Privatisation slows down worldwide

Has the money lost heart, or is it the bureaucrats?

Via Richard Murphy comes this Financial Times piece (£), suggesting that privatisation may be declining globally:

The pace of privatisation around the world has slowed sharply, with an unprecedented number of asset sales delayed or cancelled amid volatile markets and political uncertainty.

Despite governments across the globe continuing to hoist for-sale signs over state-owned enterprises ranging from airports to electricity networks, the number of completed deals last year was less than half the 2010 figure, according to the Privatisation Barometer, a joint project between KPMG and Fondazione Eni Enrico Mattei, a Milan-based research institute.

The report (pdf) offers the explanation that last year was one of "global financial retrenchment", prompted by the Eurozone crisis and the fight in the US over the debt ceiling. It offers, as a "dramatic" example of the former:

The Spanish government['s] forced cancellation, literally days before execution, of what would have been 2011’s largest privatization — the October sale of 30% of the national lottery, Loterias y Apuerto del Estado, which would have raised over €7 billion ($9.7 billion) — and the near-coincident delayed (not yet renewed) sale of the Madrid and Barcelona airports that could have raised more than €5 billion ($6.9 billion).

The explanation leaves something to be lacking, however. If, as the report argues, the Eurozone crisis was one of sovereign debt, then it ought to have led to more, not fewer, privatisations, given that they are one of the most effective ways for a nation to raise in a short period of time the amount of cash necessary pay down debt.

Similarly, the big economic story of the last year has been the flight to safety, which has led to the reverse-sovereign-debt-crisis being experienced across much of the world, as well as little quirks like RORO. That too ought to lead to greater, not lesser, privatisation, since taking control of an established monopoly is a pretty safe investment. So long as a company doesn't completely misjudge how much it can make from a utility (looking your way, GNER), it's hard to fail when buying out the state (hard to fail, that is, from a financial point of view. Very easy to fail when it comes to actually providing services).

I think the best explanation is that privatisation is becoming uncool, not for economic reasons, but for political ones. States simply don't want to take the unpopular move of handing over control of their services to the private sector. Whether this is good or bad depends on the specific circumstances (as with Matt Yglesias, I think a well-thought-out mutualisation of the US Postal Service could do wonders, but the sale of Madrid and Barcelona airports risks creating the nation's own version of BAA), but Murphy thinks there is something to celebrate anyway:

Let’s hope that there might also be a realisation implicit in this that people now realise that it’s not just banks that can be too big to fail, but that much else that we depend upon is also too big to fail, and needs to be state run to ensure it survives as a result.

Barcelona airport, following a protest by cleaners. The airport was due to be privatised this year. Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

Photo: Getty Images
Show Hide image

The future of policing is still at risk even after George Osborne's U-Turn

The police have avoided the worst, but crime is changing and they cannot stand still. 

We will have to wait for the unofficial briefings and the ministerial memoirs to understand what role the tragic events in Paris had on the Chancellor’s decision to sustain the police budget in cash terms and increase it overall by the end of the parliament.  Higher projected tax revenues gave the Chancellor a surprising degree of fiscal flexibility, but the atrocities in Paris certainly pushed questions of policing and security to the top of the political agenda. For a police service expecting anything from a 20 to a 30 per cent cut in funding, fears reinforced by the apparent hard line the Chancellor took over the weekend, this reprieve is an almighty relief.  

So, what was announced?  The overall police budget will be protected in real terms (£900 million more in cash terms) up to 2019/20 with the following important caveats.  First, central government grant to forces will be reduced in cash terms by 2019/20, but forces will be able to bid into a new transformation fund designed to finance moves such as greater collaboration between forces.  In other words there is a cash frozen budget (given important assumptions about council tax) eaten away by inflation and therefore requiring further efficiencies and service redesign.

Second, the flat cash budget for forces assumes increases in the police element of the council tax. Here, there is an interesting new flexibility for Police and Crime Commissioners.  One interpretation is that instead of precept increases being capped at 2%, they will be capped at £12 million, although we need further detail to be certain.  This may mean that forces which currently raise relatively small cash amounts from their precept will be able to raise considerably more if Police and Crime Commissioners have the courage to put up taxes.  

With those caveats, however, this is clearly a much better deal for policing than most commentators (myself included) predicted.  There will be less pressure to reduce officer numbers. Neighbourhood policing, previously under real threat, is likely to remain an important component of the policing model in England and Wales.  This is good news.

However, the police service should not use this financial reprieve as an excuse to duck important reforms.  The reforms that the police have already planned should continue, with any savings reinvested in an improved and more effective service.

It would be a retrograde step for candidates in the 2016 PCC elections to start pledging (as I am certain many will) to ‘protect officer numbers’.  We still need to rebalance the police workforce.   We need more staff with the kind of digital skills required to tackle cybercrime.  We need more crime analysts to help deploy police resources more effectively.  Blanket commitments to maintain officer numbers will get in the way of important reforms.

The argument for inter-force collaboration and, indeed, force mergers does not go away. The new top sliced transformation fund is designed in part to facilitate collaboration, but the fact remains that a 43 force structure no longer makes sense in operational or financial terms.

The police still have to adapt to a changing world. Falling levels of traditional crime and the explosion in online crime, particularly fraud and hacking, means we need an entirely different kind of police service.  Many of the pressures the police experience from non-crime demand will not go away. Big cuts to local government funding and the wider criminal justice system mean we need to reorganise the public service frontline to deal with problems such as high reoffending rates, child safeguarding and rising levels of mental illness.

Before yesterday I thought policing faced an existential moment and I stand by that. While the service has now secured significant financial breathing space, it still needs to adapt to an increasingly complex world. 

Rick Muir is director of the Police Foundation