We can’t have privatised schools and universities or a privatised NHS as Southern Cross proves we have no provision for failure

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John Kay is usually worth reading in the FT. Today is no exception. As he argues:

General insolvency rules are inadequate when a care home, or a bank, or a water supply company fails. The first priority in these cases must be the residents, depositors and customers: creditors come after. We need special regimes for such businesses, which would limit gearing, without discouraging entrepreneurs looking to enter these sectors.

A resolution authority, more powerful than the existing Insolvency Service, could not only protect unsecured creditors more effectively, but also balance the interests of creditors with those of the public at large. Without such an institution it is hard to see how we can ever take schools and hospitals out of direct state control. We are engaged in yet another round of reform which ducks the issue of what happens when these organisations fail. Failure is intrinsic to the market economy: but the legitimacy of capitalism depends in part on how it deals with the consequences of such failure. Recently, it hasn't been doing too well.

Bluntly, company law designed to allow companies to profit maximise and which allows the interests of all other stakeholders in a corporation to be secondary is clearly not just inadequate to deal with private provision of health, education and other key public services, it is straightforwardly the wrong model.

If public service is the objective of an organisation then the stakeholder interest has to come first.

But that is irreconcilable with profit maximisation and our existing models for corporate behaviour.

So until we have no models for corporate entities privatisation of public services should not, and indeed cannot, be allowed.

What does that model for a new entity look like? I think a local authority, or maybe a regional health authority might be a good place to start the search. And for a bank, then the Trustees Savings Banks and Building societies got a lot of things right. If they could be translated to education and health they might also work. What we don't want are PLCs.

Certainly we want innovation: but we do not need it at great public cost. That's the point.


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