit their business over the next three or four years, even if there’s a temporary dip in profits. The inability to plan like this is, I think, the fundamental flaw in PLCs.
Of course, private companies do need to make a profit on the work they do but that doesn’t necessarily translate into dividends. Sometimes the money is invested in growth, sometimes – especially for smaller companies – it’s to protect themselves against a rainy day or when business is quiet. I should imagine it’s difficult to run a business effectively when you have shareholders baying for profits and to find yourself at the mercy of the market’s opinion of you. (Northern Rock would agree with that, I expect.)
Non-Labour governments – and I’d include New Labour in that group – love private companies and businesses, though. They see them as some kind of universal panacea to the difficult job of being in government, even though tackling that job is the one they’ve been elected to do. Rather than knuckle down to do the hard work, though, they are keen to find away to move that responsibility away from themselves. After all, it’s much easier to be an MP in a “small state government”, where you don’t have so much to do.
The problem is that some sectors and industries don’t lend themselves to privatisation. If you want a list of them, just look at pretty much everything that has been moved from the public sector into the private sector since the BT sell off in the 1980s, because they’ve mostly been monopolies. And monopolies don’t work as private enterprises.
Private business works where there’s competition. Let’s say you need a plumber. You might ask your friends “Do you know a good plumber?”. Quite often you’ll hear that someone’s good but a bit pricey or that someone is good but always busy or maybe that someone is just reliable. (You might be dubious about a plumber who isn’t busy!) But you’ll make a decision based on your budget, the urgency of the situation, and what you need done.
But what if there was only one plumber allowed to operate in your area? He (or she) could charge what he wanted, turn up when he fancied and if he did a shoddy job, well what would that matter? (This is probably why Communism doesn’t work but I need to think that through.)
And also, what about the situation where the job that needs doing can’t realistically be costed? If you’re seriously ill, then it doesn’t matter whether your medication costs £100 or £100,000: you need it to live and, as a society, we’ve agreed to an NHS that will take care of us, giving us help that is free at the point of delivery. How can you privatise that? (Hint: you can’t.)
In brief, then, the companies you can’t privatise effectively are those that are monopolies or those that can’t be expected to make a profit, like health and education, for example.
Looking at something a bit more specific then, let’s examine water companies. They each cover different regions, some of which have plenty of water – like Cumbria, unfortunately – and some that don’t. Furthermore, the age and quality of the water infrastructure varies from place to place: some require far more maintenance than others.
Realistically, then, you can’t put a cost on getting water to every household yet access to fresh, clean water in our society is a right, no matter what the chief exec of Nestlé says. And it’s not a right because of some hippy ideal, it’s because we live in a nationwide society – back off, Thatcher! – and we all own the resources, and we all pay the taxes that ought to pay to deliver that water, appropriately cleansed, to our homes.
To privatise that industry, then, is just a bloody nonsense. A short term fiscal gain for the government, for sure, and then we’re saddled with businesses that are obliged to make a profit for their shareholders. Think about it: every time you pay a water bill, part of that money – TOTALLY UNNECESSARILY – goes to someone who does nothing to earn it except for owning some shares in that business. It’s insane.
The reason I’ve been prompted to write all this, incidentally, is that last week United Utilities warned people in parts of Lancashire to boil their water because low levels of cryptosporidium have been found in the water. Consequently, there was a rush on bottled water. (And I wonder whether those affected will get a refund on their water bills?) I also wonder if this problem would have occurred if the need to declare profits hadn’t constrained United Utilities’ activities.
I remember, before he was elected, how David Cameron criticised BT for its monopolistic situation and behaviour. That was a rational argument. Google David Cameron and BT now, and you’ll find him full of support for this dreadful monolith, which exemplifies everything that is wrong about privatising a company that so clearly belongs in the public sector.
So when to nationalise and why? Well, when the service is monopolistic, like water or rail travel, i.e. when you have no option but to use a service; or when a service shouldn’t be expected to make a profit, like water or other national resources; or where it’s simply implausible for that activity to be a profit making operation, like health or education.
I’m not saying that a big state is a good thing – God knows some of our public services need a proper overhaul – but I am saying that there are some services and operations that don’t belong in the private sector. We know unregulated capitalism doesn’t work – just look at the banks, those inept losers – and also that the state has a place in a society. And that place is to manage those resources that belong to all of us and those services for which we all pay our taxes.