Isn't that the whole point of privatisation? By introducing a profit maximisation goal you (supposedly) create a more efficient operation.
I've worked in both the public and the private sector and can definitely understand the argument. In my government job it was way easier to slack off and no-one really cared about the results. There was no actual pressure from above to hit targets. You had your budget and it didn't really matter what you produced. Not hitting deadlines was no big deal.
Compared to my normal jobs where there is a constant stress from management to be lean, efficient and hit goals. I hate it but the team spirit is much higher and I probably produce 10x in comparison.
It's only cheaper for the consumer when there is a forcing function for price. In a competitive marketplace - lets say breakfast cereal - if you're inefficient another manufacturer can undercut you while maintaining profit margins. There are ways around this of course through product differentiation, but something basic like cornflakes all hover around the same price point. All manufacturers are trying to improve efficiency because they know if they don't their competition will.
Now pick something that's a natural monopoly, like water supply. Consumers can't choose water suppliers - deploying pipes is prohibitively expensive - so there's no incentive to lower prices. Instead the efficiency goes to paying shareholders and management. Additionally these companies often have set leases on the infrastructure. If you have a 20 year contract and you know the pipes will start to fail in 25 years if you don't do maintenance... why do maintenance?
Government departments might not be the most efficient, but we can demand they're open and report what they spend money on.
I recently learned about electrical utilities in the US - the only way they really make profit is through building new infrastructure (power prices are set by a control board). There’s zero motivation for them to do maintenance, which is how we wound up with some of the devastating California wildfires a year or two ago.
When something is of public importance, like a utility, it really seems that running it as a public service instead of a private company seems like the right call
> Isn't that the whole point of privatisation? By introducing a profit maximisation goal you (supposedly) create a more efficient operation.
Right, but efficient at what? The answer is almost invariably 'efficient at making money' - that's the whole point; competition normally forces alignment of incentives, wherein 'better' service (for some value of 'better') results in higher income. Thus a business that provides better service is more efficient at making money - the free market hypothesis. When there is a captive audience, as in the case of public utilities, there is no incentive to provide a better service, but the company goal is the same - make the most money - and they are freed up to do it in the easiest way possible, usually by cutting costs across the board and paring down the services to a bare minimum. This is still efficient in the sense that they maximise income for minimum outlay, but it's not in any way desirable for the customers who are forced to use the now crappy service.
/extracting/. Efficient at /extracting/ money. This is the metric that is being rewarded, and therefore this is what gets optimised. You also see this pattern when an asset stripping firm buys an ordinary competitive free market company and runs it into the ground. To align this with /making/ money, just having a free market isn't enough - the controlling entity has to be in it for the long term, and has to bear responsibility for the downside of any decisions it makes. Otherwise it's just plunder and flee, just as with the usual kind of private equity firm corporate raid.
Quite a lot of the nationalised water and sewage systems elsewhere in Europe don't even seem to be managing the bare minimum though, it's just that without the privatisation angle the media doesn't care so they appear better. For example, Ireland tried to privatise their water industry a good while back in order to fund necessary investments and gave up due to protests - this was widely seen as a success that protected them from the disaster that hit the UK. Except that they've still completely failed to build basic sewage treatment in a bunch of urban areas that was meant to be built a long time ago according to EU rules, and which the privatised English water companies did manage to build. Plus they have the same problems that British water companies do on top of that. It's just that no privatisation means that there's no easy target to blame that fits people's existing beliefs about the world, so it's not front-page news and most people don't realise it's happening and happily believe their sewage is so much better handled than in stinky Britain.
That being the case then, I wonder what's different about countries that get it right? Better public sector management? Privatisation with stronger regulation?
A well managed parastatal/state owned company. The shareholder returns can be pumped back into the business if they fail and management sacked. A get out of jail free card/the profits aren't being siphoned off to a select few and indirectly, the commodity is potentially cost efficient for consumers.
> The answer is almost invariably 'efficient at making money'
That's because it's a more general category, not because it's a better category. Going the other way: privatisation can for example invest money up front to make operations cheaper.
That example does result in "better at making money" but that money can then be used to lower prices / increase quality / pay shareholders dividends / pay employees higher wages.
> That example does result in "better at making money" but that money can then be used to lower prices / increase quality / pay shareholders dividends / pay employees higher wages.
Out of these, we often just see
> can then be used to…pay shareholders dividends
During the welfare capitalism of the early 20th century, we did see lower prices, higher quality products, and higher wages. Then Jack Welch and his ilk discovered that you could axe entire departments, lay off thousands of workers, and pay that money to shareholders while your company crashes and burns.
Why invest in making better products than “the commies” if you can make cheap products on par with imports and fire factory workers/QA/research? They learned that if the consumer doesn’t have a competitive choice for a product that will break in 1 year vs one that will last decades, then why not sell 10s of the cheap one over and over?
"Often" seems like weasel words? Look at e.g. tech worker salaries rocketing up. Or the year on year improvements in key items such as cars and phones.
What you're saying doesn't jibe with my understanding of the 20th and 21st centuries' explosion of innovation and quality of life improvements.
If you think Fords and VWs are no better than Ladas, or SpaceX rockets aren't better than Soyuz rockets, or people flock to countries run by "the commies" vs, say, the US, due to the better products and wages in said "commie" countries, then we might just have a fundamental disagreement on the state of reality. But my understanding is the opposite is true.
> why not sell 10s of the cheap one over and over?
Companies can do that, but in a decent economic environment a competitor or twelve can spring up and offer products at different prices and levels of quality. E.g. not every restaurant is McDonald's. Why is that?
I guess I should have qualified that it’s not always the case, but we have also seen a lot of factory and middle class jobs gutted by corporations who favor profits over people. Jobs in manufacturing that paid well and offer good benefits don’t seem to be as common as they once were. The fact that a single income can’t support a family for a lot of Americans is a sharp contrast to previous generations.
That’s not to say that good jobs and food companies don’t exist, as you pointed out we have tech jobs that lay well and other sectors. The divide between what’s achievable for the middle and lower class now vs the upper is staggering though. Having to worry about affording a mortgage, health care, food, etc is a reality for many Americans while a handful simply have to say what they want and they have it without batting an eye or considering the cost.
We can both pick and choose which sectors to look at to support either the idea that jobs are great or that wages are bad, my point is that there has been a very tangible shift for a decent number of companies to move away from good wages and benefits to giving C-levels and shareholders more money than they know what to do with.
Also the other side of the coin, little opportunity for growth, you serve an area with a certain population and a commoditized product like water offer little room for improvement, once you run out of quick wins to keep up that growth, you either increase prices or skimp on capital expenditure.
> Right, but efficient at what? The answer is almost invariably 'efficient at making money'
They don't make any money unless they give the customers what they want, that's the whole point. It's so basic even animals have an instinct for it. That's why government and private business shouldn't be mixed.
Animals have the instinct to shit in front of you and not feel the slightest discomfort doing so too. Should we all start shitting in front of each other to more closely align our behavior to animal instincts?
I've also seen many public places where people are efficient, and also stressed because of the amount of work to do. I feel like your experience is not very applicable to all situations.
What's more, a private company which has monopoly does not really have special incentive to respect deadlines and everything: it is the only choice, so customers won't deal with any competitor and are stuck with this private company.
Absolutely. My experience is completely anecdotal, and even if it's true that you get less bang for the buck in the public sector I still think it's ideologically sound and worth it. My country has a huge public sector but I think it's good.
What's normally the driving motivator in public companies to be efficient?
My experience with the public sector is the same. People must spend all their budget or it will be cut next year, so they do. Processes calcify and no one is incentivised to improve them. It's hard to fire people or make them redundant, so people get shuffled around between departments, costing far more than they contribute. Pensions are often very expensive. Strike action is more likely, as it's a big mass of people who can shut things down.
Fundamentally, it's the principle-agent problem. The customer isn't the one paying the bills. The customer is a politician or two who can heap money on the department or not, and they get praised for heaping money rather than saving money. The people paying the bills, taxpaying individuals and businesses, must do so or they go to jail. So why be efficient when your customers cannot legally avoid buying your service?
Public infrastructure doesn’t need to make a profit, that should never be the goal. It should be to deliver good reliable service/results at a consistent price.
That is often at odds with “making profit” either from over hiring so there’s always fallback people on call to overbuilding so in 50 years your still under capacity.
The goals are entirely different and so should the incentives
When the government is the customer, and the private company is maximizing profit, the company's effort goes towards figuring out how to 'raise' rates.
This might sound like free market, I'm just trying to increase prices while reducing my overhead (efficiency). But in practice you end up paying a lot for a little. So instead of government workers slacking off, you have even less well payed people slacking off, with managers making a lot of money.
If you ever had to go to a 'privatized' DMV you can see it. Just awful everything, because of cutting corners. Yet the company gets paid a lot. The money goes to the company leadership, it doesn't 'trickle' down to operations to do a better job.
You never invest in infrastructure - in 30 years since privatisation, water companies in Britain haven’t built a single reservoir, lose 30% of water to leaks and dump raw sewage on the beach where children swim
Profit maximization does not inherently create efficiency for all consumers.
A profit maximizing company may reasonably say "oh this population is super expensive to serve so we will let services there stagnate or even remove services for that population because it is more efficient for us to focus elsewhere."
Or consider a subscription service that makes it considerably more difficult to unsubscribe. That increases profit while making the product actively worse.
Profit incentive leads to efficiency of profit extraction, which is only loosely correlated to efficiency of services for consumers and occasionally runs in total opposition to efficiency of services for consumers.
I think that the differences between your experiences at government vs private might be correlated with the size of the organisation. I've worked at very large publicly traded companies that operate kinda like government institutions: too big to fail, tons of bureaucracy, endless meetings, silos / walls / not-my-job.
> I've worked in both the public and the private sector and can definitely understand the argument. In my government job it was way easier to slack off and no-one really cared about the results. There was no actual pressure from above to hit targets. You had your budget and it didn't really matter what you produced. Not hitting deadlines was no big deal.
Cuz that never happens in the private sector, lol. Guess where I'm at now...
There was a week while consulting pre-COVID I tried to see how many hours of Skyrim I could play on Switch, both in the office and remotely. I got to about 11.
>By introducing a profit maximisation goal you (supposedly) create a more efficient operation.
Yes but one way that happens is by ignoring unprofitable customers. That's great if you are a car dealership and sell higher end cars to wealthier people or run a botique grocery store with fancy all-organic produce, but terrible if you are (for example) trying to provide healthcare or education and decide that the profit margins aren't high enough for you to serve various segments of the population.
Anecdata: I used to work for public academia. I got out after a burnout due to massive overwork. I've worked in a couple of start-ups, among others, and found them all much more relaxing.
Sure, there's lots of pressure, but, at least for someone with my profile, it's limited by the fact that it's easier to walk away.
Seems to me like an incentive issue. I can't see why it'd be impossible to recreate a good incentive structure for employees in the public sector so that they'd perform similarly.
I've worked in both the public and the private sector and can definitely understand the argument. In my government job it was way easier to slack off and no-one really cared about the results. There was no actual pressure from above to hit targets. You had your budget and it didn't really matter what you produced. Not hitting deadlines was no big deal.
Compared to my normal jobs where there is a constant stress from management to be lean, efficient and hit goals. I hate it but the team spirit is much higher and I probably produce 10x in comparison.