Why have public ownership?

Puerto Rican teachers come out against the government’s drive to privatize public education. Photo: Ricardo Arduengo/AFP/Getty Images.

Why have public ownership?

After many years of cutting privatization policies, there is hope that public ownership is back at last. Dinyar Godrej writes about the promise and the threat.

Before elections politicians promise a lot. But It is difficult to imagine a politician saying that their party planned not to support public services and instead to cut or reduce public services. But after many years of arguments against ‘big government’, which means privatizing and marketing the important goods and services that governments should normally provide, this is not far from the truth.

The Australian People’s Inquiry Into Privatization said ‘there is more, not less, demand for government services. But more and more governments do not want to provide them.’

Recently British Prime Minister Theresa May said that voters had ‘doubts’ over the way Conservatives organised public services, especially the National Health Service (NHS). But then she said something strange: ‘Brilliant Conservative councils keep taxes low so people can keep more of the money they earn and provide high-quality services for those who need them.’ So the main promise is that the state will keep taxes low but at the same time magically provide the services that tax could pay for. Theresa May often has ‘have your cake and eat it’ as her way of thinking!

Opinion polls show public support for public ownership, And selling a service that should remain public, a so-called public private partnership (PPP) has always failed. This is because the idea that private companies are more efficient is always about them making a profit. Private companies do not understand that important services are for people and not for profit.

The idea behind private companies running public services is to choose the best contracts, make a big profit, and leave quickly if there is no success. And big profits for shareholders and high salaries for CEOs makes private companies a bad idea for public services. There is no real competition. Cat Hobbs is director of the public services campaign group We Own It. Caty says: ‘Important public services, like water are natural monopolies. You can’t choose the water coming out of your taps – there is one set of pipes. It is impossible for a company to provide real competition to that. So you have private monopolies.’ The private British water companies made profits of $2.8 billion in 2017, a profit of 17 per cent. They paid shareholders almost all the profits from the last ten years and this means there was no money for infrastructure.

The high profits mean high bills, of course. In the higher income OECD countries, the average price for energy from private companies is 23 per cent higher than from public companies. In France privatized water company bills are on average 16 per higher than the public services. And of course there were the Cochabamba water wars of Bolivia when US transnational Bechtel put up prices and poor people could not pay.

Partners or thieves?

The 2007-08 global financial crisis resulted in austerity policies in most high income countries and this did not stop politicians from preferring private sector contracts. Money for public services continued to go down. International financial institutions, often with the support of government, decided on selling and this resulted in loss of income to the public purse. And unwise PPP schemes transferred risk to the private sector. The simple idea is that if private companies invest, then they are taking the risk. But PPPs are usually more expensive than public schemes because private companies borrow money at much higher rates of interest than government can. Then there are the profits that are often written in contracts and the money given to the big accounting and financial advice firms.

In the end, of course, the public purse must repay the investment. The National Audit Office says that the British taxpayer pays £200 billion for Private Finance Initiative schemes. Private Finance Initiative is another term for PPPs. A 2016 report found that a quarter of some European PPPs paid 12 per cent a year – all going into private hands. In the Majority World, where the risks are seen as higher, investors expect closer to 25 per cent. But the World Bank and Western governments are pushing PPPs through development finance and aid channels onto countries in the Global South looking for cash for public projects.

When Boris Johnson was Mayor of London, he criticised the multibillion-pound collapse of the London Underground PPP scheme. He said, ‘Other countries call this stealing, here it is called the PPP.’ Now he is the head of the Foreign Office, his department is recommending similar private funding schemes for healthcare to Zambia and Liberia. This puts them at risk of unfair debts they cannot pay.

For some of the most important services, such as home care, organising disability benefits and prisons, big transnationals have got the contracts by making low offers to the government. They use their position to renegotiate contracts upwards soon after taking charge. They pay less than the minimum wage and give zero-hour contracts to workers. This is often when they areproviding care for the most vulnerable.

The big construction company Carillion is an example of a private firm which had contracts for public services. In fact it collapsed. It had 450 contracts in Britain and 20,000 workers, which made it ‘too big to fail’. Ministers gave it contracts of over a billion-pounds even after it published profit warnings.

Some see Carillion as a British turning point. Labour leader Jeremy Corbyn promised to ‘rewrite the rules to give the public back control of their services’ if he was elected. We will see if the government will change its policy of giving lots of money to the private sector. In Australia, things are so bad that a big supporter of privatization said it was making the economy worse. His name is Rod Simms and he is head of the Competition and Consumer Commission. And Australian regional governments are taking services into public ownership, where the market has failed.

The strong city

But a study from the Transnational Institute in 2017 found there is already a quiet revolution taking place mainly in cities. They found that there have been at least 835 examples of taking back public services from the private sector worldwide since 2000, with more than 1,600 city governments in 45 countries.

This is good because it is much easier to privatize than it is to take back into public ownership. Over the years, cutbacks and fewer staff and too much reliance on private consulting firms have made governments’ decision-making and actions weaker. Austerity has resulted in less money for public spending. Cat Hobbs of We Own It says: ‘The public sector needs to have enough money, it needs to have enough knowledge and skills to make public ownership possible.’

And then there is always the problem of compensation owed to a private company if a contract ends and if they will sue for large sums of money for ending a contract. There are examples of private companies with large debts who sued for the loss of imagined future profits when their contract was ended.

It is better to solve many of these problems at the local level where it is easier for people to agree on important issues. And it is interesting that support for public ownership at this local level context can come from all political parties. The benefits are obvious. There is no waste of money going to shareholders. There is money for the public purse from schemes which make a profit and this can go to services which are essential but do not make a profit. It is good for the local economy as jobs are created, and workers’ rights are stronger.

Of course. public ownership does not work if it follows the values of the marketplace and ignores the social benefits. But it often brings economic efficiency and social benefit. Valladolid in Spain made savings of 71 per cent by bringing street cleaning services in-house, and at the same time provided secure jobs to workers who normally had very few rights.

Nottingham City Council started Robin Hood Energy to provide low-cost energy on a not-for-profit basis to help fuel poverty. Its motto: ‘No private shareholders. No director bonuses. Just clear open pricing.’ In Germany, 284 city energy providers have met popular demand for renewable energy, which private companies were not interested in.

This new public ownership often includes accountability to the people using the services and their participation in decision-making; it looks at environmental and social sustainability.

All of this is a new development that is starting, but it is finding it difficult economically. How far it can go will depend on its successes, of course, but also on the involvement of you and me – the public.

NOW READ THE ORIGINAL: https://newint.org/features/2018/05/01/public-ownership-rises

(This article has been simplified so the words, text structure and quotes may have been changed).