The Privateers & the Damage Done

James Meek Private IslandISBN-13: 978-1-78168-290-6. “Private Island: why Britain now belongs to someone else” by James Meek was published by Verso in 2014. This work will appeal to many of us who read and enjoyed George Monbiot’s “Captive State” but Meek is a very different kind of author. He is known for his works of fiction not his economic commentary. Maybe for this reason, this comes over as lacking the killer punch of Monbiot’s earlier work. This is more reflective than angry. Meek will tend to drift into wistful story-telling (very specifically towards the back of the book) leading many a reader to lose interest. We needed this to be so much like “Captive State” but not so. Monbiot perfectly captured the absurdity of Britain’s Public Finance Initiative (through his evidence of PFI’s poor value-for-money) whilst Meek tends towards more vague social-value judgements. That aside, this remains a valuable updating on the topic with its unique brand of indignation about at an injury we inflicted upon ourselves.

I had been initially reticent about even buying this book to read. The immediate concern was that this was some nationalistic rant about foreign investors owning British assets. This tiresome nonsense would have been a non-starter in economic terms. One thing we learnt from Piketty is that, by and large, nations own an approximate equal amount of each other’s assets. Although trade may be out of balance concerns about who owns what productive capacity is ill-placed. However Meek offered a promise of a useful updating of the Monbiot critique of the Britain’s privatisation of public services: Rail, Water, Electricity, Mail, Health & Housing. So we dived in regardless. Should we have been concerned? Well, yes, there is some points made about who-owns-what from a National perspective but this is a minor issue and where it does erupt it largely focuses on the fact that it is foreign State-owned industries that (ironically) have bought up our former state-owned assets. The specific example that comes to mind is EDF and out electricity utilities.

Much of what is gathered here is not necessarily new. Sections had already been published in the London Review of Books and The Guardian newspaper. Meek kicks-off with a new introduction to the collected essays in which he outlines his principle objections to the results of some privatisations. He starts with a critique of Hayek whom he describes as having been “proven wrong” in post-war Europe. Socialists came to power and took control of vast swathes of the economy yet this did not lead to any threat to individual freedom nor the end to democracy. Such pro-market dogma lead Hayek to predict unreasonable conclusions for alternative paths to economic development. The evidence should have buried his conclusions if it was not for the economic stagnation of the 1970’s and the rise of the right-wing think tank. Thatcherism followed and discredited dogma was back in vogue simply because it served the purposes of selfish sectors of the economy that felt that THEY were at a disadvantage from broad social progress. If only they could convince a government that giving THEM greater freedom would serve the greater good…

One of Meek’s more damning items of evidence is this:

“Privatisation failed to turn Britain into a nation of small shareholders. Before Thatcher came to power, almost 40 per cent of the shares in British companies were held by individuals. By 1981 it was less than 30 per cent. By the time she died in 2013, it had slumped to under 12 per cent.”

This for me THIS is a principle problem. In my teenage years I believed that the spread of free markets and the shrinking of the state would yield greater democracy and opportunity for the private sector to flourish – and that this would benefit many small investors. It seems today that the burgeoning inequality in our society only benefits most of us through our pension funds. Thatcher’s professed dream of a nation of small businesses, of a shareholding democracy, proved hollow. Maybe accidentally or by design: the economy was captured by very narrow interests that did not, in the final analysis, did not work in the interests of everyone. The economy expanded, an elite got gloriously rich, the poor got the picture. This didn’t bind us together in a democracy. It eroded democracy and divided society. This may be the vision of utopia for those who hold onto Hayek’s words until their dying breath.. But for the rest of us it is a vision of dystopia. This is NOT what we had in mind for our civilisation.

Like me, Meek was not initially disapproving of privatisation. He had seen the damage done in the former Soviet Union by a system in which all assets are State-run. He agrees that many former State-owned industries in Britain are more “efficient” after privatisation. What he objects to is the idea that privatisation was the ONLY option. There were other models available. For example the form of private ownership embodied by the John Lewis Partnership is one example of a system where a company can exist in the free market and invest funds from commercial sources. This is a point also made by Ha-Joon Chang in his examples of efficient State-companies that thrive in many western democracies.

“None of the many alternatives to stock market flotation were put up for discussion..”

This leaves us asking “why?” We can only assume a mix of dogma and self-serving benefit dominated the economic models used at the time. Any form of social-benefit organisation was steered clear-of for fear that it would become just another basket case in need of the occasional state bailout. Ironically it was the Banking sector who lived up to that expectation despite never having been state owned. How little we seemed to have learnt.

So Meek heads down to the sorting office to look at one of our most recent and notorious privatisation debacles in the UK: Royal Mail. Again, he points out that no alternative models of ownership were ever tabled. The author neatly capture the cognitive dissonance of privatisation fever:

“…the company had been portrayed be free marketeers [..] as a doomed behemoth [..] a state-milking army of overpaid, underworked, Luddite ne’er-do-wells jamming the cogs of the British economy. Suddenly, almost overnight, [..] the Royal Mail became priceless national asset, its shares like gold…”

Onto British Rail in which Meek sadly shakes his head and tells us

“It is a story, too, with wider implications about the kind of country that Britain has become: a country that has lost faith in its ability to design, make and build useful things, a country where the few who do still have that ability are underpaid, unrecognised, and unadmired.”

The appalling mismanagement of Railtrack came about through the importing of ill-experienced senior management who fired all the experienced staff who knew how to run a railway. Instead they hired consultants to produce whatever conclusions suited the dogma of the time. If that dogma was privatisation then the consultants told the naïve new managers that rail assets could be modernised on the cheap with fantastic new technology. They couldn’t and Railtrack collapsed back into Government hands. The very employees who knew the industry well enough to know what technologies would and would not work had been removed from the business. A new broom swept away all their wisdom in an act intended to push out old ways of thinking. Baby went with the bath water.

Railtrack Chief Executive John Edmonds was described thus by a senior manager:

“He was the one who got rid of operations managers and engineers because he didn’t believe in them. He thought it could all be contracted out and commercialised. He had a desire to break the mould and change. He was always apposed to the traditional railway. He believed there was a golden panacea in the private world where you just free people up and new technology comes in and markets come in and it all happens. The railways doesn’t work like that. You’re not manufacturing baked beans.”

Then onto Water privatisation with this:

“The most striking contradiction between water privatisation and Thatcherite free-market romanticism was the monopoly nature of the water companies: millions of customers who have no choice of supplier, no choice but to take the water, and no choice but to pay for it.”

Once again the theme here is the dogmatic pursuit of a single model of private ownership above other more suitable models. Yes there is the regulator Ofwat but its assumptions about lending and investment have been gamed by the companies to the point that they purchased “a licence to print money” to service their debts and for the profit of their shareholders at the expense of consumers. This scandalous financial arbitrage costs up to £1 billion per year. Yet across the borders in Scotland and Wales alternative models of private ownership have proven successful due to different funding and debt usage. It is possible to return shareholder value back to water customers as ‘dividends’ be that in investment or lower pricing.

Next up: Electricity where Meeks exposes the underlying inequality in UK policy versus other countries. Comparing Thatcherite privatisation to what happened in France Meeks concludes:

“In overseas chanceries the Thatcher doctrine come up against ambitious leaders who were no less patriotic, but not so arrogant and naïve. Unlike Thatcher, they didn’t assume that if their country levelled it playing field, others would level theirs.”

Of the French:

“..Christine Lagarde – then minister for economic affairs in the Francois Fillon’s cabinet – boasted that the state would be more active than ever building ‘champions capable of competing will global market rivals’. In Thatcherite terms EDF was a public sector mammoth that would inevitably be hunted to extinction by the hungry and agile competitors of post-privatisation countries like Britain. The laws of economics said so. And yet the opposite happened. The mammoth thrived, and Britain failed to produce new competitors, agile or otherwise.”

Hence much of the British Electricity industry was effectively re-nationalised by the French. Ironically many of the Trade Unions in Britain welcomed the turn of events as their overseas overlords were far more worker-friendly than the private competitors. They invested more and were more far-sighted. Ironically it was French Trade unions that objected more to the sale of British assets to the French state.

What the idealogues in the Thatcher cabinet and like-minded Think Tanks failed to appreciate are the many imperfection within the free market that requires the smoothing hand of the State to enhance their competitiveness:

“…private companies compete with each other [not because] they like competition. They hate it, and will only compete if force to do so. Rather than competing with a rival on price or product or revenue, they’ll try to eliminate the rival firm and take over its territory by buying it; or reach an unwritten agreement on an oligopolistic cartel of a few big firms, carving up the market between them.”

That is why the Thatcherite fantasy of small shopkeepers, small business and many shareholders was just wishful thinking. They believed that light-touch regulation would inevitably lead to this result – yet the opposite happened. So untrue were those early promises that one has to wonder was it simply political miss-truth – deliberately told to the electorate in order to make it swallow the unpalatable? We had good reason to believe it at the time but like so many other political promises they all evaporated leaving the people betrayed. Yet another injustice that served to line the wallets of a minority.

It so calls to mind the observation by George Bernard-Shaw regarding “A barbarian is one who believes the customs of his tribe are the laws of nature.” These economic customs were not natural laws at all. They were only enforceable by a Government who believed that they would naturally happen by themselves – so they did nothing – as was their custom. This was a self-serving deceit. Even if the evidence pointed against this conclusion the myth would be perpetuated to this day because it served the needs of a tiny economic elite who paid for the democracy we get. This was their truth. Their truth alone.

Do I feel betrayed? Yes? Was I naïve? No. These were reasonable assumptions at the time – much like the old theory of phlogiston. It was subsequently disproven. People who make no mistakes don’t make anything. No regrets. It is time to move on and learn the lessons. Like I, Meek does not believe the situation is simply remedied by renationalisation. Those days are gone and they serve no more purpose. But what must end is the self-serving dogma that gets served up every-time the politicians wish to justify another piece of economic nonsense at the bidding of their paymasters. What’s good for them is good for everyone. Not so. The free market (these days) is not the best mechanism to be left unguided with our power sector. There is too much at stake:

“With electricity, the market can never be left alone. Coal might be the cheapest option, but it’s too dirty. Gas might be the cheapest option, but the more the country relies on gas, the more the emergency reserves it will have to keep in storage – which the market won’t pay for.”

Gas and electricity are not natural public nor private industries. They grew to maturity under careful state control and can no more flourish in the long term than a vegetable garden will deliver fresh produce without digging, planting, cultivating, weeding and harvesting. Meek has a way of describing this: since we all use these essential utilities then essentially we are paying a form of tax. The government may have reduced centralised taxation to a certain extent but all they did was privatise the rights to collect those taxes. Hence our personal taxes to private companies have increased out of all proportion to any personal tax decreases we experienced from central government. In essence privatisation, as performed in Britain, has been very bad value much like Monbiot’s demonstration with PFIs.

Take the NHS. Every government tries to save money on healthcare. Getting value for money is a reasonable objective. Yet as Meek explains, the NHS “remains a bargain”:

“The two foreign systems with which it is most compared, the American and French, are more expensive, are coming to be seen as unaffordable in their own countries..”

So the NHS is the very model of affordable healthcare. The only reason everyone doesn’t copy it is that it is a centralised State-run machine of the very kind that the prevailing dogma teaches us must be a problem. In fact the NHS is an elegant solution and we must treat it as such if we are not to end up paying more through a mechanism of private taxation. It has other advantages over private systems such as the environment it creates for risk-takers to develop medical innovations. Yet much as for the scandal of the PFI the free-market obsessed Government has done everything it can to waste public money on schemes to force the free-market operators into the British healthcare market:

In 2006 Interhealth Canada “..built a state of the art joint replacement clinic, designed and equipped to the highest standard, but it didn’t have to pay for it: the entire £32 million cost was refunded by the taxpayer..”

Even then Interhealth was 25% more expensive than the NHS. Interhealth bore no liability if it cocked-up an operation. It didn’t even have to train its own doctors. It was even paid £8 million from tax-payers coffers for work it never did. It was no surprise that the contract for Interhealth was never renewed and the centre shut in 2011. Sound familiar? It is all too eerily similar to the tale of the Skye bridge fiasco that Monbiot tells of in “Captive State”.

Yet what is the very latest that our incumbent British Government has to offer us for re-election in the 2015 British General Election? Will they stop the madness? No, in the very definition of insanity they will keep doing more of the very thing we know no longer works. In the midst of a housing crisis in which homes in Britain are so expensive than no young person can afford to buy them, the latest whizz-bang idea is to extend the right-to-buy scheme for council tenants. This was a central pillar of early Conservative policy under Thatcher yet it did nothing to increase the levels of housing supply. It just poured public money into the purses of private landlords. And keeps doing so.

The market was meant to fix housing. It cannot. The housing market is a complex market in building things – not baked bean manufacture. It is subject to inefficiencies driven by boom and crash economics, interest rates, land price speculation, land banking, etc. We live within a finite land mass – on an island – where occupancy rates per household have slowly dropped as the number of people increases. You cannot have infinite growth in a finite system. You must not fund your lifestyle through the promise of borrowing against price increases in your home. Those days are over. They are the basis of the junk economics that have crashed the economy already in 2008 and next time it will get crashed forever unless we stop it.

The result of free market economics upon housing has been to create an underclass…

“To permit the gradual re-emergence of slums, in other words, in order to keep income and corporation tax low, and to make the threat to the well-off an easily ignored threat to their conscience, rather than to their wealth. To settle for history as wheel rather than ascent, in which it will eventually be time for Dickens to come around again.”

This is a deeply disconcerting. You do not have to be some flag waving socialist to find this definition of the problem so disturbing. We clearly do not all measure the concept of “progress” the same way. Personally? I was comfortable with the post-war definition of social progress, with the decrease in inequality, with the spread of middle-class well-being, with the establishment of the NHS, with the pride in a nation content with itself and its achievements. Why should we now settle for anything less? Should we now abandon the entire enlightenment experiment in the interest of narrow, self-serving, dogma? For a few rich decades this nation could symbolise everything that was so positive about the human civilisation. It lifted people.

What has replaced this lifting has been the horrid extermination of hope. It calls to mind the ordeal of Winston Smith in his final interrogation from Orwell’s “Nineteen Eighty-Four“:

“If you want a vision of the future, imagine a boot stamping on a human face – forever.”

About post-carbon-man

A passionate advocate of a peaceful transition to a sustainable political-economy, Mark hails from a working class farming background. Today he is a Company Director and Chairman of the Low Carbon Chilterns Co-operative. Whilst at University (Engineering Masters) he was active in Conservative Student politics but has had no affiliation since. He has travelled widely on business covering the USA, Europe, Middle East and Central Asian Republics. In 2007 Mark founded Post-Carbon-Living and a year later co-founded Transition Town High Wycombe. He lives with is wife & daughter in a home they retrofitted to be carbon-neutral. Today he blogs about surviving politics on a shrinking planet and is passionate in his rejection of Nationalism.

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