Stephen Rees's blog

Thoughts about the relationships between transport and the urban area it serves

Straws in the wind

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Two stories which may not. on the surface, seem to have much to do with us.

New Zealand has decided to buy back its railway and its ferries. It seems that sometimes privatisation is not the solution to every problem, and the movement back to public ownership is happening elsewhere too. Both Railtrack and Metronet in Britain are now back under public ownership, as is the Croydon Tramlink. Some places had to learn some very hard lessons – and we should take note. For the BC government mandates P3s for large projects. This approach almost makes it certain that we will be paying more for worse public services, since we seem to be incapable of framing contracts in a way that ensures that non-financial but still important concerns are taken into account.

The other lurch back to reasonableness is in Quebec which had been following a policy of insisting that its buses be built locally. With predictably bad results. So now they are going to allow open and fair bidding.

I am not actually against privatisation. I am against dogmatism in the face of hard evidence. If something is clearly not working as intended then you should stop doing it and try to work out why. It is not true that “government is the problem”. The private sector is concerned with making profits – and sometimes loses sight of the need to balance other concerns against that. That is why most industries require some degree of regulation – of only because left to their own devices, profit making enterprises behave very badly indeed. When I started learning economics, the example was of children being employed in coal mines. Sadly we now have plenty of more modern examples of the outrageous lengths entrepreneurs will go to make a quick buck. And the life and health of their customers, employees and even shareholders is of no concern at all.

If you set out the terms of the contract clearly, and ensure an open and fair bidding process contracting out can work well. Sadly, in many cases the only reason to contract out has been to reduce employees wages. But of course the spin doctors say it is about innovation and new methods, and the much greater efficiency of modern management methods. And most of that turned out to be hogwash.

Written by Stephen Rees

May 4, 2008 at 9:14 pm

One Response

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  1. The private sector has always been involved in public projects, from engineering & design through construction and products and services. The last time I visited a local hospital it was filled with equipment made by private companies. This has been the standard as it should be, and could in fact be called the “original” P3, which, unlike it’s neoconservative progeny, actually establishhed a kind of equilibrium.

    The problem arises when core services and ownership of public agencies and assets are given to profit-motivated organizations. The previous balance (often a delicate one at that) between the public and private realm in key government areas has been skewed by today’s P3s.

    What’s missing from the current political spin of idealogically-suspect support of P3s is any real analysis ot the long-term effects. Though the private sector is in many ways more efficient in managing projects — and this was one of the key factors in the previous equilibrium — they do not carry this out over the decades into the future where profit margins are supported directly by taxpayers and service users, something P3 supporting decision-makers wilfully ignore. This leads to unfortunate diseffciencies in the economics of running important services through ticket sales, as will be discovered in a few short years of operating the Cananda Line.

    Further, it could be tragic if carried through to things like core public health insurance, something that must be fought tooth and nail, in my opinion. The US, which has a near-total private healthcare system, also has some very illuminating discrepencies. They do have a very advanced technological response for patients with good private insurance coverage, but they also have 40 million people who cannot afford any insurance premiums, and many more millions who find out just how inadequate their coverage is when insurance bureaucrats cherry pick or outrightly turn them down for key life-saving treatments. Moreover, the US has one of the highest infant mortality rates in the industrialized world and their private healthcare system costs about $6,000 per capita, double that in Canada and Germany who are almost tied at $3,100 per capita.


    May 5, 2008 at 11:47 am

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