Making profit off public services
Discussion
This might make me sound like a raving loony but anyway:
One of my pet hates is knowing that I am lining the pockets of shareholders when I pay for things which are (or should be) a public service.
I'm talking about things like the water supply. I don't mean that it should be free, as there are obviously expenses which need to be met, but for something that everyone needs, surely we can come up with a system that doesn't need money grabbing types to run it.
The reason I think this is that when you have a private company, their primary concern is to make a profit. Everything else comes second to this, regardless of what their business is, or how ethical they claim to be.
That is not to say that I think such things should be owned by the state either, as they then are at the whim of the vote chasing politician and his cronies.
There is no reason why this couldn't work. The RNLI are an example of a valuable service that is completely self funding and works very well (though I do realise that it is a charity and doesn't charge for its services).
Am I bonkers? It's just something that winds me up when I think about it.
Rant over.
One of my pet hates is knowing that I am lining the pockets of shareholders when I pay for things which are (or should be) a public service.
I'm talking about things like the water supply. I don't mean that it should be free, as there are obviously expenses which need to be met, but for something that everyone needs, surely we can come up with a system that doesn't need money grabbing types to run it.
The reason I think this is that when you have a private company, their primary concern is to make a profit. Everything else comes second to this, regardless of what their business is, or how ethical they claim to be.
That is not to say that I think such things should be owned by the state either, as they then are at the whim of the vote chasing politician and his cronies.
There is no reason why this couldn't work. The RNLI are an example of a valuable service that is completely self funding and works very well (though I do realise that it is a charity and doesn't charge for its services).
Am I bonkers? It's just something that winds me up when I think about it.
Rant over.
We need food & drink to survive, but we dont buy that from the state, so I dont see why water, gas, electricity should be any different. Nor do I see why the state should be responsible for making steel, building ships or cars, digging coal out of the ground or growing crops either. Less government all around please. I do agree with you though that if the state is going to run a business which we have to buy from without any alternative, it should be run as a service at cost, and not for profit.
I rather agree with you, even though I'm a free-market capitalist. There are certain things where profit should not be the motive, eg essential services and utilities. I think the Govt only sold them off because they knew massive investment was needed and they couldn't afford it. The new Boards certainly tucked them up over performance bonuses, but then, few people in Govt could run a bath, let alone a business.
On the rule of 'If you can't beat them, join them', I can only suggest you buy some shares in the offending companies!
On the rule of 'If you can't beat them, join them', I can only suggest you buy some shares in the offending companies!
The problem is choice.
I can chose where I buy my food. I can chose what i want to eat.
I have very little choice in who supplies my water.
In theory I can chose my gas and electricty but the complications of trying to switch suppliers make it not worth the effort.
Some of the privatised utility operations are virtual monopolies, which is the anthisesis of free market competition.
I can chose where I buy my food. I can chose what i want to eat.
I have very little choice in who supplies my water.
In theory I can chose my gas and electricty but the complications of trying to switch suppliers make it not worth the effort.
Some of the privatised utility operations are virtual monopolies, which is the anthisesis of free market competition.
I kinda agree with you, but there is a big BUT.
When they were nationalised industry they were forever on strike and waste was huge. Quite simply, under public ownership they did not deliver.
So whilst a private company does indeed make money, it also cracks the whip and costs us less in the long run.
When they were nationalised industry they were forever on strike and waste was huge. Quite simply, under public ownership they did not deliver.
So whilst a private company does indeed make money, it also cracks the whip and costs us less in the long run.
I wasn't suggesting that the state own such organisations, in fact quite the opposite.
In a market where a product is so simple as water or electricity, what difference does it make if there is one supplier? Water is water - it all has to meet the same standard, and the same goes for electricity.
I'm not a communist by any stretch, I just think that some things are worth more than money.
The example I gave of the RNLI shows that it is perfectly possible to run a service which is efficient and effective. Their independance also means they are able to do what they need to in order to provide that service without being subject to targets, someone elses political career aspirations, or whatever else is the current whim.
>> Edited by Tank Slapper on Wednesday 13th July 17:58
In a market where a product is so simple as water or electricity, what difference does it make if there is one supplier? Water is water - it all has to meet the same standard, and the same goes for electricity.
I'm not a communist by any stretch, I just think that some things are worth more than money.
The example I gave of the RNLI shows that it is perfectly possible to run a service which is efficient and effective. Their independance also means they are able to do what they need to in order to provide that service without being subject to targets, someone elses political career aspirations, or whatever else is the current whim.
>> Edited by Tank Slapper on Wednesday 13th July 17:58
Balmoral Green said:Water is different, because it falls from the clouds for free!
We need food & drink to survive, but we dont buy that from the state, so I dont see why water, gas, electricity should be any different.
Our water rates pay for the water companies inefficiency...for 2002-03, they had a loss rate through pipe leakage of 3.6 billion litres per day.
At 0.08p/litre, that works out to be £1,051,200,000 per year. I feel there's room for improvement...
fid said:
We need food & drink to survive, but we dont buy that from the state, so I dont see why water, gas, electricity should be any different.
Water is different, because it falls from the clouds for free!
Our water rates pay for the water companies inefficiency...for 2002-03, they had a loss rate through pipe leakage of 3.6 billion litres per day.
At 0.08p/litre, that works out to be £1,051,200,000 per year. I feel there's room for improvement...
so....water wouldn't leak away if the company was nationalised?
tinman0 said:The reference to BG's post was only to say that water is different to food etc., because it falls from clouds, is collected, processed, and then transported. Much simpler than growing crops and making other drinks.
Balmoral Green said:
We need food & drink to survive, but we dont buy that from the state, so I dont see why water, gas, electricity should be any different.
Water is different, because it falls from the clouds for free!
Our water rates pay for the water companies inefficiency...for 2002-03, they had a loss rate through pipe leakage of 3.6 billion litres per day.
At 0.08p/litre, that works out to be £1,051,200,000 per year. I feel there's room for improvement...
so....water wouldn't leak away if the company was nationalised?
I said nowt about nationalisation, although I'd wager that a company having a monoploy and then returning money to shareholders rather than using more of it for reinvestment isn't the most efficient way to run a business, in terms of getting the product to the customer for the lowest price.
It is a very difficult question, and a case where pragmatism is defeated by dogma.
Nationalised industries have a long tradition of inefficiency. They are also often susceptible to government interference.
Private companies are legally obliged to maximise value for their shareholders. However, that does not necessarily mean paying dividends (there is a very convincing argument that paying dividends is a sign of weakness - the Berkshire-Hathaway argument). However, they should be capable of delivering higher efficiency (against all measures, including cost strucure, pricing, customer satisfaction, etc.).
And there is the third option with limited government control (a not-for-profit organisation like Network Rail, or golden shares).
So, there is a good argument for privatising certain industries. However, this is where dogma gets in the way:
- I can understand the idea that private groups perform certain medical procedures in a 'factory' hospital. But when they get higher prices than the NHS cost, have limited quality assurance and liability when it goes wrong, , can cherrypick the easier work, and leave NHS facilities under-utilised, that's just plain stupid (and that is wat is happening). Rather than react to the alarm bells already ringing, Margaret Beckett has announced that she will be pressing ahead with this privatisation.
- Railtrack, the rail franchises, the water companies could all potentially deliver cost savings and better service. But when they fail to deliver the promised benefits to customers, remove cash from the business in dividend paymenrs, inflate salaries to weak senior staff, then surely they deserve to be penalised or removed (often, they just receive icreased subsidies because government is unwilling to take the short-term political pain).
- PFI - don't get me started. If the maths says public borrowing is more efficient, should you a) go with the more efficient system or b) fiddle the figures? PFI is a huge timebomb, already starting to go off. It will just get worse over the next 25 years.
I am also broadly a free-market capitalist, but we have a situation where we offer huge carrots and never wield the stick. Thatcher blacklisted Andersens over the deLorean scandal. Now, they are integrated into new Labour. When the Network South East train service franchise was finally pulled for chronic failures, the temporary state-owned service significantly improved the service against all measures (noting that it used the same staff, the same railstock, in fact the only change was the wholesale removal ofthe senior management levels who were described as 'totally incompetent' - rather than learn the lessons, Alistair Darling deliberately undermines their performance so he can re-privatise at the earliest opportunity.
The privatisation concept can and should work. But if the goverment and its agaencies are unwilling to wield the stick when it's required, the system is doomed to failure. And guess who picks up the tab?
Nationalised industries have a long tradition of inefficiency. They are also often susceptible to government interference.
Private companies are legally obliged to maximise value for their shareholders. However, that does not necessarily mean paying dividends (there is a very convincing argument that paying dividends is a sign of weakness - the Berkshire-Hathaway argument). However, they should be capable of delivering higher efficiency (against all measures, including cost strucure, pricing, customer satisfaction, etc.).
And there is the third option with limited government control (a not-for-profit organisation like Network Rail, or golden shares).
So, there is a good argument for privatising certain industries. However, this is where dogma gets in the way:
- I can understand the idea that private groups perform certain medical procedures in a 'factory' hospital. But when they get higher prices than the NHS cost, have limited quality assurance and liability when it goes wrong, , can cherrypick the easier work, and leave NHS facilities under-utilised, that's just plain stupid (and that is wat is happening). Rather than react to the alarm bells already ringing, Margaret Beckett has announced that she will be pressing ahead with this privatisation.
- Railtrack, the rail franchises, the water companies could all potentially deliver cost savings and better service. But when they fail to deliver the promised benefits to customers, remove cash from the business in dividend paymenrs, inflate salaries to weak senior staff, then surely they deserve to be penalised or removed (often, they just receive icreased subsidies because government is unwilling to take the short-term political pain).
- PFI - don't get me started. If the maths says public borrowing is more efficient, should you a) go with the more efficient system or b) fiddle the figures? PFI is a huge timebomb, already starting to go off. It will just get worse over the next 25 years.
I am also broadly a free-market capitalist, but we have a situation where we offer huge carrots and never wield the stick. Thatcher blacklisted Andersens over the deLorean scandal. Now, they are integrated into new Labour. When the Network South East train service franchise was finally pulled for chronic failures, the temporary state-owned service significantly improved the service against all measures (noting that it used the same staff, the same railstock, in fact the only change was the wholesale removal ofthe senior management levels who were described as 'totally incompetent' - rather than learn the lessons, Alistair Darling deliberately undermines their performance so he can re-privatise at the earliest opportunity.
The privatisation concept can and should work. But if the goverment and its agaencies are unwilling to wield the stick when it's required, the system is doomed to failure. And guess who picks up the tab?
HiRich said:
The privatisation concept can and should work. But if the goverment and its agaencies are unwilling to wield the stick when it's required, the system is doomed to failure. And guess who picks up the tab?
It is not so much weilding a big stick, but putting in place the right structure at privatisation and having effective and clear regulation afterwards.
Rail Privatisation has not worked as well as it should have done due to two factors-1. the structure put in place at privatisation, 2.Problems with regulation, particularly the excessive saftey measures put in place after Hatfield that effectively bankrupted Railtrack.
Why do you need to pay shareholders for a water service?
In the old days we had regional monopolies. The system was in collapse because of underinvestment (so the arguement goes).
So how does privatising help?
The only change that I can see is that prices have gone up.
The old monopoly service could have done that (but apparently wasn't allowed to). So the only benefactor seems to be the shareholders.
If you allow a 'charitable' service then 100% of the profit could be re-invested in infrastructure.
Guess where I'd prefer my charges to go?
In the old days we had regional monopolies. The system was in collapse because of underinvestment (so the arguement goes).
So how does privatising help?
The only change that I can see is that prices have gone up.
The old monopoly service could have done that (but apparently wasn't allowed to). So the only benefactor seems to be the shareholders.
If you allow a 'charitable' service then 100% of the profit could be re-invested in infrastructure.
Guess where I'd prefer my charges to go?
Good post hi-rich
Idealy I think public services would be a great idea. Unfotunately the ideal public service employee and/or manager doesn't exist. Not to mention the bosses in that situation is a politician, if you started sacking people for doing a shoddy job (Can't see Tony going for that) that would help
Idealy I think public services would be a great idea. Unfotunately the ideal public service employee and/or manager doesn't exist. Not to mention the bosses in that situation is a politician, if you started sacking people for doing a shoddy job (Can't see Tony going for that) that would help
JagLover said:
It is not so much weilding a big stick, but putting in place the right structure at privatisation and having effective and clear regulation afterwards.
Rail Privatisation has not worked as well as it should have done due to two factors-1. the structure put in place at privatisation, 2.Problems with regulation, particularly the excessive saftey measures put in place after Hatfield that effectively bankrupted Railtrack.
We might disagree on the cause of Railtrack's failure (I argue that if Railtrack had performed even the basic maintenance, Hatfield would not have happened, and all the other poor sites they found afterwards wouldn't have been so dangerous - Railtrack knew what they were doing, so they brought it all on themselves). But we do agree that a theoretically better system is being let down by poor management of the process & regulation (and, I would add, allowing certain deeply untrustworthy and undeserving companies to get involved in such safety, economically and politically critical businesses).
planetdave said:
If you allow a 'charitable' service then 100% of the profit could be re-invested in infrastructure.
whose head is on the chopping block with a charity though?
with a private company someone at the end of the day is responsible. there is a financial incentive to do well and make it work. there is also the element of risk involved which invariably brings out the best.
with a charity - why is anyone going to be responsible when they could just make a mess of it and walk away - handing it over to the Govt to bail out?
Same with Govt run businesses - no one is ultimately responsible. If it goes titsup, people walk away and taxpayer money is required to prop it back up.
tinman0 said:
If you allow a 'charitable' service then 100% of the profit could be re-invested in infrastructure.
whose head is on the chopping block with a charity though?
with a private company someone at the end of the day is responsible. there is a financial incentive to do well and make it work. there is also the element of risk involved which invariably brings out the best.
with a charity - why is anyone going to be responsible when they could just make a mess of it and walk away - handing it over to the Govt to bail out?
Same with Govt run businesses - no one is ultimately responsible. If it goes titsup, people walk away and taxpayer money is required to prop it back up.
I didn't say 'charity'
And I think you will find that even in charities (the big ones) the board is held accountable.
No reason why we can't have it run on a commercial basis...they would have to deal with industrial users too.
Some interesting comments.
Having thought more about this, one thing that occured to me is that there would need to be a fundamental change in our society for such a system to work successfully. The idea of doing something for no return is an alien concept in the business world.
Tinman mentioned there being no financial incentive, but there is surely a huge social incentive?
On the whole most large companies are owned by a relatively small number of people. As a result, the rest of us are employed to do the jobs we do, so it would not make much difference as to whether the company was profit making or not - we would still get paid.
I suspect that it would be difficult to get such a service set up due to resistance from the established market. (An example that sprang to mind was Richard Branson's bid to run the lottery).
Having thought more about this, one thing that occured to me is that there would need to be a fundamental change in our society for such a system to work successfully. The idea of doing something for no return is an alien concept in the business world.
Tinman mentioned there being no financial incentive, but there is surely a huge social incentive?
On the whole most large companies are owned by a relatively small number of people. As a result, the rest of us are employed to do the jobs we do, so it would not make much difference as to whether the company was profit making or not - we would still get paid.
I suspect that it would be difficult to get such a service set up due to resistance from the established market. (An example that sprang to mind was Richard Branson's bid to run the lottery).
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