Energy, water, rail: Has the great British privatisation experiment worked?

There are two answers to this. The first is the most obvious to anyone who lives and works in the UK: of course it bloody hasn’t

“The purpose of a system is what it does.” These are the famous words of Stafford Beer, a theorist who spent his career trying to understand management and organisational systems.

The aphorism – often abbreviated “POSIWID” – has a corollary that “there is no point in claiming that the purpose of a system is to do what it constantly fails to do”. You should not look at what people claim a system does, or what they might believe it does, or even what they intend for it to do.

Like all good theories, it is at once so trivial as to be barely worthy of the saying, and simultaneously deeply insightful. Despite its obviousness and triviality, most people rarely apply it in practice.

Take, for example, the UK public sector. For decades now, we have been told that we must privatise, contract out, restructure, marketise and otherwise introduce “business principles” into the provision of basic utilities and infrastructure. This will, we are told, remove the inefficiencies associated with the inefficient and top-heavy processes of state management, and replace them with the nimble and innovative practices of the private sector. The result will be better, cheaper services for all.

The UK has far outpaced most other developed economies in pushing forward with experimenting with this system, selling off everything that wasn’t nailed down to various private interests, often at deliberately low prices and with various tax incentives to encourage private investment. As such, we are pretty well-placed to ask: has the system worked?

There are two answers to this. The first is the most obvious to anyone who lives and works in the UK: of course it bloody hasn’t.

This year, 28 of the country’s private energy suppliers failed when the wholesale market got a little rocky. The energy regulator, Ofgem, has said that all 17 of the remaining suppliers are failing vulnerable customers. The cost of bailing out failed energy supplier Bulb has now reached £6.5bn, with little transparency as to how or why.

And that’s just energy. Our rail systems are a nightmare of multilevel mismanagement. Our water companies pump sewage onto our beaches. Time and again we see a pattern repeated across the country’s lucrative infrastructure subcontracting industrial complex. The government offers sweetheart deals to various private investors, who “innovate” inasmuch as they find ever more lucrative ways to fill their pockets with cash and run giggling off to the Cayman Islands.

Then when anything bad happens, the system falls over and those same innovative private investors suddenly rediscover the value of state intervention, turning up at the Treasury with their palms outstretched asking for a couple of billion quid to get them out of trouble.

This is “privatising the profits and socialising the risks”. When a company does well, its shareholders get to make bank. When a company does badly, it’s down to the government to step in and shoulder the loss.

It is obvious that running an industry this way creates incentives towards bad behaviour and even practices verging on fraud, as we saw demonstrated most clearly in the 2008 banking crisis. It’s also obvious, however, that when you’re talking about the key, civilisation-sustaining infrastructure of a nation-state, there’s no other way for a “privatised” utility to be run.

We cannot let the rail network or the energy system simply go bankrupt and stop. People still need energy, transport and water. These companies are holding us hostage because no matter how badly they run things, the services they provide cannot be allowed to fail. Heads they win, tails we lose.

Which leads us to the second possible answer to “does the system work?” If we assume that the system’s purpose is to provide good quality public services in an efficient way, then no. But the purpose of the system is what it does, and the system has very successfully funnelled billions in public money and productive assets into the hands of a parasitic class of consultants, private equity funds and “entrepreneurs”. In this sense, it has worked exceptionally well.

To keep up to speed with all the latest opinions and comment, sign up to our free weekly Voices Dispatches newsletter by clicking here

It’s beyond the scope of this article to get into which proponents of this system were true believers who genuinely thought that you could run public utilities on a quasi-privatised basis and produce good results, and which ones were scammers who knew damn well it wouldn’t work but that they could make very good money along the way. It’s also not especially relevant – the practical end results have been exactly the same.

What matters is, whatever the process of getting here, we have created a system which is very bad at providing decent public services and very good at shovelling big stacks of money into the pockets of a few well-placed individuals.

Of course, many of those individuals and their tame politicians and media outlets will argue that the system should remain exactly as it is, even that “there is no alternative”. But then, they would, wouldn’t they? They’re hardly going to say “stop buying me a new yacht every year”.

But we don’t have to listen to them. We don’t have to keep the system that doesn’t do what we want it to do. There are, in fact, alternatives, and we’re long overdue to change the system so that it actually does what we need.