“Public Sector Bad, Private Sector Good”

Back when there was a Conservative government in the UK in the 1980s, I coined the phrase “Public Sector Bad, Private Sector Good” to sum up the desire to sell as much public property off as possible as it will be miraculously saved by the private sector. Now with the new Coalition Conservative government, this mentality has all come round again.

At the start of the 1980s, the UK did have more in public hands than most countries with water, telecoms, gas, electricity all nationalised, but now these are long since in private hands, the Conservatives are looking to sell off whatever is left. much of which is really about public service provision, such as the NHS.

So is “Public Sector Bad, Private Sector Good”. I say no for the following reasons

• Private sector companies exist to maximise their profits, which public sector entities may not need to make a profit at all. Profit from a public sector entity can be also offset against subsidies. The argument for this would be that having to make a profit makes the company more efficient, but if a service goes from not having to make a profit to making a profit, the service has to cut costs to make any profit at all from the same money.
• There is not generally some magic way that private sector companies can save money that public sector entities cannot, so it is down to general cost cutting strategies
• One key way to cut costs is to cut wages either in pay rates or the number of staff employed. Ask any cleaner who has been ‘contracted out’ and they will tell you the first thing that happens is their pay goes down.
• Another way to cut costs is to cut back on investment in infrastructure and other capital costs. Railtrack was rightly castigated for cutting back on maintenance which cause the Hatfield and other crashes, but arguably they were just looking to save some money to increase their profits.
• Private companies are also likely to pay their senior staff more than public sector companies, making cuts further down the organisation more severe.
• So the net effect of putting public services in the private sector is that less is spent on the service and the rest is taken as profit.  If that is so, keeping it in the public sector seems a better idea to me.

I am not against private companies, I work for one. However, in the realm of public services, particularly where public subsidies are involved, I think that in many cases keeping them in public hands provides a better value service, simply because they do not have to make a profit. Even if the public sector was less efficient than the public sector, they could still save public money in delivering public services, simply because they do not have to make a profit.