Hard look at the failures of ideology-driven privatisation

BOOK REVIEW: PAUL SWEENEYreviews In Government We Trustby Warwick Funnell, Robert Jupe, and Jane Andrew

In Government We Trustby Warwick Funnell, Robert Jupe, and Jane Andrew;

Pluto Press, 2009; £19.95

THERE IS a strong interdependence between the public and private sectors in the modern state.

Listening to some commentators, one might believe that the public sector was a parasitical worm on the back of the private sector. A realistic view of the relationship between the two sectors, each of which offers much to the other, has yet to be developed.

The interdependence became crystal clear recently when the state was forced to rescue the “commanding heights” of the private sector, the banks and auto companies. And at some enormous cost to taxpayers: in Ireland’s case at least €7 billion for banks with a market capitalisation of just over €2.3 billion (€0.5 billion a few weeks ago).

Many private companies, including professional firms of accountants and solicitors, have large public sector client bases. It is time for a serious debate on the interdependence to improve each sector.

A few years ago privatisation and marketisation was promoted almost as a panacea for economic efficiency. The state was portrayed as inefficient, plodding and bureaucratic.

The mantra of “public sector bad, private good” dominated. In this book, Funnel et al concluded that no matter how strong the evidence is that the market does not always deliver better public services, “it is unlikely to dislodge the hold that markets have on many governments”. The evidence has decisively changed since this book was written, only a short time ago.

The roles have reversed in a short six months. The whole economic system has been turned on its head. The state is seen, not by the left, but by big business itself, as the saviour of capitalism itself. The near hysterical attacks on public servants of recent times by some commentators is probably a symptom of their loss of certainty in the Anglo-Saxon model of capitalism, which has imploded.

This book is a small help in developing a new public/private paradigm. It is highly critical of privatisation and while focused on the UK, it has information on Australia, and New Zealand. Written by three accountants, it is somewhat disappointing in its financial analysis, and it is quite dated in places. Perhaps as they are academic accountants, they wish to demonstrate a wide knowledge of the political and philosophical literature underpinning the debate.

The authors make the important point that Adam Smith, the founding father of modern economics, was also a moral philosopher. Thus he was far removed from many of the amoral advocates of the failed Anglo-Saxon market model.

In Ireland, we had a large commercial state sector which had, at its peak, over 90,000 employees, or 8.1 per cent of those at work in the late 1980s. Today it is down to 41,000, but with the effective bank nationalisations, it now has over 80,000 employees.

Irish public enterprises were vital in the development of the economy when private capital was risk-adverse, too small to invest in projects of scale, or where private firms had to be nationalised to maintain jobs (when that was allowed). Some of these firms were highly inefficient, but by the 1980s, as demonstrated in my 1990 book, The Politics of Public Enterprise and Privatisation, most were profitable and generating over 10 per cent of national income and 18 per cent of all investment. In contrast, many nationalised British firms were not doing so well, being in declining industries, such as shipbuilding, coal and steel.

The trade unions in the UK opened the door for Thatcher’s massive privatisation programme with the Winter of Discontent. Whether one agreed with the privatisation project or not, it was a key part of the strategy which placed the City of London on top of the British economy. This led to the neglect of the once great British manufacturing and engineering sector. This dominance of finance over the “real” economy has been at some cost.

This book takes a very hard look at privatisation. It finds that by its supporters’ own criteria of efficiency, value for money and so on, it did not deliver much. In the area of monopolies, railways, London Underground, air traffic control and in social areas, such as prisons, where quasi-judicial powers have been conferred on profit-making companies, it failed.

More fortunately, in Ireland we have been slower to privatise. The biggest privatisation, Eircom in 1999, at the peak of the dotcom bubble was a huge financial coup for the taxpayer. With an investment of only €562 million (plus a pension contribution of €1,016 million) we sold it for a staggering €6,198 million. This is more than enough to buy and to recapitalise all the Irish banks at today’s prices.

Funnel et al found that marketisation and privatisation had led to a decline of trust: “Contract relations are replacing trust relations for both government and society.” While it is probably too much to hope that the wholesale nationalisations internationally will reverse this trend, policymakers must now develop a new public/private paradigm which advances the economy and society.

Paul Sweeney is Irish Congress of Trade Unions economic advisor. His last book on privatisation was Selling Out? Privatisation in Ireland, published by New Island/Tasc.