Scrap privatisation now

We are spending more public money to get worse public services. The Tube derailments are a perfect c

Editors who chose to lead national news bulletins the other day with the story of a small train accident in Camden, north London (not many injured, let alone dead) appeared to exemplify the parochialism of metropolitan journalists. The inhabitants of the dark corners of the land beyond Hampstead Heath must have wondered about the significance of a minor derailment on the London Underground. Surely the attention paid to this footling incident revealed only that the people who work for the national media are evenly divided between those who think north London is the centre of the country and those who think it is the country.

But the charge of insularity doesn't hold. The fate of the London Underground matches the fate of the railways, the Post Office, the National Health Service and large parts of the civil service. They are victims of what could be termed "Bastard Privatisation" - a perverse twisting of capitalist ideals which ensures that all the promises of the market prove to be false.

Privatisation is meant to be efficient - that is, cheap. The bracing competitive air of the market compels its devotees to shun waste and duplication. Privatisation is meant to be responsive to the smallest whim of the consumer, for how else can a private company survive other than by pleasing the customer?

The final virtue follows logically. Privatisation is meant to bring clarity. Public bureaucracies are expert in evading responsibility. Backs are covered and the buck is passed and citizens can find themselves in a Kafkaesque world where no one answers their questions. Private companies have a clear incentive to be accountable. If they fail, they go bust.

Bastard Privatisation brings none of the above-mentioned virtues. It began in the early 1990s, when Kenneth Clarke introduced the private finance initiative - a wantonly expensive way of delivering public works. Under the PFI, private consortiums borrowed funds at a far higher interest rate than the government would obtain from the money markets, built a hospital or school and then demanded mortgage payments from the state for 30 or 60 years for the building's management and use. The fault was obvious: the consortium must repay the high interest on its loan and take its profits. Clarke allowed the recklessness when he was chancellor of the exchequer because the Treasury was broke after the recession of the early 1990s and he could not think of another way to fund capital projects. A "buy now, pay later" scheme may be pardonable in a crisis, when the choice is between spending on the never-never or no spending at all. But new Labour turned the stopgap into its founding principle of public capital spending. If you want to see Gordon Brown's monument, gaze around.

The London Underground is as good a place to start as any. Suppose the derailment at Camden had been far worse and the tunnel was stuffed with bodies. Would Ken Livingstone be responsible? Not at all. The government's part-privatisation of the Tube destroyed any notion of central responsibility and central command and control. Nor could Bob Kiley, the American executive whom Livingstone brought to Britain to manage London's transport be held to account.

Kiley is just the type of businessman new Labour usually favours. He had a reputation as something of a union-basher, and proved in New York that he could run a railroad. But Kiley was shunned by the government because he recognised Bastard Privatisation for what it was. As with PFI hospitals and schools, the public would still, theoretically, own the Tube. But control of London Underground's assets - the trains, tracks, tunnels, signals and stations - would pass to three private firms for 30 years. London's public officials, Livingstone and Kiley, had a formal obligation to manage the contracts and provide train operators and station staff. But the responsibility to raise the money to invest in the Tube network and carry out maintenance and engineering work lay with the private sector.

Kiley gazed with some wonder at the mess and concluded that "while in the public's mind the Underground will remain a unitary 'system', in reality what was a unified whole will be both Balkanised and bifurcated. Balkanised in the sense that responsibility for the infrastructure of the Underground's 11 lines will be arbitrarily parcelled out to three private companies, with little incentive or obligation to operate in a unified manner. Bifurcated in the sense that the indivisible bond between the operation of trains and the maintenance of all aspects of the systems will be broken."

It would also be "prohibitively expensive" because, as with all other variants of the PFI, it was far more expensive for private companies to borrow and then take a profit than for the government to borrow at a lower rate and take no profit at all.

As for responsibility, in theory the private companies are responsible for a disaster on the tracks. It may be possible to fine them if Livingstone can turn up a liability somewhere in the small print of the million-page contract that the Treasury insisted on drawing up to the delight of a legion of overpaid lawyers and accountants. But the brutal commercial fact remains that the government has forced London to sign a 30-year contract, so the private companies are hardly facing the chill wind of competition, and won't before 2030.

The dream of any company is to eliminate competition and achieve a private monopoly. In the 20th century, advanced capitalist societies developed antitrust laws to prevent such a fraud on the public. The marvel of Bastard Privatisation is that it reverses the role of the state and provides for a state-sponsored private monopoly; for a guaranteed flow of income for generations. The efficiency and cost reductions brought by competition are nowhere to be seen. You, your children and in some instances your grandchildren must pay a kind of Danegeld. Nor is there any sign of clarity. A properly privatised entity is clearly responsible for its actions and must sink or swim in the market. But a PFI contractor is under no obligation to please the customer or deal with the customer's grievances: his income is guaranteed. Who is responsible for what is a hard question to answer, because in the London Underground, as elsewhere, responsibility is fragmented.

The spirit behind new Labour is the spirit of John Major. Quite how the former prime minister gained his reputation for being a "decent" man is beyond me when he clung on to office in order to push through privatisation of the railways. No one can doubt that Major provided the best example yet of Bastard Privatisation, and even Gordon Brown is struggling to emulate his mentor. Rail privatisation drew up the basic model: the fragmentation of a natural mono- poly; evasion of responsibility; and the rapacious exploitation of public funds. The characteristic 1990s solution to the problem was the creation of an independent regulator. But even when they were honourable guardians of the public interest, and a few were, they couldn't change the structure of Bastard Privatisation, which guaranteed waste and ineptitude.

In the case of the railways, neither independent regulation nor the abolition of Railtrack by Stephen Byers could stop or even slow the robbery of the public. According to a study published last month by Salford University, annual passenger rail subsidies were £270m higher in 2002-03 than in the financial year before British Rail was privatised. In other words, it has been more expensive to sell a national asset than to keep it. This is only to be expected. Private monopolies have no incentive to improve services or maintain standards or control costs.

Bastard Privatisation is everywhere in the public sector. Even a service as apparently unprofitable as the probation service hasn't been exempt - its officers have been forced to cut back their work with petty criminals after the costs of the maintenance of their buildings went through the roof when the private sector was brought in to manage probation centres. But because of the work of the NHS, Bastard Privatisation has been at its most dangerous in hospitals.

The Railtrack model was followed in full when the private finance initiative was used to build new hospitals. The cost of the leasing payments to private consortiums could be met only by slashing the number of beds available for the sick. When the first wave of PFI hospitals was going up, the government muttered that cutting beds wouldn't matter because private-sector disciplines would impose greater efficiency. A recent study of the new Edinburgh Royal Infirmary for the British Medical Journal concluded that efficiency targets had not been met. The result of the PFI was that fewer patients were treated at great cost to the public.

The NHS example is also telling because it shows the future that new Labour is planning. Many people couldn't understand why Labour MPs staged a bigger revolt on foundation hospitals than over the war in Iraq. The answer was that they could sense that new Labour was complementing the Conservative move to a bastardised private sector, which had none of the virtues of competition, with a move to a bastardised public sector, which had none of the virtues of the public service ethic. Foundation trusts prefigure a new market in healthcare in which competitors fight for NHS and private business. The distinction between private and public will be blurred, as hospital administrators enter into joint ventures with private companies and switch jobs between the sectors. Professor Allyson Pollock of University College London predicts that the end of the process will be an American-style system in which the poor and the chronically ill are left in sink hospitals, the rump of a service that was once based on the profoundly anti-capitalist principle of equality of treatment.

We will have to wait and see if her prediction comes true. While we twiddle our thumbs, the question remains: why is new Labour so keen on creating a bastardised system? Political cowardice provides a large part of the answer. In the long run, giving private companies 30- or 60-year mortgage payments to maintain, say, the Tube, is wildly extravagant. But in the long run, the present generation of politicians will be dead or at least out of office.

But there is something else. When Treasury ministers talk plainly about their hopes, a faraway look appears in their misty eyes. They have a missionary zeal for the private sector. They cherish its virtues and believe that the mere presence of private managers can and will make the world a better place. They are akin to a bishop or mullah who can overlook any failing in a man if he subscribes to the true faith.

The idolisation of the private sector, a love made all the deeper in new Labour because scarcely any of its senior members have had the disillusioning experience of working in the private sector, is accompanied by a sharp line of invective. Critics are dismissed as "conservative" stick-in-the-muds who have nothing positive to offer.

If it is "conservative" to insist on learning from experience, the insult must be borne. In the cases of the railways, the hospitals and the Tube, Bastard Privatisation has been a costly disaster that has produced, again and again, the implausible combination of more public money being spent on worse public services.

As for being negative, if you see a man digging himself deeper into a hole, the injunction "Stop It!" is the most positive suggestion you can offer.