Private profit doesn't make government more efficient

For 50 years we've lived as if private profit is good for public services and it has led to the mass extraction of public wealth by corporate insiders. We will never fix public services until we admit this problem.

This is a tricky one to get across. When something is so universal and so ubiquitous that not many people who exist with it have any memory of any alternative and who cannot see large-scale examples of different practice happening now, it's difficult to get them to see that this thing is optional, only one way to do things.

And that is the problem with how we run the public realm. It is based on a 50-year-old ideology that no-one challenges and which is never measured to assess whether it is a valid ideology. So when things go wrong where this ideology is applied, people believe it is 'just how things are'. It is no such thing. It is the failure of New Public Management.

New Public Management has a number of aspects (including the belief in a universally-transferrable management class which in itself absorbs much, much more public funding than necessary), but the one I want to look at here is this ideology's view of the relationship between the private profit and the public good.

So let's start with Common Weal's new and deeply disturbing report on the way private corporations are extracting millions of pounds in private gain from money which is supposed to be used to support the most vulnerable children in the country. Why is it allowed and why will no-one ever do anything about it?

If you missed the coverage of this report, what it shows is that, despite the fact that extracting private profit from children in care is technically prohibited, there are loads of work-arounds to get past this prohibition to the extent that one private provider appeared to be extracting at least £56,000 in private gain for every child in their care, every year.

The Scottish Government's response? Shocked – but not going to do anything about it. That is some situation – to be shocked at something but then just deciding that whatever, it's fine. So why on earth is the Scottish Government both morally repulsed by this profiteering and yet protecting the profiteering for all they're worth?

It's this ideology. It's the belief in the disciplining power of private profit – and it is ludicrously, measurably wrong.

Let's rewind a bit; a big part of the Thatcher revolution was the fundamental belief that the public sector is inefficient in comparison to the private sector. Ironically, that was a belief held simultaneously with her belief that British industries were chronically inefficient and needed to be put through a regime of shock therapy to fix them, which in fact killed them.

But let's not be detained with the inconsistent pseudo-logic of this ideology, because lack of evidence has never been a barrier to the introduction of policy in Britain. However flimsy the rationale, the idea that transplanting the way the private sector operates onto the public sector would improve things became all-conquering.

It begins with the idea that that markets bring discipline and so where there is no market there is no discipline. It's the big problem with kids who don't tidy their room – there is no alternative supplier. It's a flabby and inefficient system, families. A free market in children would fix this.

That is about the depth of analysis here and it represents another sad misreading of markets. In reality, as soon as a market is created then its players begin the constant search for ways to bypass discipline in favour of money-gouging (cartels, monopolies, tax avoidance, regulation-breaking, anything to give an unfair advantage). It's the fatal flaw that Adam Smith came to realise – markets, left to their own devices, become a 'conspiracy against the public'.

Never mind though, it was done anyway. So to see how this has gone, let's begin where it all started – the introduction of the 'internal market' in the NHS. This isn't a market at all, its a pseudo-market in which everything that was already being done was given a notional 'price' and then that made-up price rather than the actual cost of the thing, would decide the budget.

One of the primary reasons you can't get a doctor's appointment is that time they should be using to heal has become time spent on bureaucracy – they have to operate complex accounting systems to invoice for all the 'services' they are providing, chase the money and answer to managers who are interested in other things.

Of course, an enormous amount of the damage was Blair and Brown. They took this idea of 'there is no motivation like profit' and 'there is no discipline like markets' and turned it into their primary philosophy of government. Thatcher created the structure of outsourcing, but it was Blair who delivered.

“Our taxes go to making rich corporations richer and public services are secondary”

The key example is of course PFI, perhaps the single most failed policy in recent history which no-one now thinks delivered value for money. It's because over the same period the private sector seemed incapable of not heading off down a corridor of corruption every time the door was left open. The Covid VIP lane was not an abuse of the system we have, it was the system we have in purest form.

It's not that the Tories gave ludicrously unjustifiable contracts to insiders, it's that every big bit of public procurement goes to insiders based on their insider-ness. Have you ever talked to a non-insider about trying to get a public contract? They can come in with the best tender, highest quality and lowest cost and they're still be bypassed on a 'capacity' basis (i.e. they aren't multinational corporations).

But that is categorically not what is happening. They are not being ruled out for a legitimate reason, they are being ruled out because the corporations have lobbyists and they have lobbied the rules of procurement such as only they get the contracts. Yes, that is corruption, and yes it is much more profitable than competing on price or quality.

So let's have a look at the three biggest disasters in recent government so we can find out who advised on them (all lucrative outsource contracts in their own right). There is the National Energy Company, the National Care Service and the Deposit Return Scheme. All collapsed because of bad policy design. Who was that?

It was (respectively) Ernst and Young, KPMG and Deloitte. Between them they harvested certainly more than a million pounds advising on these three failures. Where is the efficiency in that? What incentive did any of these corporations have to not produce bad policy? What consequence did they face?

This is the reality; when there is money to be made, the last thing in anyone's mind is efficiency. Efficiency does not harvest money. We told the Scottish Government the same thing about their National Energy Company plans that EY did (that the finances don't stack up as a retail energy supplier). We charged nothing, EY charged half a million pounds. Efficient?

PFI extracts wealth. Public procurement contracts extract wealth. Outsourced delivery of core services extracts wealth. Seconding bankers to write public policy creates policy designed to extract wealth. Creating an untouchable caste of senior managers enables them to extract never-ending wealth. It is a cannibalistic free-for-all.

None of it is about efficiency. Even less than none of it is about pursuing the public good. This is a bunch of ideological senior managers and an entire industry designed to profit from outsourcing in a mutually-assured theft spree ripping all of the rest of us off in every single way they can find.

Yet we never talk about this. Or at least Common Weal does, but both the main political parties in Scotland shut us down immediately. That is why the Minister is shocked that essential money needed to support vulnerable children is ending up in offshore tax havens in industrial quantities but will do nothing about it.

Our taxes go to making rich corporations richer and public services are secondary. In Scotland they'd rather drop a National Care Service altogether than have a non-profit one, because that's who they really are. The ideology of extreme wealth is the only non-negotiable.

It tires me out monitoring the disgusting free-for-all of financial industries and outsourcing companies and consultants and the rest who all-but steal your tax money from you. But it needs done because it needs stopped.

First, we must accept a truth; everything they said about efficient markets and the disciplining power of profit is wrong. It isn't discipline, it's moral hazard. There is no incentive not to cheat, and cheating beats competing. It was tried, it failed and it has destroyed faith in the public realm.

It's time for a revolution in government and it starts by calling bullshit on the Thatcher-Blair-Brown garbage about private profits. They were wrong, dead wrong. Nothing got better because of their ideology and so, so much got worse. The public realm wasn't always run like this and it doesn't need to be run like this in the future. It is killing us and it is killing our democracy and it should be stopped.