This House Believes That Public Services Are Best Run by Private Companies

8/10/2019 This House Believes That Public Services Are Best Run by Private Companies

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This House believes that public services arebest run by private companies

WIKI DEFINITION: Public services is a term usually used to mean services provided by government to

its citizens, either directly (through the public sector) or by financing private provision of services. The

term is associated with a social consensus (usually expressed through democratic elections) that certain

services should be available to all, regardless of income. Even where public services are neither publicly

provided nor publicly financed, for social and political reasons they are usually subject to regulation

going beyond that applying to most economic sectors.

OTHER DEF: Non-rivalrous and non-excludable

Health and education are considered to be the main public services.

Plan: Privatising public services

Philosophy: There is a social consensus that certain services should be available to all, regardless of

income and thus the government either runs the services itself or holds a decisive power concerning

those services. We feel that the services are not run to sufficiently high standards at the moment; it is

common knowledge that a pizza may arrive quicker than an ambulance. The inability of states to

improve those services is shown by the citizens of the UK, who after an unsuccessful spending spree

have lost trust in the government to spend the taxpayers money onimproving the quality of public

services.

In 2000 an international poll for The Economist found that Britain was alone among 17 countries

in having a majority of people prepared to pay more taxes to finance more spending on public services.

By 2008 that generosity had vanished, as a rising tax burden had squeezed incomes and as it became

clear that public services had failed to improve that much despite the spending spree.

Problem: The level of public services is not good enough.

QUALITYinvestments, welfare of the workforce and desire for profit

For

Point:

a)Profit motivates

What makes a private company better than the government? Simple, it is the drive for success. When

the government has to provide these services and just get it over with, the private companies want to do

it well. Private companies exist to generate profits for their shareholders. Private corporations typically

profit more if they serve the needs of their clients well. A company with good corporate governance will

therefore be incentivized to meet the needs of its customers efficiently.

Efficiency, defined as real (inflation adjusted) sales per employee, increases from an average of

96.9 percent in the year of privatization to an average level of 123.3 percent in the post-privatization

period---[Megginson and Netter (2001)] [Sheshinski and Lopez-Calvas (1998)] "privatized firms

improve profitability after sale irrespective of market structure" Boubakri and Cossett (1998)significant

increases in profitability (up on average by 124 percent after privatization), operating efficiency (real

sales per employee up by 25 percent on average and net income per employee up by 63 percent),

capital investment spending (up 126 percent), and employment (up 1.3 percent)[1]
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JNR increased productivity about 20% after being restructured for privatisation (Tasub veel uurida,

sest link privatisationiga on segane)[2]

BR Privatisation brought with itself an increase in both freight and passenger train traffic. Also the

service has experienced an increase in the level of safety and considerable amounts of investment,

especially for the major lines, improving the quality of railway service.[3]

CN (basically Canadian railway) increased its operating ratio from an industry average when in

public ownership, to an industry leading figure by 2005. (tasub jllegi veel uurida, sest operating ratio on

suhteliselt tihedalt seotud kasumiga ja vib lihtsalt thendada, et firma hoiab mingi thtsa asja pealt

kokku)

After UK bus services were privatised, the more efficient economic management of the private

companies meant that it was possible to enhance the quality of the service, for example, the frequency

etc.

b) InvestmentsRight now, in the states that have decided that public services are best provided by the

government, we can see that the governments are often struggling to invest enough into the

development of public services. The government has a limited amount of funds to invest in the public

services, thus in order to improve and enhance them, it is necessary to up to some point privatise them

to ensure the cash flow necessary for development. The state has a certain responsibility to ensure that

the public services are provided on a good level and if it cannot provide them itself, then it is its duty to

delegate the responsibility to the private sector

A good example is Thames water, which failed to reach the targets for reducing leakage rates

from 2000-2006, after which it announced a 1 million investment to replace pipeline. This resulted in

Thames Water meeting and exceeding the targets in 2007 and 2008.[4]

c) Workforce and motivation to strive for successPeople tend to put more effort into their work when

they can do it in favourable conditions. Collocating workforce with similar qualifications to create

competition will improve the overall level of public services.

Counterpoint:

Profit may be a motivator but it does not necessarily mean profit making companies are more efficient

as shown by the US Healthcare system and UKs water.USAs commercialised system costs 13.6% of

GDP, while the UKs national health system costs only 6.7% of GDP yet the infant mortality rate in the

USA is worse than any other OECD country. One reason is that up to a quarter of health spending in the

USA goes on the bureaucracy of payments and billing.[6]

Thames water may have been investing but only as a result of complaints and it is put to shame by

public sector equivilents; the water authority in Lilongwe, Malawi, reduced its leakage rate to 17% in the

1990s (better than Thames Water managed in the UK in 2001).[7]

In electricity, a worldwide comparison of public and private companies found that the ownership made

little difference.[8]

Even the party that authorised the privatisation of Britains railways, the Conservatives, have stated that

they made a mistake. They are supported in this by Railtrack, the company that deals with the

maintenance of the tracks.[12]
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Stabilityi.e. public services as a political tool, the changing of policies

and officials

For

Point:

As a government controlled businesses it is not unusual for the public services to become political tools.If we consider public services to be somewhat of egalitarian tools, then if the ruling party changes from

e.g. left wing to right wing, then the funding and development of these might be halted. Every change in

the government is bound to be reflected in these establishments, even if the economic ideology does

not change. We feel that this prevents the services from having long term development schemes for

public services, which halts the progress made in the price and quality of the public services.

Also, key decisions concerning the running of the company are not up to the management to make, but

are rather decided by the government. (fares, wages and investment planning)

The case of Japanese National Railway(JNR), which was eventually privatised, due to the

companys inability to make key decisions resulting in annual losses of about $ 20 billion. "Inevitably, theresult was interference in the application of resources (i.e., non-economic light density lines) and in the

procurement of goods and services."[5]

These days even the non-political positions in organisations tend to become more and more political, as

the pressure from government increases to be political in their goals rather than economic, which would

be more beneficial to the people because welfare of the society is more important than political hassle.

Counterpoint:

Argentina privatised its railway in the '90s, because it was underachieving, but instead of improving, the

situation got worse. Network of railway lines shrank from about 35000 to 8500 km and the number of

employees from 95000 to 15000. Also the state subsidised the railway in the same amount that it was

previously spending on it. The railway fails in satisfaction polls.[9]

Also, the bus use in UK has declined by more than 20% due to privatisation and the reforms it brought.

Moreover, the investments were not too significant, as the bus fleet aged by 30%, due to the fear of

losing long term sustainability (although this process has started to reverse)[11] With regards to working

conditions - after London bus services were privatised in the late '80s and '90s the pay for workers was

reduced in order to survive in the corporative competition Prior to 1986, bus drivers wages were 7%

above the average for all manual occupations. By 1995 their wages were 13% below that averageSee

New Earnings Survey Part D Table 54 1990 SOC for Bus and Coach drivers.[10]

Focus

For

Point:

The state can focus more on the services that are left to be provided by it. State as a bureaucratic

monster that cannot be efficient due to the amount of tasks on its hand, isnt the best owner as it lacks

the necessary attention capacity to provide all services on a high-enough level. If we privatise the

companies, we see that the companies that are privatised are taken better care of and their needs can

be met with more precision, but also that the companies that are left to be run by the state are better off.

Not taking every company as an individual establishment but rather a part of the state could lead to

various outcomes, for example in transport, the loss of market share to other means.
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The example of JNR, which was too big to understand the regional differences and needs and

design services accordingly. As a result they lost market share to small private operators who were

operating simultaneously to JNR.

Counterpoint:

Focus really means a focus on profit over anything else, and this often comes at the expense of the

workers. A study from British Columbia, showed that privatising health care support would sharply

reduce wages for staff, 85% of whom are women. In a contract awarded to multinational company

Compass in 2003, wage levels for health care housekeeping staff were reduced to 1984 levels.

Professor Baldry's evidence to the Ladbroke Grove Inquiry on the effect on the railway industry of 'work

intensification': "If you are bidding for a contract on what is essentially a labour-intensive process, the

only way or one of the major ways you are more likely to win the contract is through offering to do it with

reduced labour costs, that is either to do the work with a smaller number of people or in a shorter

timeframe."

Security

Against

Point:

A) The essence of public services

People expect certain services from the state, that should The public services are connected to a

persons basic rights or enforcing them, thus the government cannot let private companies provide the

services, because it would reduce the security of providing these services.

Up to a point it is an egalitarian tool, thus giving it to private companies would ruin the point because

their goal is to generate profit not to generate common good and security. Security is essential to the

poorest layers of the society, who are not very appealing to profit-seeking companies, thus we see that

only the government has the incentive to provide public services on an acceptable level to all.

Latinobarmetro states that the majority of citizens in South America believe that public services

are best provided by the state[13]

B) Responsibility

MNCs have a primary responsibility to their shareholders rather than the public they are offering the

service to. This can lead to the company withdrawing when the profits fall and leaving the public service

unattended, which can lead to the provision of the service being disrupted bringing down the living

conditions of the citizens.

A recent example is the policy announced by Suez to withdraw from one-third of its investments in

developing countries, and the announcement by their subsidiary in Manila to withdraw from a water

concession in the Philippines which still had many years to run.Energy giant AES (4.2.5.1) (August 2003,

AES walked away from Drax [UK's largest power station, generating about 8% of the country's energy

needs], the same month it abandoned a hydroelectric project in Uganda, 1999 did the same in India,

Orissa)[14]

C) Supervision

The usual reasons for privatising are wrong
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Against

Point:

Governments usually privatise the public services due to economic concerns. If this is the case then the

public services are the wrong thing to cut back on. We feel that the only reason, why a government

should even consider privatising the public services would be an improvement in the services.

Privatising as a cost-cutting measure is flawed, as the citizens' welfare is not kept in mind. Also, as

examples show, it is not even financially wise. The private companies manage to frequently do

something wrong or just claim to the government that the service is not profitable enough, due to which

cross-subsidies have shown tendencies of doubling or tripling compared to the pre-privatisation levels.

Pre-privatisation subsidy levels averaged around 1 billion per year, but the gross subsidy

almost doubled following BRs restructuring in 1994 (net subsidy did not increase substant ially until all of

BRs successor companies had been sold and their profits were transferred to the private sector).

(Shaw 2003)[15]

The other reason in developing countries is the pressure from various supra-national organisations. This

is done to promote a certain political view and promoting various MNCs without considering the local

conditions or the effects of the process. It is visible throughout the continent of Africa, how the public

services are not provided on a good-enough level.

(Ghana's water system privatisation - Shortage of supply March 2008)[16]

As we see in Ghanas case, private operators are not reliable enough as disruptions in essential

services occur.

The assets of British Rail were disposed ofway below their market price between 1993 and 1995. State

subsidy to the privatised railway industry today is more than double that pre-privatisation

fundamentalhuman rights (such as the right to water)

Source URL:http://europe.idebate.org/debatabase/debates/economy/house-believes-public-services-are-best-run-private-companies
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This House Believes That Public Services Are Best Run by Private Companies

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