Category Archives: Privatisation

It’s about the fundamentals, silly

The basic reason that the leadership election has been so disappointing, until Jeremy Corbyn came on the scene, was that it was stuck on issues (insofar as it was stuck on any issues at all) that, while certainly important, did not have the makings of a vision.   Even when Corbyn prompted the others to produce some actual policies, they were not the real thing.   Andy Burnham was right to praise land value tax and above all the need to integrate social care within the NHS, and Yvette Cooper was absolutely right to demand that Britain takes its proper share of Syrian refugees where the government response has been callously dehumanised.   Bully for her.   But these are not the fundamentals, and only Jeremy Corbyn seems to have grasped what this election is really all about.

it is about how the world (because it concerns far, far more than just Britain) should respond to the most momentous event since 1945.   That is the biggest financial/economic crash for nearly a century, the slowest recovery since the Great Depression, and the longest run of prolonged austerity (and far from over) since the 1870s.     The City, the corporate business elite and the Tories (and to a lesser degree the Blairites from Blair downwards) regarded this as a glitch from which business-as-usual should return as soon as possible.   They believed the underlying structure was sound, the ideology was right (i.e. de-regulation of finance, unfettered capitalism, glorification of the market, privatisation of all industries and services wherever possible, and suppression of any counter-force and in particular the trade unions), and removal of governments from the action was the best way to promote efficiency and growth.   But not only did they believe it then, they still believe it when the evidence against it is now overwhelming.

The ultra-liberal business model has manifestly failed.   It has led to an intensely fragile global economy, indeed to secular stagnation as Lawrence Summers has rightly termed it, and over six years of grinding austerity have produced neither sustainable growth nor much deficit reduction.  We need some new ideas about the fundamentals, and only Corbyn seems to be offering them.   He opposes further austerity on the grounds that continually contracting the economy is incompatible with lasting growth.   He wants to rebalance the economy by large-scale public investment in industry and services, with the serious goal of full employment, paid for either by mandating the publicly-owned banks to prioritise investment in British manufacturing or by a direct injection of QE funding into industrial investment rather than via the banks or by requiring a fair contribution of the costs from the extremely rich, none of which would require any increase in public borrowing.   Instead of pursuing privatisation and outsourcing which has turned out wildly expensive and wasteful, he would seek to create a new settlement between State and markets where private markets have clearly failed, particularly in sectors like energy, housing, rail, water, pensions and banking, in a manner that optimised the public interest rather than just maximised money-making.   And much more.

Blair is living in a state of deluded denial

There never was a truer example of ‘when you’re in a hole, stop digging’.   His article in the Observer today is a gift to his opponents, but it does even more damage to himself.   He reveals himself as increasingly deserted even his previous closest followers, an utterly broken man watching everything he stood for swept away before his eyes.   He has gone from opposition to delusion, from hysteria to denial.   But what is perhaps most disturbing of all is that he can’t, as he himself candidly admits, understand why the Corbyn earthquake is happening.   He just blankly refuses to acknowledge the passionate resentment which he and New Labour created by laying the foundations for the financial crash of 2008-9 and making the squeezed middle and brutally punished poor pay for it, by taking Britain without any constitutional approval into an illegal was with Iraq, by introducing into politics the hated regime of spin and manipulation , by indulging now his squalid lust for money-making, and by clearly having no more overriding desire than to strut the world with Bush.

He describes his opponents as trapped “in their own hermetically sealed bubble”, when that applies exactly to himself.   If what he says were really true, why has the Labour electorate swelled to over 600,000, 50% larger than he managed even at the height of his pomp when so many were glad to be rid of the Tories on 1st May 1997?   Why is he so unfeeling and unapologetic about aligning the New Labour alongside the Tories in pursuit of austerity from 2010 onwards, especially since Osborne’s policy (to shrink the State) has been so dramatically unsuccessful in reducing the deficit?   Why did he urge the Blairites to support the government’s welfare bill which opposed every tenet of the real Labour Party?   Why did he push for privatisation of the NHS and other public services?   Why did his acolyte Mandelson say “New Labour is “relaxed at people becoming filthy rich”, and proved it by letting inequality balloon to even highe heights than under Thatcher?

So after doing all those things, how does he expect Labour members and the country to treat him?   After a 20-year temp;orary iruption of hi-jacking the party down a route utterly alien to its founders, in order to ingratiate himself with corporate and financial leaders on their terms, how can he imagine that anyone wants him back?   He has a lot to learn, less egoism, more humility.

Osborne’s giveaways come back to haunt him

Following Osborne’s triumphant releasing of pensioners to unlock their annuity contracts to spend how they will, there were many siren voices raised that that risked exposing many vulnerable elderly people to crooks and scammers selling dud investment projects as the road to riches.   The results have turned out even worse than feared.   City of London police are now having to wage a huge campaign against the use of some of the Square Mile’s most prestigious addresses as a cover for scams purporting to sell overseas land for investment as well as wine, diamonds, etc.   Police say such scams cost mostly elderly and vulnerable people at least £1.7bn last year, with fraudsters typically returning to their victims a second timein the guise of ‘asset recovery specialists’ who pursue lost money for a fee.
Read more   “Osborne’s giveaways come back to haunt him” »

Brown has a nerve to lecture us on economic credibility or winning elections

It is hard to believe that Brown had the gall in his anti-Corbyn diatribe to declare that “the best way of realising our high ideals is to show that we have an alternative in government that is…neither a pale imitation of what the Tories offer nor is the route to being a party of permanent protest, rather than a party of government”.   The prime reason that Labour lost 5 million votes between 1997 and 2010 was, apart from Iraq, the fact that a very large minority of Labour voters did think precisely that – that under the regimes of Blair and Brown Labour was indeed ‘a pale imitation of what the Tories offer’.   It’s also why UKIP gained 4 million votes at the election three months ago because a huge chunk of the electorate had indeed come to the conclusion that ‘they’re all the same’.

Brown was the overseer of deregulated finance, free-wheeling market finance, the introduction of privatisation and outsourcing into health and education, and keeping the unions on a short leash to encourage foreign investment into Britain.   Those were all Tory policies inaugurated by Thatcher which Brown didn’t reverse in any significant way, but actually extended in various ways, particularly in offering huge concessions to the City of London when he hosed down the banks and hedge funds with laudatory hyperbole in his Mansion House speeches to the assembled potentates of finance.   And to give equal encouragement to Big Business, Brown enormously extended the Private Finance Initiative (PFI) which  offered government-guaranteed profits to business for the next 25-40 years at taxpayers’ expense.   This wasn’t a pale imitation of the Tories; it was the epitome of Tory ideology.

And as to Brown lecturing us on winning elections, he was the most unpopular prime minister since the second world war and lost the 2010 election with the lowest Labour vote since 1918.   He was the architect of ‘regulation lite’ (i.e. virtually no regulation) for the banks and finance sector which undoubtedly contributed to the recklessness and arrogance of the banks in all but triggering a global recession.    To that extent Brown’s support for unregulated free-market capitalism was a significant contributory factor in bringing about the biggest financial crash for nearly a century, from which the Labour party and the centre-left parties of Europe have still not recovered.

It is the arrogance of Brown and Blair in assuming that they alone, the Labour establishment, have the unique skills to win elections that actually they have proved rather adept at losing, which is so galling.   Above all they, alongside the Tories,  have insisted on endless austerity as the right way to achieve deficit reduction which is not only incredibly unpopular, but also patently failing to achieve its ostensible goal.   Jeremy Corbyn is far more aligned with what the people of Britain clearly want, while the Blair-Brownites are in a state of denial.   Brown should look to his own record: when in a glasshouse, don’t throw stones.

Tory privatisation scams (2): the Hinkley Point C nuclear payola guaranteed by UK taxpayers for Chinese investors

If you think the London super-sewer is merely the exception in Tory privatisation economics, dream on.   It’s more the norm in a whole string of colossal financial scams, all put in place secretly and never sent to Parliament for approval.   Another flagrant example of privatising the gains and socialising the losses is the nuclear power station planned at Hinkley Point C in Somerset at a cost of £24.5bn, three times the original proposal, and using the UK taxpayer to guarantee to its French builder EDF  a price per unit of output no less than double its current UK wholesale price.    The government agreed this in November 2011, yet since then wholesale power prices have fallen by 16%; nevertheless the Tories are still guaranteeing the price of £92.50 a megawatt hour, inflation-linked for 35 years and funded through household bills.   So far from being the heroes of competition as they regularly claim, the Tories are driving a pernicious, underhand contempt for market forces to subsidise State-owned foreign companies whilst refusing to offer the same aid to a UK State-owned venture for the same project.

Just how bad a deal this is is shown by the fact that Hinkley will provide just 3 gigawatts of capacity, yet for the same price gas-fired turbines could provide about 50 gigawatts, onshore wind 20 and offshore wind 10.   The plant will not open till 2023 at the earliest, well past the date of the most acute energy shortage at the end of this decade.   And it will cost as much as the combined bill for Crossrail, the London Olympics and the revamped Terminal 2 at Heathrow – beat that for the most expensive white elephant of modern times!

It’s an anachronistic behemoth from the bygone age of energy dinosaurs when the world is rapidly moving towards distributed power via renewable energy.   It’s far too costly, and is it even needed?   First there is the UK’s declining demand for power, currently falling at a rate of 1% a year as energy-saving measures steadily take effect.   Then there is the expected threefold jump in the UK’s Interconnection capacity with continental Europe by 2022 which increases the ability to import cheaper supplies.   And third there is the litany of setbacks in price overruns and huge delays that have afflicted Finland, France and China over EDF’s European Pressurised Reactor which is the same type as is planned for Hinkley Point.

However nothing distracts the Tory nose from a good old-fashioned financial fix behind the scenes, especially when in this case it plays to their abhorrence of UK State involvement in meeting a public need.   So Cameron is off to Beijing in October to sign a final deal wit the Chinese president from which only Chinese investors will gain at UK taxpayer expense.

 

Tory privatisation economics: try the London sewer, the mother of all scandals

As an illustration of what the Thatcherite privatisations of the 1980s now mean, you could not have a better example than the London super sewer.   It costs £4.2bn, and you might expect that Thames Water, the privatised company that controls the whole of its length, should obviously be expected to pay for it.   Not a bit of it.   They will fund just a third of it only, and the rest will be met by a team of investors which will own, manage and finance the projedt during construction and then supply sewerage services to Thames Water on a 125-year concession!   But that’s just the start.   Unusually for a construction project, the investors will receive an income from the first day, paid for by Thames Water’s 15 million customers.   The surcharge on London water bills is likely to be £80 a year in perpetuity.

But here’s the main point.   The risks of construction, including cost overruns, accidents or any other incidents at the project’s 42 sites, as well as any financial risks – such as another global collapse in credit – will be borne by taxpayers because the government is acting as guarantor.   This is common for infrastructure projects where traditional insurers won’t cover the risk, so once again the privatisers take the gains and the public take the potential losses which could be billions of pounds, and Thames Water walks off all the way to the banks.   There are two enormous scandals here.   One is that if Thames Water were a publicly owned company or part of a national water company, the sewer could be built far more cheaply because governments can borrow money more cheaply than anyone else.   Second, why shouldn’t Thames Water be made to pay for the project themselves when they have paid out dividends of £1.1bn over the past 5 years?

Then there are the tax implications.   Thames Water is owned by a Luxembourg-domiciled consortium which includes the (Australian) Macquarie European Infrastructure Fund as well as Abu Dhabi and Chinese sovereign wealth funds.   So Thames Water is racking up huge debts using EU-blacklisted tax havens to pay out massive dividends and executive fees, at the same time as expecting household consumers to pay a big chunk more themselves.   Alongside a one-third increase in billing to its consumers, Thames Water have seen fit to grant a 60% pay increase to £2 millions a year to its chief executive – what for exactly?    The mother and father of all financial skulduggery?

 

Why Blairites are going hysterical

In 1994 Blair took over the Labour party and made it safe for British capitalism.   Which is why so many top companies and banks were content to contribute large sums to the party in order to hedge their bets – they gained whichever party won the elections.   Up till now they have dominated the Labour party for the last 20 years.   Blair’s abiding legacy, apart from the Iraq war, was to abandon the fundamental principles of the party and to assimilate it instead to the Thatcherite ideology of ‘let the markets rule and the State get out of the way’.    When Mrs. Thatcher was later asked what was her greatest achievement, she replied without hesitation: ‘New Labour’.   And the Daily Telegraph 6 months into Blair’s premiership published a half-page photo of Blair standing in front of a large picture of Thatcher in No.10 with the inscription underneath: ‘To Thatcher, a son’.   By accommodating the ruling corporate class the Blairites used the Labour party as their avenue to power, and it’s hardly surprising now that they are in such a state of denial and disbelief at their abrupt fall from power over the last month.

Of course the Blairite faction is sincere in believing that they alone know how things should best be run and that, as Blair himself has constantly reminded us, any millimetre departure from his prescribed course will bring chaos and disaster.   Not only does that show their unwillingness to listen (the party was virtually disbanded under Blair into a press release and door-knocking organisation), but it also exposes a deep arrogance about their own invincibility and their contempt for any radicalism from the Left.   The writing was already on the wall in Greece, Spain, and Scotland, but still they thought they could muffle dissent and ignore it.   It is a lesson in political nemesis.

Of course the Blairites will protest that they, and they alone, won three elections in a row.   The truth however is that the Tories threw away the 1997 election rather than that Labour distinctively won it, the second election was marked by stasis after an undistinguished 4 years, and the third saw the loss of 4 million votes after Iraq.   They will also appeal to the huge investment in health and education.   But a large part of the former was spent on building (fine for the construction industry rather than the essentials of health) and on outsourcing and privatisation (again good for the corporates rather than patients), whilst in the case of the latter there were huge building programmes inaugurating academies and free schools which have never proved their worth and have never been popular.

 

Blairites still don’t get it over public ownership

So the latest Blairite plan to derail the Jeremy Corbyn steamroller is to try to label him as rewriting clause 4 when it is perfectly clear that what he is really trying to do, rightly, is to re-start the debate about public ownership which is now so badly needed.   Thatcher’s dominant ideology was ‘let the markets run the whole show and the State get out of the way’ .   That was the route to the efficient allocation of capital underpinning a strong economy, offering big rewards for innovators and entrepreneurs and a trickle-down of prosperity for all.   Blair if anything took it even further with privatisation of public services and regulation-lite hands-off the City of London.   So was it a phenomenal success?   Unrestrained free-market capitalism led directly to the biggest financial crash for a century, the banks massively abused the power of de-regulation as we keep seeing day after day in the papers, and the privatisation of energy, water, rail and the Royal Mail have even Tories demanding the restoration of public ownership.   And even that’s without the scandals of behemoths like G4S, Serco, A4E, Atos, and Capita.

With the dominance of corporate power has come unrestrained market greed and a collapse of accountability.   Private markets have proved a bonanza for shareholder dividends and executive bonuses, but a millstone round the neck of (to use the uncomfortable cliche’) ‘hard-working families’.   The housing market has reduced owner occupation by 12% over the last decade and has made home ownership a no-go area for millions of young couples.   The energy cartel has exploited its pricing power ruthlessly till Ed Miliband threatened to impose a price freeze and to restructure the industry.    The pensions market abounds in steep hidden charges which enrich the City of London and impoverish millions of public sector workers who are reduced in retirement to penury.   The fragmentation of rail in the precipitate and ill-thought-through privatisation of 1996 has been seen as a costly mistake even by most Tories.  And part-privatisation of both health and education is rejected by a majority of the electorate.

Corbyn’s opponents bluster against public ownership as a ‘throwback to the past’.   But in truth what they’re advocating is a throwback to the private market heyday economics of the 1920-30s – and where did that lead to?   The real point has nothing to do with purity or ideological dogma: it’s about what works best, and the record of private markets in the last 30 years of the Thatcher-Blair imperium has not exactly excelled itself.   Moreover the record does not, or at least should not, turn on money-making and profit, but rather on quality of output, service to the customer, and benefit to the wider community.   We badly need a public debate on how public and private markets perform under those criteria as well as efficiency, and how sometimes co-operation serves the public better than mutually destructive competitiveness.

5 good reasons why Osborne’s selling off RBS and Lloyds is wrong

Osborne as usual is taking advantage of Labour’s distraction at this time to sell off RBS and Lloyds to the private sector at a huge losses to the taxpayer, to accountability of the banks, and to the future of the British economy.   This is motivated by his ambition eclipse even the Thatcherite privatisation boom of the 1980s and to oversee the biggest ever sale of publicly owned corporate and financial assets in one year, as well as of course elevating his prospects for the coming Tory leadership race and premiership.  But what may be good for his party and for him will certainly not be good for the country.

First, it is a thoroughly bad deal for the taxpayer.   Osborne has agreed to cut the public shareholding in RBS from 79% to 73%, but at a loss to taxpayers of £1bn.   The scandal of this unnecessary sale is one main reason why it was announced in the summer recess when Parliament wasn’t sitting so that he could avoid hard questioning about its implications.   The £2.1bn of RBS shares were sold at 330p per share, far below the average of 502p per share that the helpless taxpayer was forced to purchase them.

But that is not the real reason why Osborne’s policy is downright misguided.   The banks’ overmighty arrogance, recklessness, and incompetence were the prime reason behind the worst global financial crash for a century, and there not a jot of evidence that they have accepted their responsibility, shown any remorse, or are committed to any serious reform. Indeed they have fought tooth and nail against reform, have extracted major concessions from a weak Osborne like his caving in by reducing the bank levy in response to their lobbying, have pushed back the time limit for any statutory changed to 2019, and are demanding a very early return to pre-crash business as usual.

Moreover there are 5 specific reasons why the banks should NOT be returned to the private sector.   Their deregulated lending – for overseas speculation, for deployment of artificial tax avoidance devices on an industrial scale, for exotic derivative financial constructs which were highly lucrative but were at the heart of the crash, and for for prime property sites in central London – do not benefit British industry, but only their own selfish interests for profit maximization.   Only 8% of their lending last year went towards productive investment in Britain.

There has been far too little reform to prevent another massive crash, mainly confined to increasing the capital reserve ratio and setting up ‘Chinese walls’ between the retail and investment arms of banks.   They are still ‘too big to fail’, so that the implicit taxpayer guarantee is still in place.   There is no structural reform: Britain needs smaller, regional, specialist banks that helps Britain in the same way as the German Mittelstand.   And the dark forces of the next crash – the rise of shadow banking and a re-run of the most dangerous derivatives  – are not being countered.