Central to neoliberal ideology is selling off public services, welfare and utilities to the private sector. The result has been disastrous for users. Jan Neilsen and Alan Gibson introduce our special report.
At the heart of the neoliberal project has been the privatisation of public services and other publicly held assets. The strategy — begun in Britain during the 1980s — has engulfed the world since. It was and is about one thing only: shifting wealth and the balance of class power to the global ruling class. Privatisation is a political tool with which global ruling classes have waged war for the past 40 years. It was never about setting free the more efficient private sector to replace the inefficient public sector, as we show below. It wasn’t, as its central architect Margaret Thatcher claimed, to create a “shareholding democracy”.
Working people who did buy shares, during the sales of the early public assets, sold them on again very quickly so that today only three percent of the British population own shares. When it began in earnest in the 1980s privatisation was nothing like a properly formulated economic model. The so-called Littlechild formula was supposed to prevent the about-to-be-privatised British Telecom from gouging the public with price rises. According to its architect, Stephen Littlechild, it was worked out between 5 and 7 January 1983, allowing just one week “to write it up in a plausible way, test it against the specified criteria [and] conclude that it was the best available option”. This five-minute formula, ‘RPI minus x’, has served as the template for all British regulation of privatisation deals done since then.
As the Covid-19 pandemic has progressed, the superficial nature of privatisation as any kind of meaningful economic or political method of addressing serious issues has been exposed for all to see. And what a deal-driven bonanza for the connected and wealthy it has been. From British Aerospace — the first to go — in 1981 to Royal Mail in 2015, an astonishing 173 separate businesses and parts of business have been sold off to private concerns, amounting to an incredible shift of wealth from the public purse to private pockets. It has also meant a fundamental restructuring of the British working class. By 2014-15 the total value of contracts outsourced from the public sector reached a staggering £101 billion, according to an estimate by analysts Seymour Pierce for the Trade Union Coordinating Group in 2014.
The taxpayer is therefore subsidising profits to a degree of which Thatcher could only have dreamed. It is little wonder then that the great expansion of the wealth divide coincides almost to the month with the onset of the privatisation agenda. It now means, for example, that three men in the US, Bill Gates, Warren Buffett and Jeff Bezos, collectively hold more wealth than the 160 million people in the bottom 50 percent of that country’s population. In Britain, the wealth divide has also ballooned during the era of privatisation. In 2016 the Office for National Statistics calculated that the richest 10 percent of households hold 44 percent of all wealth in Britain.
The poorest 50 percent own just 9 percent. More than that, between 1984 and 2013 the top 0.1 percent’s share of total wealth doubled, reaching 9 percent. As a means of funnelling more and more wealth into capitalist coffers, privatisation has proven very successful. By every other measure it is a miserable failure, a fact increasingly becoming recognised as such across the political spectrum. Such institutions as the International Monetary Fund (IMF) and the bosses paper the Financial Times are beginning to question the efficacy of privatisation — the pandemic has brought all of its manifold failings floating to the surface. In early October, quoting an IMF report, the Financial Times wrote that the institution “refutes the idea that government intervention costs efficiency”. The article concluded that “economic planning and the activist state are back”.
A further article states bluntly, “Pioneering Britain has a rethink on privatisation.” It has utterly failed to address the longterm decline of global profitability. In fact, even mainstream supporters are coming to believe that privatisation has made matters much worse.
Probation Service: Criminal behaviour
The neoliberal belief that only the private sector is capable of running public services was taken to incredible lengths by former Tory justice minister Chris Grayling. In 2014 he pushed through at “breakneck speed” the privatisation of the bulk of the Probation Service, ignoring warnings from a host of legal experts and the prison officers’ Napo union that such a move would be disastrous. The supervision of 150,000 low to mediumrisk offenders was farmed out to 21 private companies. Well-known privatisers such as Sodexo and Interserve were handed 11 of the new community rehabilitation companies.
Other firms winning some of the £450 million-worth of contracts sadly included groups involving probation staff who clearly saw no alternative but to bid simply in order to keep their jobs. At least, however, these groups knew something about the probation service. Two big outsourcing corporations, G4S and Serco, did not bid. This was because at that time the Serious Fraud Office was investigating their £100 million-plus overcharging of electronic tags contracts — a vivid illustration of the corruption that neoliberalism invites. Inevitably the ‘reorganisation’ was indeed disastrous. By 2018 the number of offenders in England and Wales charged with serious offences while being monitored under the new service had increased by a fifth.
This amounted to more than 600 people who had committed crimes including murder, manslaughter and rape. Serial rapist Joseph McCann went on to rape a string of victims aged between 11 and 71 after being mistakenly released from prison in February 2019. Leroy Campbell raped and murdered a nurse, again after being mistakenly released in 2016. Independent monitoring of the privatised system found that a “skyrocketing” number of criminals had had to be recalled to prison, that reoffending had sharply increased and that some offenders had simply gone missing.
The Public Accounts Committee reported in May 2019 that Grayling’s new entity resulted in a service that was “underfunded, fragile and lacking the confidence of the courts”. Days later justice minister David Gauke announced the service was to be renationalised. The contracts included a £300 million ‘poison pill’ clause guaranteeing companies their expected profits if their 10-year contracts were terminated. This and other considerations meant the cost of bailing them out was over £500 million. But even then, the Tories couldn’t help shovelling more cash into the pockets of big business. Each of the 11 new regional services will have an ‘innovation partner’, competing for government contracts worth £280 million.
What makes the sorry saga even more scandalous is the way the Blair/Brown Labour governments prepared the Probation Service for Grayling’s sell-off. Sharon Price, a former probation officer in Sheffield, recalls how the service used to follow its founding credo — laid down in 1907 — of Advice, Support, Befriend. As the service’s Probation Journal explained in 2010, under Blair this was gradually replaced with Community, Rehabilitation and Punishment. Under the new Ministry of Justice, the service was aligned much more closely with the prison service and, critically, the police. Price recalls how joint meetings between probation officers, social workers, the police and so on — that had once been chaired by the service — were gradually taken over by the police, and how this badly affected the level of information imparted about people being supervised.
Greater centralisation of the service brought more bureaucracy. And with it the Punishment aspect began to dominate. Price recalls being told to breach someone’s supervision if they were ten minutes late for a meeting. Grayling’s privatisation split the service in two: the result of a horrible compromise between the Tories, who wanted to privatise the lot, and the LibDems, who argued for a part sell-off. “It was a nightmare,” says Price.
“Because the service was now split in two, the amount of bureaucracy was ridiculous, not just between the two parts but within each of them.” In 2010 the Probation Journal concluded its report saying the “correctional drift” of the service “has been particularly pernicious not only because it has absorbed and in turn reflected the emphasis on punishment and control, but because it has encouraged probation withdrawal, on a day-to-day basis, from offenders’ families, their communities and until recently those partnership arrangements in communities at the local level”. Grayling took that pernicious drift even further, damaging severely what had once been a valuable public service.
Carillion, an outsourcing company, imploded in spectacular fashion in 2018, leaving next-to-no-value for creditors, including its many pensioners, as well as countless half-finished jobs.
Private equity outfit Southern Cross collapsed, meaning around 30,000 elderly and vulnerable people in the care homes it owned were suddenly faced with having nowhere to go to be looked after.
G4S’s abject failure to provide Olympic security — despite promises that everything was fine. The government had to step in.
Mismanagement of railway saw Railtrack throw the entire rail network into chaos. It went into liquidation, forcing the government to set up Network Rail in recognition that profits and rail safety don’t mix.
The Public Private Partnership on London Underground had disastrous consequences which saw work taken back ‘in-house’ after enormous expense for the taxpayer and inconvenience for the travelling public.
Children Nurseries and childcare: Sold to the highest bidder
Children are paying a heavy price for the failures of neoliberal privatised care provision. In 2018 the Guardian columnist Gary Younge wrote about the consequences of these failures on the lives of children in care. He described how local authorities have been forced to move from being providers of comprehensive care for children at risk, to purchasers of care from the private sector. Children’s seriously troubled histories are posted on websites where private companies bid to provide their care. The more troubled the child the higher the bid.
As a result, children are placed hundreds of miles from their home, family, friends and other sources of support. Unsurprisingly, this has resulted in rocketing absconding rates from the placements, which exposes the children to even more harm and danger. Twenty years ago most state-funded early years childcare was either provided by local councils or by community nurseries, funded through grants. But in two decades the forprofit childcare market has burgeoned. Today, the private sector accounts for 84 percent of childcare for children aged three and under, with a growing number of large private nursery chains dominating the market. As demand for childcare has grown, big companies are increasingly muscling in.
Early years provision is seen as the ‘hot market’ of childcare. Meanwhile, small community nurseries have struggled to cope as their main source of income has shifted away from grants to fees paid by parents. A recent TUC report found that this shift has seen childcare costs in England rise seven times faster than wages. Children from lowincome backgrounds are therefore least likely to attend early years provision, although they stand to gain the most from it. The pandemic has had a devastating effect on nurseries and early years provision, with many facing closure. Out of more than 3,000 nurseries, pre-schools and childminders surveyed in May by the Early Years Alliance, one in four said they will have to close permanently within the next year because of financial problems. Even children with special educational needs and disabilities (Send) don’t escape the clutches of the market. A combination of expanding private-sector provision and decades of austerity often deny these children the services they need.
Shortfall Send provision in England has lost £1.2 billion-worth of services because government funding has failed to keep pace with soaring demand. Last year the National Education Union estimated that nine out of ten local authorities had “massive” funding shortfalls in Send provision. Families endure increasing waiting times for Send assessments and cuts to specialist provision and support staff. The growth of expensive private educational provision has exacerbated the problem.
In 2017 education magazine Schools Week revealed that a lack of state funded places was forcing councils to spend hundreds of millions of pounds sending these pupils to expensive private provision. It estimated that in 2011 only around two-fifths (43.6 percent) of Send pupils attended state secondary schools. By January 2019 the proportion had fallen to around a third (34.2 percent). This move to private provision is driven by greed not need and can only make the situation unbearable for these children and their families.
Water: Profit not quality
Since they were privatised in 1989, English water companies have handed more than £2bn a year on average to shareholders. The payouts in dividends to shareholders of parent companies between 1991 and 2019 amount to £57bn — nearly half the sum they spent on maintaining and improving the country’s pipes and treatment plants during the same period. While continuing to pay out huge dividends, the firms have failed to do significant national infrastructure works to improve the water and sewerage system. When the industry was sold off the government wrote off all debts. But the nine privatised water companies in England have amassed debts of £48bn over the past three decades — almost as much as the sum paid out to shareholders, according to analysis by David Hall and Karol Yearwood of the Public Services International Research Unit.
The debt cost the firms £1.3bn in interest last year. The water companies are taking on debt to pay their shareholders rather than to invest in infrastructure projects. Their capital expenditure of £123bn over the three decades has all been financed by customer bills, the analysis states. Directors’ pay has soared. The earnings of the nine water companies’ highest-paid directors rose by 8.8 percent last year, to a total of £12.9m. By contrast, the analysis states, the publicly owned Scottish Water has invested around 35 percent more per household in infrastructure since 2002 than the privatised English water companies.
It charges people 14 percent less and does not pay dividends. The service the water companies provide suffers as a result of this emphasis on profits for shareholders. Last year water companies in England discharged raw sewage into rivers on more than 200,000 occasions, and untreated human waste was released into streams, according to research by the Guardian. Among the waterways being polluted were the Thames, the Windrush, which runs through the Cotswolds and Oxfordshire, the River Chess, a chalk stream in Buckinghamshire, the Avon in Bristol, the Severn and the River Wharfe in Ilkley, West Yorkshire.
Ashley Smith, of campaign group Windrush Against Sewage Pollution, said the system is a “licence to pollute”. Most sewerage infrastructure was installed over half a century ago and investment is not keeping pace with deterioration. At the current rate of renewal, it will take 800 years to renew and replace ageing assets, according to one estimate. A typical sewage system’s lifespan is 80 years. Meanwhile, there are more dangers in store as contemporary research suggests that Covid-19 can be carried into rivers through sewage discharge.