Will Hutton echoed a tune I have oft played here in his column for the Observer today, saying:
Why, I have begun to think, can the private sector not be as responsive to client needs as the public sector?
This is, I know, a question that defines me as a maverick; everyone knows that the public sector is a slough of inefficiency while the private sector is the home of innovation, enterprise and customer service. All I can say is: not in my recent experience.
I’d add, not in my frequent experience. The ‘group think’ that supports the hypothesis he roundly debunks is so obviously wrong it seems almost absurd that we have to celebrate those who challenge it — and yet those of us who do challenge the absurd notion that people are only efficient if working for a private sector employer — who they neither know nor care about — is obviously absurd.
It is not the only absurd piece of ‘group think’ I have seen challenged this week. Take this further extract from Roger Bootle’s ‘The Trouble with Markets’:
It is commonplace for successful business peop0le to look on the activities of those in the public sector with disdain since what the latter do, they think, is merely redistributing wealth, rather than creating it, thereby imposing a burden on those who do create wealth. This view is not without some justification. However, the irony is that some of the activity that takes place in the public sector is genuinely creative, while a large part of what goes on in financial business, owned and managed by the private sector, is completely about distributing wealth — with large parts of the loot going to practitioners.
I agree: and again it is massively refreshing to see people coming out of the wood work and saying what has been obvious for so long: finance is in effect a zero sum game, but when the information it provides is so heavily asymmetric and so much of what it does represents market failure then not only does it reduce well being by redistributing wealth from the poorest to the richest in society (which is the main aim of secrecy jurisdictions) but it leaves all worse off as a result.
Remember, the biggest reason for our current pension crisis is that the future rewards of pensioners have been spent by the City today.
The solution has to be in the public sector: the private sector cannot deliver most of the financial services we need — and the ones it does supply are exploitative. This is no basis for an economy.
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Poor article. First of all Hutton compares Virgin, a private sector business with his local GP surgery, which is a … private business. All the good points he describes have been put in place by the paractice. It may be paid for by the state, but it is every bit as much in the private sector as BAE Systems.
Which brings us to the second point where he argues that BAE and Qinetiq did a poor job according to Haddon-Cave, which is probably a fair assessment, Hutton to mention that the MOD and RAF were also criticised just as much as BAe, so his argument falls to the ground when you look at all the facts.
Yup the public sector are a beacon of efficiency and customer service. Have you posted a letter this week?
Richard,
Submission with corrections:
(1) No supporter of the private sector suggests that the private sector will always deliver a perfectly efficient service each and every time at any single point in time.
It’s worth noting that when money is made cheap by govt intervention via central banks, as is the most recent experience in the West, bad businesses find easy money to expand their enterprises, pushing up costs for all businesses in the sector in which they compete.
So yes, state interference makes for inefficiences and market failures.
(2) Will Hutton actually agrees with the view of the private sector as being more efficient than the public sector is “not without some justification”.
(3) The “redistribution of wealth” in the private sector is one based on reaching a compromise on costs, profits, cash needed for re-investment, returns to investors and many other variables. Resources are limited.
The redistribution of wealth concept applied in this context is entirely erroneous as it involves the absence of force.
(4) The public sector has creative forces, undoubtedly, but would the computer industry, for example, have reached such a level of development if it had been left to public sector management? I seriously doubt it.
(5) The “loot” Will Hutton refers to implies that people who generate profits in their businesses are not entitled to the product of their work? Why not since they’ve earned it by the own efforts, skill and judgement? The collective has no rightful claim on those profits.
(6) You article presumes finance is a zero sum game. This is an absurdity since the freedom in entering into a contract is usually accepted by both parties as beneficial to each; otherwise they would not contract with each other.
(7) In contrast, there is no freedom of contract should a service be wholly provided by the public sector. There is a captive market, and thus no incentive to use resources effiently or develop new, improved products, or to lower costs. Waste becomes apparent. Planned economies in history have illustrated that such publc sector services would be far from green and carbon efficient since prices are not used as signals in issues of supply and demand.
The output of the planned economny of the USSR was half of the US yet the USSR consumed twice as much energy in generating that lower level of output. USSR companies employed thousands of additional people to do nothing during the day just in case they were ever needed.
(8) You undoubtedly accept, like WIll Hutton, that there are inefficiences in the public sector, yet you do not argue that those services should go to the private sector. Why? Yet you argue that inefficient private sector services should go into the public sector?
(9) The Freddie/Fannie/Revinvestment Act disasters of the US are a prime example of why the public sector/govt should get out of the finance sector.
(10) As for the “pensions crisis”, this is due to Gordon Brown’s tax theft on dividend income; the gov’t created asset bubble that has led to a pricing correction on assets; that people are not investing in their own pensions earlier enough; and has absolutely nothing to do with “spending by the City today” – whatever that phrase is supposed to mean.
(11) And then the final sentence that “financial serivces are exploitative” when provided by the private sector. What evidence do you offer for this bromide?
Regards
Will
If you really think GP practices are private businesses you’re sad and deluded
My wife is a GP
Self employed status is a farce – and everyone knows it
Why not engage with reality Alex?
Nathan
The problem with the Royal Mail is private sector management techniques
They really don’t work in a natural monopoly that is am public utility
Sack Crozier would be a good start to solving the problem
Richard
Will
Who bailed out the banks?
Richard
“As for the “pensions crisis”, this is due to Gordon Brown’s tax theft on dividend income”: how long will this old story run?
Amazing isn’t it carol that a small tax change can apparently have brought down the whole system
And utterly wrong, of course
The reality is that the pensions of the wealthy still get far, far too much tax subsidy
Richard
[…] Just try living in a society without a finance sector. You’ll see how “zero sum” it is. […]
“finance is in effect a zero sum game”. I’m intrigued Richard. Have you been studying game theory? In basic terms a zero sum game is one where one individual does better at another’s expense. But the business model of finance is typically one where both parties benefit. So perhaps you might like to elaborate on your thesis?
So perhaps I am wrong on this, but the basic premise of public sector is supply side – a public sector provider is tasked with supplying specific goods/services based on some estimate of need/want, and survival depends on continuing government patronage. In contrast a private sector organisation has to manage both supply and demand side – and survival requires positive cashflows in the long term. This thesis is clearly at odds with Will Hutton’s statement “Why, I have begun to think, can the private sector not be as responsive to client needs as the public sector?” How do you rationalise the gap?
Alastair, the game that is being played by the financial sector makes us all punters and we are the losers.
Hi Carol. Do you write headlines for the redtops?
Wow, this is really poor. You offer no explanation of why the public sector is better than the private; just your hunch.
I can tell you why the private sector is better – no taxes. Don;t come back and say we bailed out the banks, that is obviously true, but we don;t bail out the private sector everday of the week this was a once in a centruy cock-up; presided over by public sector regulation.
How is finance a zero-sum game, what are you trying to say? More money is created and put into the system with GDP growth (or QE these days). it is not zero sum, no capitalist economic systems are, there are too many actors.
Please try explaining your prejudices and statements with referal to actual factual arguments.
Alastair
Yes, I meant a zero sum game
I do not agree with your analysis of the model of finance
Richard
City
Poor? Why? I am challenging your faith system. But that is all you are offering me – a faith system – not fact.
I am saying facts don’t support your faith system
The reality is not what you claim
And actually I won’t claim one is better than the other – they’re both human constructs. How you manage people within them makes them better or not
Profit has very, very little to do with it at all
Richard
Richard, I ws not describing a model of finance, but rather a (somewhat simplistic) business model. But in economic terms banks act as a clearing house for capital, and in doing so they take a turn, and their customers make a profit, or at least if they don’t that is not a desirable outcome for either party. If you are really arguing a zero sum game for this then I think you need to offer more explanation. I appreciate you are quoting others, but you seem to agree with the sentiment – not unreasonable that you explain why. Perhaps I am missing some of the actors?
So who employs the practice staff and any practice managers? Having only one purchaser of services doesn’t make a GP practice any less part of the private sector. Similar to the PFI/PPP projects that are supposedly in the private sector.
Alastair
Banking is not the same as financial business
You use utility banking as your explanation
That is not what was referred to
As you well know
Richard
Alastair
I’ve said it before and I will again – is there no depth to the level to which you will stoop in pursuing the absurd?
And maybe you aren’t aware of it – but employee costs are basically guaranteed to be recovered in the contract – which is why variation in GP pay is quite low – and almost all explained by a) demographic b) contract type c) dispensing or not
Risk is virtually absent – excepting medico legal risk, for which insurance is taken
So stop the nonsense
Richard
Alastair, I take the Morning Star and the FT. Neither have red tops.
And can you tell me please, what value-added the financial sector has provided for the rest of us. What I understand is that it has in fact been a facilitator for the movement of the huge amounts of wealth created by labour to a very small band of the super-rich who are desperate to find a safe haven for their gains. This demand for new financial products has been the main driver of the current crisis – and it isn’t getting any better. The share of production going to wages has decreased, leading to a decrease in demand for real products. Until the accumulation of wealth by the few is redistributed there is no hope for a return to business-as-usual.
[…] sterling defence of the public sector (nicely extended by Rachael at Next Left and Richard at Tax Research UK) was followed this morning by the FT’s lead story that the Conservatives plan to bring in […]
Richard,
The reality is that the pensions of the wealthy still get far, far too much tax subsidy
Which definition of subsidy is being used here? Is the one which defines subsidy as individuals being allowed to keep more of their own money in the first place?
If so, how is that a subsidy?
Carol,
What I understand is that it has in fact been a facilitator for the movement of the huge amounts of wealth created by labour to a very small band of the super-rich
How does that work?
Georges
Georges
£10 billion pa is used to subsidise pensions of the wealthiest 3% in society
That is a very poor use of public funds
That it what I mean.
As for your second question – if you cannot see it is happening day in day out in London and new York where the pensions of future generations are stripped of value by idle current speculation then you will never understand
Richard
Richard
Richard,
So, this wealthiest 3% of individuals receive cheques on an annual basis which add up to £10bn? Direct subsidies from government?
The only stripping of value from future generations which are in view are those carried out by government in a non-voluntary fashion (for the individual). Unbounded QE, unbounded spending, unbounded borrowing, unbounded taxation…..unbounded governmentalism.
Georges
Richard
That figure of course does not make allowance for fact that when the pension is paid it is taxed in full, so the actual subsidy is significantly lower, although of course as Georges points out the term “subsidy” is misleading because what is actually happening is that the government is simply declining to impose tax on income to the extent that it is set aside into a pension plan. If the same logic was applied to every amount of income, every amount of income that is not taxed would represent a subsidy.
@Richard Murphy
actually no. perhaps you should be clearer about what you mean by “financial business”.