15 October 2018

Privatisation is driven by the evidence – not ideology


Will Hutton is one of many who claims that government spending has, in recent years, been cut to the bone in a manner of almost unparalleled cruelty. “Imagine,” he writes in his most recent column, that “[the government] had not chosen to cut its post-financial crisis deficit solely by public spending cuts of unparalleled severity.”

The problem, however, is that the numbers aren’t on Hutton’s side of the argument. The figures are available easily enough. Public spending is up in cash terms since before the crash, has risen each year. As a percentage of GDP it is roughly where it was before the crash. As good Keynesian policy would have it. Sure, blow out the deficit when in a recession but then start repairing that roof when the sun shines again. Tax revenue is up in cash terms and, again, is about where it was before the recession as a percentage of GDP.

This is not evidence of some desperate slash and burn of the state. Just of good, proportionate, expansion of the deficit in those times of need, a retraction of the stimulus as unemployment falls again.

It isn’t just on austerity that Hutton gets it wrong. He claims the UK missed a chance when it privatised the water companies. We should have, Hutton argues, considered mutual, public benefit companies and co-operatives, instead of these dreadful money-grubbing private companies operating for shareholder gain:

“No thought had been given to alternative models of privatisation – as a mutual, a co-operative or a public benefit company. There had been no focus on their shareholding structures, so the privatised water companies might create long-term shareholders of whom the state might be one. They had just been turned over to the wild west of the London stock market and the transactional asset management industry. It was an act of careless vandalism.”

Hutton is right that England did indeed get those privatised and regulated for shareholder-owned for-profit companies. But he is ignoring the rest of the UK. Wales got a mutual, perhaps a co-op, of the Good and the Great. Those prominent in public life own Welsh water. Scotland got something akin to that public benefit corporation — a state-owned water company that is – which certainly meets that demand that the state be a shareholder. Northern Ireland stuck with the local councils supplying the water.

A decade after privatisation Ofwat had a look at performance. They tested the things we’re actually interested in: the price consumers had to pay, the quality of the fundamental product – the water from the taps — the quality of disposal of human waste and its effect on the environment, and the quality of natural water systems.

Britain has four rival approaches, some of the sort that Hutton regrets do not exist in England. Which, according to the regulator, performed the best? Who lowered prices most, or raised them least perhaps, who improved the quality of both tap and wild water most?

The results came out in order of capitalist greed. It’s just that — unfortunately for the critics of privatisation — it is the greedier that did best. The English – those capitalist, run for shareholders, companies – outperformed the alternatives on both price and both forms of quality. Then the Welsh system, then Scotland, then Northern Ireland.

And so, contrary to what Hutton claims, we did in fact consider those alternative ownership systems and the one derided as letting consumers down won the competition that ensued.

It’s entirely true that we can all differ upon what should happen in the future. Even that we could – even should – have different visions of what the good society we’re struggling toward is. But we really ought to be able to agree upon what has happened.

Water privatisation into shareholder owned companies has, by any comparative measure, worked. We also haven’t had any great measure of austerity simply because government hasn’t shrunk: we’re still paying about the same amount of everything in tax, we’re still running about the same amount of everything through government and public spending.

But if we cannot even agree on what has actually been going on under our own noses then we’re really never going to be able to get together to work for that desired future, are we?

Tim Worstall works for the Continental Telegraph and the Adam Smith Institute.