Have we fallen out of love with private sector contractors?

Is the collapse of Carillion a watershed moment? Robert Peston thinks so:

Carillion’s collapse marks the end of a 25-year love affair between Tory and New Labour governments on the one hand and private-sector service providers on the other.

Could this be the point at which political opinion turns against the private sector provision of public services? And, if so, is it simply catching up with where the voters have been for some time?

In the mid-1990s, I went to see Tony Blair speak at Brenford Fountain Leisure Centre. The first question from the floor was about renationalising the railways and utilities. Labour’s new leader dismissed the idea, essentially saying that it was never going to happen and that there were far more important things on which a new Labour government would need to focus its energy and resources.With that the conversation moved on.

And that was pretty much how things went for the next two decades. In his dismissal of denationalisation, Tony Blair was simply reflecting the prevailing political orthodoxy which arose during the Thatcher years. The government was to do less and the private sector was to do more. That was the way the world was going. Light-touch regulation and the privatisation of public services would be the order of the day whoever was in power.

Recent years, though, there seem to be signs that the voters are not altogether happy with this state of affairs. The Guardian’s Andy Beckett declared last summer that Britain had fallen out of love with the free market. Here he quotes IEA director Mark Littlewood:

Amid all the current political turmoil in Britain and the wider world, the shift against free markets has yet to register fully with much of the media or many voters. But the most ardent neoliberals have noticed. “Free marketeers have been gobsmacked,” says Mark Littlewood, director of the Institute of Economic Affairs, which has supplied British politicians with pro-capitalist arguments for 62 years. “Things we thought of as like the laws of gravity are now up for grabs.”

Equally gobsmacked was the Legatum Institute. “The capitalism ‘brand’ is in crisis,” it said after its joint research with Populus found significant support for stronger business regulation and the re-nationalisation of utilities and railway companies. Nor can this be dismissed as the idealism of young people who can’t remember how bad things were in the 1970s. These views are fairly evenly spread. (The full list is on pages 15-18 of the report.)

These views also cross the traditional left-right divide. A YouGov survey found that the proportion of UKIP voters supporting re-nationalisation was around 75 percent. There was even a narrow majority among Tory voters.

There is also evidence to suggest that voters have a negative view of big business. Research by the Edelman Trust and IpsosMORI reported low levels of trust in large corporations and the people who run them. However, this “unprecedented crisis of trust” seems to apply across western economies and to most institutions and authority figures. According to Edelman’s recent figures, business hasn’t fared much worse than anyone else.

Ipsos MORI data records a sharp fall in the proportion of people who think company profits make things better for their customers but this decline goes back to the 1980s and has held fairly steady ever since.

Chart by Ipsos MORI Reputation Centre

YouGov data also shows the level of trust in people who run large companies to be consistently low (around 20-25 percent) since 2003. Contrast that with journalists whose reputation has collapsed over the past 15 years.

There are a couple of questions on the British Social Attitudes survey which go back to the 1980s and enable us to track broad anti-corporatist sentiments. (Thanks to Harry Carr at Sky News for these charts.)

This suggests that a majority of people have a negative view of corporate behaviour and have done for some time. With some fluctuations, these numbers have held fairly steady since the 1980s.

The 2015 British Social Attitudes survey found similar levels of anti-big business feeling among UKIP and Labour voters.

The BSA also has some data on attitudes to nationalisation although, for some reason, it stopped asking the question in 2009.

This shows a balance of opinion in favour of state ownership but nowhere near as high as that found in the more recent surveys.

This data leads to three tentative conclusions:

  1. People in the UK have had a negative view of big corporations and those that run them for some time. This goes back to the 1980s and the financial crisis and recent corporate scandals don’t seem to have changed it either way.
  2. People were never that keen on privatisation. They may have bought shares in privatised companies but that didn’t mean they thought it was good idea in principle.
  3. There seems (going by the gap between the BSA and the more recent YouGov and Legatum findings) to have been a rise in support for re-nationalisation in the last five years or so.

Which raises a broader question, is this a shift in public opinion about private sector public service provision or does it reflect a deeper and more long-term anti-corporate sentiment that has only recently found its political expression? Is the collapse of Carillion really a pivotal event or has it just come at a time when political opposition to privatisation was finding its voice? Was it the last straw it did it just confirm the beliefs of many voters that a lot of things shouldn’t have been privatised in the fist place?

Whatever happens next it is likely that governments will find a lot more public attention on the private provision of public services. Further privatisations will almost certainly meet stiff resistance, as the plans to privatise the Land Registry and Ordnance Survey already have. My guess is that this would probably have happened anyway regardless of whether or not Carilllion had crashed. Where I think Robert Peston is probably right is that private sector service provision has peaked. Whatever the rights and wrongs of privatisation, governments will be faced with a lot more public hostility to it than they have seen for the past few decades.

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14 Responses to Have we fallen out of love with private sector contractors?

  1. Re your tentative conclusions, I think you’re right that there has been a general antipathy to big business since the early 1980s, when the promise of an entrepreneurial revival turned out to be a sham for so many, but that was combined with a reluctant acceptance of TINA: that we had to plow on and make the best of it (an echo of this attitude is evident in today re Brexit).

    What I think happened in 2008 is that the spell was broken. People stopped feeling browbeaten and started to get angry (which will also have fed into Brexit). The Tories have tried to blame naive millenials who don’t remember the horrors of the 70s (which for many working class people were actually a golden era), but the evidence is clear that support for an alternative approach is found across all age groups.

    What has changed is not so much people’s opinion on the relative merits of the public and private sectors, but their belief that there is an alternative (TIAA).

  2. John says:

    A most interesting analysis – Thank You!
    Another recent development is the news that the combined value of all outstanding PFI contracts is now in the region of 200 Billion Pounds.
    This did not surprise me as I am aware that some of the earliest PFI contracts had built-in yields for anywhere up to 25 years of 25 per cent return on capital employed (ROCE).
    The consortia who obtained those contracts were inexcusably greedy and the governments who granted them were inexcusably stupid and remiss in not protecting long-term public finances.
    All in all, the whole PFI saga has been horrendous for the vast majority.
    The next Labour Government should either pass laws that retrospectively cancel-out any public liabilities that result from these odious contracts and/or they should impose punitive windfall taxes on their profits that will effectively pay them off for all time.

  3. bill40 says:

    The age of neo-liberalism marched on and took very few people with it, there never were any true believers for what amounts to making the rich as rich as possible because the wealth will trickle down. It was the the sheer cacphony of noise created for it by the media it has lasted this long. The depressing thing is we have no political party to articulate something new. The Tories only listen to big donors and lobbyists no wonder their party has died.

    As for Labour if it were able to offer sensible social democratic policies it might have a chance but Corbyn is too wedded to full on Socialism, I doubt the Overton Window has shifted that far. As the Irish would say, to solve our problems I wouldn’t start from here.

  4. Dafydd says:

    It is worth noting that the question of contracting out/outsourcing is not unique to the public sector. The same trend has occurred over the same period in the private sector. Even services not contracted out to an external supplier are often “internally outsourced” to a remote entity that is technically part of the same organisation but might just as well be a separate company (e.g. a company has branches across the country, but expenses claims aren’t handled locally, instead going to an office in Milton Keynes that is a law unto itself and can only be contacted via an unhelpful helpline).

  5. Blissex says:

    «contracting out/outsourcing is not unique to the public sector. The same trend has occurred over the same period in the private sectorx

    One of the “mysteries” of this trend is that apparently private sector managers have become extremely fond of “work to rule”, applied in the strictest possible way, at least as long as “work to rule” is enforced by a private contractor instead of a trade union. And private contractors pretty much enforce work-to-rule as strictly as possible, because both limiting risk, and because out-of-scope work has to be done by the contractor themselves, and usually at extremely profitable bespoke urgent work rates.

    Obviously the love of work-to-rule outsourcing is quite “unnatural” for private sector managers too, so there must be another factor that comes into play, and my impression is that almost always it is *book* (that is theoretical) cost-savings, on which bonuses depend. Often the manager that champions the scheme with the biggest book cost-savings gets the bonus and the promotion. Which tells me that executives are playing an old game in rewarding book cost-savings over anything else…

  6. If the public turn against outsourcing, we may be seeing the consequence of a widespread use of dodgy accounting that focusses on making things look good in the short term regardless of the log term impact. There is a odd analogy between some of the specific issues at Carillion and much of the motivation of PFI.

    PFI schemes were often motivated more by government’s desire to get shiny new public investment without any of the cost appearing as government spending. Carillion seems to have been using creative ways to keep the bottom line looking good despite the underlying operations deteriorating sharply. Both involve a great deal of creative accounting that creates the illusion of success in the short term at the cost of obfuscation of whether they are actually working in the long term.

    Since some outsourcing appears to have benefits (see this: https://www.ft.com/content/61e40394-eae4-11e2-bfdb-00144feabdc0#myft:saved-articles:page) we will pay a significant price for the use of dodgy accounting to exaggerate that benefit if the public make it impossible to use outsourcing even when it works.

    • Blissex says:

      «Both involve a great deal of creative accounting that creates the illusion of success in the short term at the cost of obfuscation of whether they are actually working in the long term.»

      It is a WIN-WIN then! 🙂 Indeed I have the impression that there are two major techniques in getting huge bonuses as a manager:

      * Ensure that book profits are boosted by recognizing revenue as early as possible and booking costs as late as possible, for example by cleverly underestimating risks as “1 in 100 year” events.
      * Award oneself large *cash* bonuses based on *book* profits, or in the USA large “creatively dated” awards of stock options to be bought back with cash by the company at the highest possible prices thanks to large amounts of borrowing.

      Both steps seem perfectly legal, and they are very, very popular.

      Ah I forgot the third step: sooner or later the Treasury and the BoE/Fed sort it all out with a few hundreds billions of donations and loans at 0%.

    • Almar says:

      I have not read the original study referred to in the F.T. article link. However, I note the endnote to the article correctly described the author as a former member of the MPC, but did not not mention that, according to Wikipedia, she was was a non-executive director of Serco from 2001-7.
      More importantly, when talking about the cost-savings from PFI one should distinguish between genuinely using fewer resources to achieve the same level and quality of output, as compared to cutting costs by reducing wages of lower-paid employees or reducing the level and quality of the output. The latter reductions are not genuine savings to society. However, press reports indicate that they are often part of the reported cost-savings.

  7. John says:

    A recent estimate of the value of outstanding PFI contracts was £200 billion.
    All having to be paid for by UK taxpayers.
    Is that figure included in the national debt statistics, I wonder?

  8. James says:

    It’s hardly a surprise the average person hates corporate, it’s a top down hierarchy where human decency is left at the door and psychopaths succeed. People further down the ladder have little to no control and do soul crushing labour while those higher up reap the rewards, and then use those rewards to lobby against their workers, or pay accountants to avoid all the taxes they can leading to public services getting cut.

    • Dipper says:

      These are just properties of hierarchies. State hierarchies are the same except employees don’t have other hierarchies to go and work for, and as the state makes the rules then state hierarchies can and do hide their looting whereas the mass of rules surrounding private corporations has left a very large and detailed paper trail of who got what.

  9. Pingback: Nationalization or privatization? | Koenfucius

  10. David says:

    Precisely , Dipper .

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