Selling Democracy UK Style

In the England and Wales, though perhaps primarily in England, the privatisation of the state continues at a brisk pace. While in opposition David Cameron said there is no part of government that cannot be put out to tender. With the help of the Liberal Democrat Party he is doing just that, selling off the state.[1] I cannot find an official, or even an unofficial, list of the services privatised by the Tory/Liberal Democrat government in the past three years, but off the top of my head here is a list of services that have been or about to be privatised:

• The NHS
• The Criminal Justice System – including the probation service, court translators, prisons, transportation of prisoners, the forensic science service
• Work Programmes – job centres, back to work schemes
• Care for the Elderly
• Care for Vulnerable Children
• The Education System – the introduction of “Free Schools”
• The Postal Service
• Regulatory Services – including worker safety, driver and vehicle licenses, identity security, title guarantees, fair trading, consumer protection.
• Parts of Policy Forces – including investigating crimes, patrolling neighbourhoods, detaining suspects
• Ureno – nuclear fuel processor
• Student Loans.

This is by no means a definitive list of state services being privatised, but the issue goes deeper than just turning state services over to the private sector.  Two recent privatisations are telling.

It’s All about Equity not (Necessarily) Public Service

The NHS owned company supplying blood plasma, Plasma Resources UK, is being sold to the private equity firm Bain Capitalfor the cool sum of £200 million for an 80% stake. Bain Capitol already owns:

• Burger King
• Dunkin Donuts
• Dominos Pizza
• Steel Dynamics
• Sealy Corporation
• The Weather Channel
• Brookstone
• Burlington Coat Factory
• Staples, Inc.
• D & M Holdings
• Houghton Miffin
• Clear Channel Communications
• Gymboree
• Sports Authority
• Guitar Center
• Hospital Corporation of America (the largest private operator of health care facilities in the world, based in Nashville, Tennessee and currently manages 162 hospitals and 113 freestanding surgery centers in the United States and United Kingdom)

You will remember Bain, the private equity firm with a reputation for aggressive asset stripping[2] that shadowed Romney during the last U.S. presidential election because of his own assets stripping days working for the firm. Be clear, the purpose of this firm, the reason it exists, is asset management (or as some claim asset stripping. Public service is not a part of its self-definition. From the Bain Capital website :

“Bain Capital is one of the world’s leading private, alternative asset manage firms, with approximately $70 billion in assets under management.”

And:

“Today Bain Capital’s affiliated advisors make private equity, public equity, fixed income and credit, venture capital and absolute return investments across multiple sectors, industries and sector classes."

So what is private equity? Since a private equity firm is buying a part of the HNS we should know. From WallStreetOasis (they should know!):

"...a private equity firm is a firm that attempts to “invest into a company, take a majority stake, improve the company and then exit their investment at a large profit. In order to magnify returns, PE firms make use of leverage (borrowed money) to conduct Leveraged Buyouts (LBOs)."

We might take comfort in the words “improve the company” and that Bain Capital already owns the world’s biggest healthcare corporation. But make no mistake, Bain’s interest are more about equity and exiting its investment “at a large profit” than serving the public. And what is equity:

"[the] act of raising money for company activities by selling common or preferred stock to individual or institutional investors. In return for the money paid shareholders receive ownership interest in the corporation." 

Of course the state can be sold. This is capitalism, which can, and probably does, sell anything and it is not unfair to describe privatisation is the replacing of government’s primary role of service to the public with equity management, raising money, the buying and selling of stocks, exit strategies and large profits. What the Tory/Liberal Democrat government is doing is changing the foundational basis of democratic governance from service to equity management. It seems reasonable to ask what changes are implied and realised when a democratic society moves from a government that serves the public to one that provides opportunities for equity management and profitable exit strategies?

One my think that if the activities of the government is sold to the “free” market we citizens would not be required to pay all those taxes that make possible the workings of government in the first place. Of course such a thought is at best naive and at worse stupid. Taxes are still needed, but in the equity driven world of governance those taxes will be used to subsidise private companies and, as is often the case, protect those companies from loss. For example, the private train companies that run the system in the UK are given millions of pounds each year from the public purse. In addition, the loans those private companies take out are guaranteed by the government[3]. Public funds that were used to provide needed services from healthcare and refuse collection are now used to subsidise and protect private companies that will provide those services. And we will, through public funds, help them turn a profit.

David Cameron(An aside: As an American living in Britain for over 27 years, I have been fascinated, and saddened, by how easy it was for two parties, both of which lost the lasts election and in no way have any electoral mandate, could bring an end to the NHS (once described by Tory Chancellor Nigel Lawson as “the nearest thing the English have to a religion”). The NHS is now under a full frontal attack by the Tory/Liberal Democrat government. The legislation is in place, particularly Section 75 regulations of The Health and Social Care Act which states that all NHS services must be put out to competitive tender unless the commissioning groups are satisfied a “single provider” can deliver that service. Every day, there is at least one NHS crisis story in the media. You would think that the NHS is the worse healthcare service in the world run by insensitive, immoral, incompetent people. Public opinion cannot withstand this onslaught and it plays right into the hands of those who claim privatisation will save the NHS. Well, privatisation will save something, but not the NHS as we have known it since 1948. It’s time to say goodbye to the NHS. The Tories won and, I emphasise again, they could not have achieved their dream without their loyal Liberal Democrats bed-fellows voting with them.)

The Undermining of Democratic Accountability

It was announced last week that services for the care of vulnerable children is being privatised. What’s interesting to me here is the small print. The Tory/Liberal Democrat government is eliminating laws that would allow councils to remove a company if it screws up and/or defrauds the people. This is a purposeful and conscious decision by Tories and Liberal Democrats to remove democratic accountability, and this is not an isolated incident. The same is happening with other privatisations.

Also, companies will not be held to any national minimum standard of performance, which removes democratic quality control. This is perhaps most noticeable in the privatisation of education. The Tory/Liberal Democrat government has introduced “free schools” that are set-up by private individual, organisations or companies but are paid for by the taxpayer. Since the taxpayer is funding the schools, one might think that the public, through its elected government, but have some say in the running of the schools. You would be wrong. Free schools do not have to follow the national curriculum and do not have to hire professionally qualified teachers.

Privatisation is not only about selling off the state. It is also about removing democratic accountability and accepted standards of performance, or even the public’s ability to set accepted standards. Privatisation is about creating an environment where private companies are protected but not the public.

 If It Walks Like a Duck

It makes no sense to blame a private equity firm for attempting to make money. I would say that is its primary purpose for existing. Nor is it reasonable to blame a private security company, for example, for making a profit as it provides its service. Making a profit and paying dividends to its stockholders is one of the primary reasons it exists. If you are going to sell your education system or your healthcare service to private companies then you should expect those companies to run education and healthcare like a business. That is self-evident. However, here are a few question that come to mind as the Tory/Liberal Democrat government sells of the state:

• Should firms and companies in the business of managing equity and making profits replace the activities of a democratically elected government? If so, what safe guards should be put in place to protect the public against incompetence and/or fraud?
• Should those firms and companies be protected while the public interest is not? Or, why is the Tory/Liberal Democrat government removing legislation that would allow the public to take action against an incompetent or dishonest company?
• Should public funds, in a supposedly “free” market economy, be used to subsidise and secure loans of private companies?
• Should private firms and companies be allowed to fail? Can they be allowed to fail?

Copyright © 2013 Dale Rominger

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[1] The Tories, along with the Liberal Democrats and the Labour Party, lost the last election. The party does not have a majority in Parliament and thus could not be transforming England and Wales without their coalition partners, the Liberal Democrats, sitting at the table setting policy and voting with them in Parliament.

[2] From Investopedia: The process of buying an undervalued company with the intent to sell off its assets for a profit. The individual assets of the company, such as its equipment and property, may be more valuable than the company as a whole due to such factors as poor management or poor economic conditions.

[3] Some fear the rail companies have over-extended themselves and may not be able to pay cover their debts. If so, the British taxpayer will cover their losses.