Friday, 22 April 2011

the fallacy of private sector efficiency

Privatisation equals efficiency, according to its greatest exponents.  An efficient organisation is a successful organisation, delivering value for money.  The public sector is inefficient in comparison to the private sector, ergo, public services must seek to increase their efficiency, reduce waste and cut costs.  The key to achieving this is competition, the introduction of markets.  The market will drive out waste and reduce costs.

This argument contains many fallacies but before addressing them it is worth noting that it goes largely unchallenged.  It seems to be generally accepted that the private sector is as a rule much more efficient and the public sector languishing in a mire of 'non-jobs', good benefits and astronomical waste.  There is a little or no evidence to support this view.

The central fallacy of this theory is a fundamental misunderstanding of the role of public services, though the clue is in the name.  The private sector is more efficient at generating surplus income (i.e. profit), because that is its primary aim.  The bottom line of all private sector organisations is profit; service is a mere by product of the quest for greater profits.  If the private sector can generate profits while delivering poor service, it does.  The moving of call centres to the Indian subcontinent despite their near universal derision is clear evidence of this.

The bottom line of the public sector is service, not profit.  It’s a huge distinction and shapes public sector organisations from top to bottom.  Surplus income should it exist is merely reinvested into improving services and it’s an obvious truism that service can always be improved for someone.  This leads to a cash hungry public sector, often able to spend its full resources and find a home for much more.  I doubt there is a single school or hospital in the UK that cannot be improved with the influx of more resources.

This is not to say that there aren't needlessly inefficient and wasteful practices in the public sector - there are - but the same is true of the private sector.  'Non-jobs' exist there too, the PR and marketing agencies employed by big business to distort the truth perform no beneficial function to anyone but shareholders, unlike those employed to encourage equality and diversity in the workplace (often picked out by public sector critics).

If we seek high quality public services then privatisation is not the only answer.  Reform and improvements can be delivered without resorting to the enrichment of shareholders at the expense of service levels.  The utility companies are an excellent example; artificially inflated prices, confusing bills and a lack of competition.  In the days of public ownership the utilities may well have been less efficient at generating profit, but the prices were not inflated and service was similar to what it is now. 

One of the more self-defeating criticisms of the public sector (which also feeds into the myth regarding its fundamental inefficiency) is the level of pay and benefits.  Less skilled jobs may be better paid than the private sector, but there isn't scope to earn a million pound a year working for the local council, unlike a financial service provider. 

Further, the truth is that compared to our European neighbours we work the longest hours for the least pay and we are relatively inefficient  in comparison (this includes the private sector, which means on average European public sector workers are more efficient than our private sector).  It’s those in the private sector that are underpaid and granted too few holidays and effort would be better placed in campaigning for a levelling up of benefits, not down.

Sadly this particular fallacy is politically convenient and provides cover for the Neoliberal policy of shrinking the state and mass privatisation.  In this way its much like the narrative formed concerning benefit cheats (who cost the Treasury some £1 to 2 billion a year or so); they are the scum of the earth yet major corporations that can afford to pay tax but instead find ways of avoiding it (to the tune of £25billion a year) are left to continue undisturbed.

Shattering these myths is incredibly difficult; it requires a balanced and subtle analysis and a willingness to question perceived wisdom.  Just because some areas of the public sector are inefficient does not mean that they all are; the same applies to efficiency in areas of the private sector.  Just because final salary pension schemes are hard to justify, it doesn't mean that all public sector benefits cannot be.  Private is not always better, but neither is public.  In modern liberal democracies there needs to be a mix of private, public and third sector organisations.  Crucially, we must remember that profit is not everything, every time.

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