Failure of outsourcing in Great Britain

Because the UK was the first mover in pushing a neoliberal approach to politics, governance, and government operation first under PM Thatcher but then later under Labor PM Blair, it's interesting it is running into real problems.

-- the railroads aren't running that great--although this has been an issue for a long time, see "The privatization of public utilities can be a disaster" International Herald Tribune, 2001), some of the private operators require or have received bailouts

-- and the fares are high 3x to 5x higher than on the continent or compared to the cost of US commuter rail services ("Only a third of rail commuters think fares are value for money," Guardian)

-- water bills are a lot higher under privatization as are corporate profits but quality of services hasn't improved ("Privatised water costs consumers £2.3bn more a year, study says," Financial Times)

-- heads of outsourcing operations make a lot more money to run these businesses than would the equivalent personnel in the public sector

-- local governments are outsourcing many operations out of a desperate need to reduce costs (because their budgets have been reduced by as much as 50% by the national government) with many problems and the destruction of the value of public goods

-- one big outsourcing company, Carillion, just declared bankruptcy and another isn't doing too well ("It's not just Carillion. The whole privatisation myth has been exposed," Guardian)

-- private financing (the Blair government's "Private Financing Initiative") costs a lot more than if the government were to fund projects directly ("PFI discredited by cost, complexity, and inflexibility," Financial Times) -- note that what the British call PFI we call "Public-Private Partnerships"
-- etc.

-- "The Observer view on outsourcing public services"
-- past blog entry, "Public-private partnerships aren't 'partnerships' but contractual relationships"
-- Out of Contract: Time to move on from the ‘love in’ with outsourcing and PFI, Smith Institute (UK)
-- "After Carillion and Capita, is PFI itself on the critical list?," Financial Times

Note that there is a definitional difference between privatization and outsourcing, and the UK situation is somewhat different from the US, because at the time of Margaret Thatcher's rise many UK corporations were owned by the government and for various reasons, they were not managed and operated well and were uncompetitive.

Still, when you have the country's leading financial newspaper editorializing against elements of privatization and private financing of government infrastructure, clearly something is wrong with privatization and private financing, at least at how it is practiced in Britain.

Trees in Sheffield before and after outsourcing.  Photo: Sheffield Tree Action Groups.

The UK situation is also different at the local level, where local government budgets have been decimated and so governments outsource operations in ways that end up being very deleterious, such as with public space maintenance and clear cutting of trees in Sheffield by the private operator (Look to Sheffield: this is how state and corporate power subverts democracy," Guardian).

A real problem in the UK is that when local governments outsource services they seem to cede away the legal right for public input into operation of services by and for the public.

Sure, in the US various privatized toll roads have gone bankrupt, but for the most part third party corporations are fully able to construct buildings or operate services.

And the US has always been big on contracting out operations anyway.  For example, federal laboratories are run by various corporations or universities, IT systems have been run by third parties for decades (for all of Ross Perot's talk about what a great independent businessman he was, EDS was heavily reliant on government contracts).

Governing Magazine seems to be somewhat skeptical of the likely success of All Aboard Florida, the nation's first major private railroad passenger rail service to launch in decades ("All Aboard? The Uncertain Future of America's First Privately Built Railroad in Decades").

What I think is important to be concerned with is the concept of public goods, and whether or not privatization diminishes their value.

Similarly, the neoliberal approach denigrates the value of government generally and government provided services specifically in favor of "the market," but the reality is that there is a difference between "the market," "competition," and sound management and operation of service delivery.

From the Guardian article "Neoliberalism's 'trade not aid' approach to development ignored past lessons: Neoliberal development policy was radical and abstract, but its uncompromising approach proved dangerous in the real world":

Neoliberalism is often used today as shorthand for any idea that is pro-market and anti-government intervention, but it is actually more specific than this. Above all, it is the harnessing of such policies to support the interests of big business, transnational corporations and finance. It seeks not so much a free market, therefore, as a market free for powerful interests.

The private sector, by definition, isn't necessarily the best provider anyway. Some companies are run well and are responsive to customers. Others aren't. And just like transit agencies, they often satisfice service and breadth in the face of budget cutbacks. 

And yes, some government agencies do a great job providing services, while others don't.  This can be about disconnection, labor capture, or other reasons, including corruption ("The Tax Divide" series on the property tax assessment office in Cook County, Illinois, and "A Cook County property tax study has been delayed: How convenient for Berrios," Chicago Tribune).