LOSS OF CONTROL

[Stanley]

LOSS OF CONTROL

A naïve occasional paper.

I've always been in favour of nations keeping a tight hold on the 'Commanding Heights of the Economy'. Most people equate this to the dreaded Nationalisation word which has become shorthand for the dead hand of central government control, rather like the degradation of 'socialism' in the US where it equates to some form of Communism and erosion of individual freedom. Both demonstrate the need to get back to the original meaning of the word.
I should say here that I equate the modern concept of outsourcing with privatisation inasmuch as it is a shedding of responsibility, and in the process, control. I was struck the other day while reading Trevelyan on the Stuarts by the fact that his major criticism of the prison system in the 17th century was that it had been farmed out to contractors who failed miserably to maintain even minimal standards of humanity in them. We see the same syndrome today in the criticisms levelled at the modern privatised prisons. Even though responsibility has been abdicated central control still has to be exerted to alleviate the problems but without the sanctions that would be available if they were directly run by the government. We have seen the increasing use of private contractors even in foreign wars where 'security firms' (actually they are old fashioned mercenaries) have been used to relieve the strain on regular armed forces. Shades of the great continental wars of the 17th century when mercenaries plied their trade and often swapped sides! Another downside of privatising war.
Back to control of the commanding heights. This has been weighing heavily on my mind of late by the shenanigans of the privatised energy and service companies in the UK. In a nutshell, the global price of energy has dropped but the providers have increased their charges by almost 10%. When Parliament tried to bring them to account it found that they had created such a Byzantine structure of holdings and sub-divisions inside their structures that there is no transparency, in other words, nobody can prove whether or not they are operating a cartel. Add to this foreign ownership and the exporting of tax liabilities by manipulation of a complicated series of off-shore companies and interest payments for large borrowings from obscure entities and we have a perfect storm of obfuscation, loss of revenue and sky high energy prices. This has a knock-on effect in the costs of manufacture in the UK and is a growing problem.
However, I find that I am not alone. Hamburg has taken the local energy provider back into local control and Berlin is in the process of doing the same. The reasons given were the high prices paid by the foreign owners and the fact that profits were being exported outside the Federal Tax System. Quite! However, Germany's economy is strong enough to do this but unfortunately the UK has neither the resources or the political will to do the same because the need to privatise is built into Tory DNA so we can expect no initiatives there.
Economic considerations and the 'market' are always quoted as factors in the decision to privatise. The theory is that the market will ensure competition, innovation and investment in improvements. Theoretically this is correct but when the market is imperfect, as it certainly is in the case of energy, this mechanism fails. Add to this the fact that compassion for the customer doesn't exist when they are seen as milch cows to be exploited and we have governments in effect subsidising the energy providers by doing things like helping the poor to pay their bills. We see the same mechanism in the Income Credits the government pays to those below the minimum living wage, a laudable activity but actually a subsidy to industry who are refusing to pay high enough wages. The overall affects of these structures is to allow capital owners to make money out of consumers. Hence the increasing gap between the rich and the poor.
There are other considerations. When the government took control of Coal, Steel and Transport in the aftermath of WW2 it did it because the existing 19th century structures had been proved to be inefficient by how well they had performed during the war under total government control. The efficient working of the commanding heights was seen as a social good and essential to both security and the recovery of the country. The critics of 'nationalisation' forget that under this regime, the coal industry and steel were rationalised and modernised, a degree of protection was applied and essential resources and skills stayed inside the UK. The railways were run as a public good and what is forgotten today is that in real terms we paid out less subsidy to rail then than we do now under privatisation and rapidly rising transport costs. We revolutionised electricity generation and installed a far more efficient National Grid, exactly the same thing was done to gas supplies. Even an arch-Tory like Harold Macmillan recognised and advocated public ownership, whether municipal or central, as the best way to run certain key sectors of the infrastructure.
There is another insidious consequence of outsourcing and privatisation. During the last twenty years it has been realised by the Treasury that there is a way of getting essential current capital investment off the balance sheet, thus making economic performance appear to be better than it is. This is the Private Finance Initiative. If you want to build, say a hospital, a new school, a new nuclear power station or a High Speed Railway line, farm it out to a source of capital that can afford the investment, lease the facility back from them and pay for another thirty years. Actually, in the case of the nuclear plant it was done slightly differently by guaranteeing a purchase price of double what energy costs now and allowing it to be increased beyond that in line with inflation. All these strategies have one thing in common, they kick the can down the road. When the full effects of the policies become evident it will be our children and grandchildren who will be paying for them. This yet another way the government can abdicate from responsibility but at the same time lose control.
I could go on but it would be boring. I think I have made my case. Two things are obvious; I can't do anything about these miscarriages of public policy and I can't forecast what the eventual result will be. I can see several possible scenarios. Suppose the continental energy cartels manage to keep control of energy prices and force up UK manufacturing costs above those in Europe, could this be seen as economic warfare? During the recent crisis over the petro-chemical plant at Grangemouth it was stated that the cost of producing ethylene at Grangemouth (the most important product of the plant) was twice as much as it could be imported for and the key factor was the cost of energy in the producing country. Could this be a shade of what is coming in the future? Another consequence we are seeing already is the closure of viable non-PFI hospitals so as to transfer their patient load to the ones they can't close down because they don't own them.
As you can see I am not happy! I find myself asking what exactly the function of government is. Is it to perpetuate itself at the expense of the country or should it perhaps be to run the economy and the country for the benefit of the general population? All the evidence, from the way the finance sector is allowed to perpetuate its selfish practices to the complete disregard for the lower 50% of the country who are seeing their disposable incomes fall month by month (and according to most estimates they will continue to do this for at least ten years and possibly longer) points to the fact that government for the people has failed. So the question is, what can be done about it? The terrible thing is that this is yet another choice which has been kicked down the road, our descendants will have to make that decision and it won't be easy.

SCG/03/11/13

[Stanley]

Thanks Lads.....

[Stanley]

It struck me yesterday that we have to add to rail subsidy from government the advantage the rail companies get from a guaranteed above inflation price rise each year. Direct subsidy from the travellers. So even some of the subsidy can be moved off the books!

[Stanley]

Bumped. Pertinent today because we are seeing the consequences I foretold eight years ago.
One is allowed to be wise before the event.

[Stanley]

Bumped again. It is still pertinent today......