Myth 2: Big business runs things better

Our political elites say they love the private sector because it’s so much more efficient than the public sector. But the truth is that the private sector only works by scrounging billions of pounds of public money in the form of subsidies and support. This shows that it is the corporate elite, not the poor, who are the real scroungers in our society.

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Privatisation is the policy panacea of our era. The public sector, it’s argued, is slow, inefficient and prone to corruption. By privatising services such as electricity, water and even education and health, we’re told that they will be run more efficiently than they would be if the sclerotic state were in charge.

 “Old industries are like dry crops and privatisation brings the rain” – Lyrics of a pop song funded by the World Bank to promote water privatisation in Tanzania

The basis for the argument tends to be blind faith in the magic ‘entrepreneurial’ qualities of the private sector rather than solid evidence.
 

Corporate benefit scroungers

In fact, most privatised public services only work because of subsidies and handouts from the public purse. 

Take rail privatisation in the UK. When former British Prime Minister John Major sold off the railways in 1993, it was meant to herald a new golden era for rail transport. The railways would be more efficient, require fewer subsidies and competition would keep fares low.

Twenty years later, we have a rail network that is among the most expensive in Europe. The rail companies now suck up £4bn in subsidies, significantly  more than they did before privatisation.  The only franchise not to require lavish subsidies is East Coast, which has been effectively renationalised since 2009. The railway track infrastructure itself had to be renationalised in 2002 after a series of fatal disasters. Meanwhile the train operating companies have netted huge rates of return of 121 per cent while only reinvesting 10 per cent of profits into improving services. 

This doesn’t even mention the way that companies often cherry pick the most profitable bits of an industry, while leaving loss-making bits to the public sector. Or that they depend on a workforce that is kept healthy and educated by the public sector.

What’s more, railways are not the only example. A recent study said that a ‘conservative estimate’ of subsidies given to big business in the UK amounts to £85 billion a year. That’s more than 17 times what the UK spends on Jobseekers Allowance. It’s even more than what we spend on state pensions. And this figure doesn’t include the £850 billion spent on bailing out the ‘too big to fail’ banks. So surely it’s the multinational corporations who are the real ‘scroungers and spongers’.

This is also the case across many countries in the world. Thanks to international institutions like the International Monetary Fund and the World Bank, as well as pressure from countries like the UK, many developing countries have been encouraged to privatise their basic services and sell their assets to the highest bidder. This process is often called structural adjustment. 

The results have been disastrous.

In Tanzania, where the World Bank even financed the production of a pop song promoting the virtues of privatisation, the bosses at the British company who had taken over the local water utility were actually expelled from the country. The company, City Water, had failed to invest in improving water access (just 100,000 of the 3.5 million people living in Dar es Salaam had running water) while hiking up prices to levels local people couldn’t afford. 

Water privatisation was such a failure that there has been a new wave of ‘remunicipalisation’ (returning services to public control) across the world. Water services have now been taken back under government or non-profit control in Ghana, Mali, Dar es Salaam, Maputo, Paris, Naples and Berlin among others. 
 

Alternatives to privatisation

The other side of the coin to the failures of privatisation is how successful  the alternatives have been. Of course state bureaucracies can be inefficient and corrupt – as can private corporations. But if well run, public control can do a much better job than private companies at running public services.

In the Cambodian capital Phnom Peng, the public water utility succeeded in increasing water access from 25 to 90 per cent in the space of 12 years. 

In Scotland, the refusal of the devolved government to privatise Scottish Water has paid off. Now Scottish Water is the cheapest, and among the most efficient, water providers in the UK. 

In healthcare, the US spends almost double on health as a proportion of GDP than the UK, but the NHS achieves better life expectancy than the profit-oriented US health system. 

But big state solutions are not the only alternative to privatisation. In some places, it is local government, or even communities themselves, who are taking control over services back from corporations.

In the electricity sector, German cities have been taking control back off private companies through the process of remunicipalisation. Many of these examples occurred after a popular referendum. Local people are now involved in overseeing these resources, allowing fairer pricing of energy – so the poor pay less than the rich not vice versa – and ensuring they use a greater proportion of renewable fuels.

The growth of renewable energy in Germany has mostly happened through small-scale energy cooperatives and a strong municipal network under the Energiewende scheme.  We’re also beginning to see similar, grass roots attempts at promoting local energy cooperatives here in the UK.  Across the world, the food sovereignty movement is rejecting the corporate-run food system in favour of a more democratic alternative.

Privatisation removes democratic control from people to run their services in a fairer and more sustainable way.