You Cannot Run a Public Service like a Business, and Here’s Why


One of the greatest myths of our time is that public services can be made more efficient if we run them as businesses.  The commercialisation of our public services has been a manifest failure, and the response offered by the mainstream parties is that we simply haven’t commercialised them enough. What they fail to understand is that a public service and a business are inherently different beasts and asking one to behave as the other is like asking a fish to ride a bicycle.

What is a Public Service? PS2

The primary aim of a public service is to provide a service to the public.  This service exists to avoid negative social impacts and protect crucial social utilities from the instabilities of capitalism.

Within living memory it was considered basic common sense that essentials like food, water, energy, access to health services, housing, sanitation and sewage, social care and core manufacturing industries were too important to expose to the volatilities of the free market.  Aside from this practical view, there were also two core value statements:

1)      A person or entity should not seek to profit from a person’s need to eat, heat their homes, drink water, be treated when sick or have a roof over their head.

2)      A person’s access to such necessities should not be based on their ability to pay.

Public services are democratic.  If a service fails to deliver our needs we can hold those responsible to account at the ballot box.  Important matters like wages, pensions and working conditions are the result of negotiation and subject to internal and popular support.

Public services are funded by public money, paid to public workers, managed by public representatives working together to deliver social utility – every penny put in recycles within the public economy.

Neoliberal Capitalism is inherently unstable, creates inefficiencies and gaps in supply and demand, and does not create full employment.  For these three reasons, critical services must be independent of capitalism, commercialisation and profit.  In short, they must be universal and eternal.

This is the purpose of a public service.

What is a Business?


A business is a commercial entity.  The primary responsibility of a business is to create a profit for its shareholders.  A corporation may well have other aims, but all must be subservient to this primary aim or the corporation will cease to exist, or be taken over by another corporation.

A business is not a democratic organisation. Businesses are hierarchical and wages, terms and conditions are set by the executive and subject to the market.  This can be mitigated to some degree by collective bargaining through unions, but workers in the private sector has historically delivered lower wages and reduced working conditions for the bulk of its employees. The numbers speak for themselves:

Of the 23 million UK workers in the private sector, just 3.2 million (13.9%) have a workplace pension. Of the 6 million public sector workers, 5.3 million (88%) have a workplace pension.

Public sector employees are paid on average between 7.7% and 8.8% or £86 a week more than private sector workers.  More significantly, this is a twelve year high in the wage gap, as private sector wages continue to fall in real terms.

The pay gap between the private and public sector is nothing compared to the pay gap within the private sector.  Unlike the public sector where wages are clustered around a midpoint with a small proportion of very high and very low wages, the private sector has a great wage differential between its lowest and highest earners.  Women are also paid a far higher average wage in the public sector, while constituting the bulk of the lowest paid workers in the private sector.

The public purse is picking up the bill for the wage and conditions gap in the form of large increases in state benefits paid to working people.  As the current coalition government remove these compensations, the failure of businesses to pay a living wage, together with clear provision for old age and care needs is exposed. 

Failed Privatisations


The privatised energy market has provided six energy giants, who dominate the market and have continued to deliver above inflation price rises whilst making record profits each year. The UK now rests at the very bottom of the league tables, with the worst fuel poverty in Western Europe.

The privatised railway is an example par excellence of total lack of accountability for failure to deliver.  The rail service is, as always failing to raise sufficient ticket revenues to turn a profit.  Ticket prices are rising above the rate of inflation.  Train firms give the government £1.17bn in premiums to run their franchises, only for the government to hand them back £4bn in subsidies. So, instead of spending £140m in 1960’s money for a fully nationalised service where costs were kept low.  We are now spending almost £3bn a year today simply to fund the profits of private companies.  Network Rail profits doubled in 2012, and all rail franchises are running at a profit as the companies prioritise (as they have to, as businesses) making a profit rather than lowering ticket prices or investing in the network.  Despite all this, the government are not complaining as they were when the service was nationalised, of a loss making service.

The move away from a social housing policy during the Thatcher government and continued since has been a disaster for housing.  We are building 100,000 homes a year less than we need because the housing supply has been almost entirely handed over to the private sector to manage. The National Housing Federation issued a report last year which showed Housing Benefit has doubled in recent years as a direct result of an astronomical increase in housing costs.  The report shows an 86% rise in housing benefit claims by working families, with 10,000 new claims coming in per month.  House prices are now 300% higher (in real terms) than in 1959.  If the price of a dozen eggs had risen as quickly, they would now cost £19. Rents across the UK have risen by an average of 37% in the UK in just the last three years.

The list could continue to include care, employment support services and a litany of other failed attempts to commercialise public services. The project is doomed.

There is No Such Thing as a Loss Making Public Service


If a business fails to recoup the costs of providing its service in money, it is described as running at a loss.  This language of business is now being applied to our public services.  When Dr Beeching dismantled the railways in 1963, the narrative then and now was that the rail network was losing £140m a year.  This is commercial speak.  This means the gap between ticket revenue and costs to run the service was £140m.  If the railway was a business, this would be a loss.  But it was a public service.  A well funded, serviceable, cheap at the point of use railway service was and is an important social utility.  We need to be able to get our people around to work, to keep connected to family and friends, to transport goods up and down the country.  So we all pitch in taxes and through an economy of scale we run a cooperative service.  Unless someone is stealing, defrauding or otherwise ‘disappearing’ public funds, then there is no such thing as a loss making public service.  The gap between ticket revenues and running costs in this case could have been entirely expected, since the priority was accessibility and maximum utility of the service.  This idea is anathema to business.

The Gulf Between Social Efficiency and Cost Efficiency


The primary concern of the Public Service should be social efficiency; otherwise it is rendering itself obsolete.  It is not cost efficient to provide post offices in villages, free meals and milk in schools, small local hospitals and local doctor surgeries.  The commercialisation of these public services demands they strip out unnecessary costs.  But from a social efficiency perspective these are good ideas. If amenities are removed from villages they become unviable. Hungry, malnourished children struggle to learn and are more likely to suffer behavioural problems, so free school meals and milk alleviate this.  Localised health services will be more easily accessible, personal and responsive to local people.

What is the point of a profit making hospital if health conditions in its catchment area are plummeting because access to services is limited or quality is so low that patients are more likely to die or suffer recurring conditions?  The hospital is a viable business, but a failed public service.  If we compare the performance of the UK’s public health service and the US model of private medical insurance, we see just such results.

Every UK resident is guaranteed medical treatment if they are sick, regardless of ability to pay and this is funded through general taxation. Private medical insurance is available in the UK, but is used by only 8% of the population.

Whilst the US is a world leader in research (where the money can be made), 52 million Americans are without health insurance and face the choice between crippling medical bills or no access to treatment. As a result, 62% of personal bankruptcies in the US are the result of medical costs.

The US has fewer physicians to patients and fewer beds than most OECD countries, the UK included.

The World Health Organisation ranks the UK  18th for overall clinical outcomes, while the US languishes in 37th (below Dominica, Morocco and Saudi Arabia).

This case also demonstrates how cost and social efficiency are not always mutually exclusive.  Despite such an indefensibly poor service, the US is the most expensive healthcare system in the world. The UK spends just 9% of its GDP on healthcare with a decade of downward trend, while the US pays 18.2%, increasing tenfold since 1980.

The issue of social efficiency is entirely missing from the policies of all mainstream parties.  It is simply assumed that commercialising a service will inevitably lead to cost efficiency and that this is somehow equal to social efficiency.  This is muddled thinking.

You Can’t Make a Silk Purse from a Sow’s Ear


Businesses don’t fail at public service delivery because they are intrinsically evil, they fail because they are fundamentally unfit to do the job.

It is clear that a business is not created to deliver a public service, and a public service is not intended to be a business.  They are different beasts.  Yet, ever since Thatcher it has been the policy of the British government, and governments around the world to make them one and the same.  This policy is so flawed that one must come to the conclusion that those committed to it are not seeking social or economic efficiency.  Instead, they have an ideological commitment to marketisation – with social and economic progress as a lesser consideration.

65 thoughts on “You Cannot Run a Public Service like a Business, and Here’s Why

  1. Hello, I enjoy reading through your article. I like to write a little comment to support you.

  2. You make some very good points here, but I’d like to go a step further and question whether it’s even sensible to run a *business* ‘like a business’. That is, we currently exist in a political economy where the default assumption is that any business exists in order to turn a profit for its shareholders, whoever they might be, and I want to suggest that this presumption is deeply unhelpful in almost all cases – not just in the case of organisations running what ought to be public services!

    In some senses, accepting this weakens your case, because it concedes that it is not clear that private enterprises really are, or should be such fundamentally different beasts from public services. I would prefer to see this as broadening your basic point, though, rather than undermining it. I would be curious to know whether you agree.

    Several commenters have already brought up the existence of social enterprises and co-operatives as alternative economic structures. I want to argue that *all* businesses ought to take on come of their characteristics, and that without this happening there is little hope of reining in the excesses of capitalism. The idea that companies should exist in order to turn a profit has very little basis in sound economics or even, as it turns out, the law. Companies can and should be set up to pursue specific purposes, and their directors ought to be accountable to independent bodies who make sure that they are prioritising those purposes. They should also be accountable to their workers.

    With these stipulations in place, it becomes rather less clear that ‘private’ companies are unfit for the purpose of running public services; it is really only a very specific kind of unaccountable, for-profit, capitalistic organisation that is grossly inappropriate for this sort of thing, for all the reasons you set out. Of course, that happens to be the one kind of organisation that’s encouraged above all others in our present system!

    I would argue that there are a great many reasons to think that organisations set up to be so unaccountable, to explicitly focus so narrowly on the pursuit of profit, are really unfit for almost any purpose. We need a radical democratisation and repurposing of the economy at large, not just a programme of re-nationalisation.

  3. […] brought us the ‘trickle down effect’, the ‘invisible hand’ of the market, the idea that privatisation and deregulation equals progress, that GDP growth was a measure of social progress; all of which enjoy little evidential basis, […]

  4. […] of the free market.” – I found this a REALLY useful and informative post describing how the language of business is now used to describe services that were once run publicly, and why that’s a […]

  5. […] You Cannot Run a Public Service like a Business, and Here’s Why. […]

  6. Matt Buckler says:

    One of the things is that we don’t consider all of the costs when commercialising public services. Unfortunately, capitalism and our current political system have a sort of inevitability to them because politicians can only think in 5 year chunks. Cutting school milk and commercialising school dinners will cost significantly more in the long run, because of how people’s food wants change because of their poor diet as children. Of course, it may save money in the short term and that will probably help in getting re-elected. Probably cost of everything and value of nothing.

  7. […] are clear reasons why Public Services cannot be run like businesses.  They are not there to create a profit but to create a social utility which likely cannot or […]

  8. […] You Cannot Run a Public Service like a Business, and Here’s Why. […]

  9. Stefan says:

    The famous management consultant Peter Drucker went into these questions in depth some years ago in an article you can still read through The Atlantic Magazine archives.

    His basic analysis was that in addition to accommodating a private sector and a public sector, a modern society needed to understand the need and make space for a third sector, the social sector.

    Articulating the reasons and establishing the ethical foundation for an effective social sector is the task before us.

  10. Eimhin says:

    Good points made here, and yet I am going to disagree with some of it, and not for sport. First of all I agree that the fiduciary-duty based 101 capitalist economic approach will never and can never work for the protection and providence of public services. Agreed, its a logical impossibility. And yet the underlaying assumption is that there is a virtuous public body to uphold our social protections, feedoms and public services. This is sadly not the case as we are everywhere herded by gansters, liars and cheats with the few good people among us existing at the periphery of accessible civic influence.

    I would like to know how new business approaches such as the transnational ‘phyle’, the ‘social business’ , social enterprise, and cooperative social business models figure in your assertion of this brand of impossibility? In my humble opinion, the surge of ‘social design’ solutions, the emergence of these models I mention, and the breadown of socio-economic and political process in the world of today are all of one thread and taken as such can be addressed cogently without demonifying perfectly reasonable approaches to the situation.

    For example, you state above the difference between the traditional meanings of business and public services and yet you do not elucidate new developments in impact based business and its methodology. At the same time, given the present reality, it is erroneous to assume that there is some virtuous public body to design and efficiently supply the public services you feel are important. When self-interested motivation and organizatonal practice, from politics to economics, results in greed and its destructive consequence, then we have to ask ourselves what are the solutions available to us?

    The ‘State’ has been the provider of our public services, but what now of the fact that the state works to extract our value beyond common decency? How are people to ensure their own access to traditionally ‘public services’ that are being eroded daily by such institutions?

    If we are to face the truth , namely that noone is looking out for our best interest beyond any personal cooperative exchanges that evidence that reality as fact, then we see that the statistical representative political system is as useless to us as a speedboat in a bathtub and as doomed to failure as the retrospective on the Titanic’s maiden. The incessant swinging of the political pendulum, from republican to conservative, from labour to tory, for fine gael to fine fail, from one corrupt and lying bunch of crooks to another, is as useless to us as it is divisive, seeking only to fracture any sense of cohesive possibility arising among the ever-eroding communities we so desperately need to reconstitute.

    If you don’t think business can provide ecological and social services then I challenge you to investigate initiatives like the recent development of the ‘impact investment’ and ‘venture philanthropic models’ , the work of ‘Mohammed Yunus’ and social business in general…I challenge you to look down the road of transnational organization within the global commons paradigm, look at what conferences like Sankalp, SoCap, EVPA and others are setting out to achieve. I know there are wolves among the sheep, but there are fine strides being made also and we cannot forget the trajectory of history. For all of the impositional threats, doom and gloom, we are on the threshold of unprecedented social shift.

    Lets not throw out the baby of social business techniques with the bathwater of failed state capitalism.

    • Theo Pearce says:

      Lots of big words, smokescreening almost no content. Businesses that attempt to have any form of moral or ethical considerations inevitably fold. Furthermore, at the small scale where indiviuals can still impose their will on their own companies, any that build a customer base will inevitably be taken over and wrung out while having their previously good name dragged through the mud. To bang on about ‘greed’ and ‘inefficiencies’ belies your inability to grasp the OP’s main point. Business IS Greed. What else can you call the desire to hoard wealth no matter what? The important thing to grasp is this; the NHS is there to provide universal healthcare. It does this, far better than any equivalent private sector, in the world. The only possible reason for its privatisation therefore, is greed. Anyone with half a brain knows that Cameron and his cronies are in it for the fast buck. Such short-sighted decisions will only further impoverish the whole nation, and ironically, will leave UK plc ripe for a takeover…

      • ‘Businesses that attempt to have any form of moral or ethical considerations inevitably fold’ – can you back this up? It strikes me that the mega-co-op Mondragon Corporation in Spain does extremely well commercially despite their seemingly ethical business practices…

        There are also a number of very successful corporations explicitly run for the benefit of foundations with goals of their own which are little to do with making a profit.

        Given how much economic power is held by private companies, I think it’s very dangerous – and misguided – to take it for granted that private companies can never be run for public benefit, or for anything besides the naked pursuit of profit. That is, if we want a political economy that is not run chiefly for the benefit of the very few, it is unrealistic to put all our faith in government-run enterprises – it is crucial that we have mechanisms in place to ensure that private companies are not run solely to make money.

        • Hello? Newman’s Own, The Nature Conservancy, Central Park Conservancy, The Red Cross, WWF … there are THOUSANDS of private businesses that are run for the benefit of the public. They’re called Non-Profits and Foundations. Trillions of dollars run through them to public causes. Duh.

    • John david Jones says:

      As far as I can see you don’t mention the one word magical-sounding to the ears of the so-called “entrepreneurial” sect: Profit! If you bother to re-read the article, and how the author differentiates between publicly and privately run organisations, you will see that the profit-motive does NOT exist in the world of the organisation operated for the benefit of public service. Quite simply because the “profit” generated (in the form of a return of an excess of charges over initial cost of service provision, salaries, upkeep and future investment) goes directly back to government coffers – NOT into the pockets of shareholders and extremely highly paid managements. Colossal loan repayment and interest charges are also negated when the flow of operating capital comes from national taxation resources. You also fail to mention that many of the organisations that USED to service public need were privatised during the 1980s, and that much has transpired in the way that they are run since then which has increased their profit-making potential, but not to the benefit of the Exchequer; some are STILL heavily subsidised by government with tax-payers money!

      The fact is that your overly-worded contradictions of much of the author’s opinions and comments ( sadly, much of it difficult to understand to layman or otherwise), relating to the differences to be found between public service and private business is, in fact, summed up in your final, short paragraph: you quite obviously are motivated by the Thatcherite doctrine, which for those of us old enough to remember when the public utilities, the NHS, and many other directly publicly funded organisations were operated in a fair and effective way – non profit making, and NOT expected to be – created wealth-generation but to the benefit of the nation – NOT, as now, for the very few. Perhaps you’re too young to remember public decency and fairness..?

  11. dawn_benjamin says:

    I love the NHS. I’ve worked for the NHS for 8 years. But I do have to say… you do know the NHS was only created in 1948 don’t you? Health care as a free market commodity is not a new concept. And whilst I agree fully that both health and social care should be public services, simplifying the issues and ignoring our very recent history (there are certainly people alive who remember the creation of the NHS) doesn’t do us any favours in the fight to maintain our right to free-at-delivery health care.

  12. There is so much cant and dogma involved, you’d think some political parties were actually religions.

    Take for instance, that Shibboleth or Minor Deity, Competition.

    Advised by their PR firms, the CEO of a corporation will insist that “he loves competition. Thrives on it. It makes his company leaner and fitter.” (It’s almost always a ‘he’).

    In fact, no firm likes competition. Businessmen seek to reduce competition as much as possible, in order to make a profit. Sometimes it’s by fair means; creating a unique proposition; securing exclusivity of intellectual property; positioning a brand that commands loyalty. Often it’s not fair, or lies in a grey area; cornering raw material supplies; buying competitors and closing them down; predatory pricing funded by deep pockets, etc.

    Each Age has its Orthodoxies; ours is no exception, nor is politics or business immune. It’s good that heretics are still prepared to stick their heads over the parapet.

  13. Laura Swaffield, The Library Campaign says:

    You fools! Don’t you listen to our wise, all-knowing government? It’s simple. If something can’t be run for a profit, it should be shut down. Got that?

  14. Reblogged this on The Big Picture and commented:
    I thought it was obvious but our politicians don’t seem to see it that way.

  15. I fear that comments on both sides, as eloquent as they are, very rapidly polarize into an “us and them” debate. I believe the common factor is “us” and the intent and values we have as people, which will ultimately shape the organizations we create, regardless of whether they are Public or Private.
    I am equally as disturbed about this planet’s obsession with economic growth as an indicator for economic health as I am the “spend before we loose it next time” approach that is still in existence within the public sector – but both are symptoms of human behaviour; traits such as going for short-term gain over long-term sustainability, placing our sense of self-worth increasingly in the possessions camp, claiming to have our destiny in the hands of someone or something greater than ourselves which we have no say about…
    The examples referenced in previous comments tend to be extremes, as they help make a point. I believe there can be the best of both, but not until there is a genuine shift in core values and a swell in terms of people who are brave and honest enough to truly question themselves and to take some responsibility.
    I would argue that the majority of people across the world have, essentially, the same desires; to be loved, to make a positive difference, to live comfortably and for the ones they love to be able to do the same. However, the journey to these destinations has been tainted by the fast-food, instant-access, buy now- pay later, aspiration that is pumped into our lives from the moment we wake.
    And so, the entrepreneur who starts a new venture with the excitement of making a positive difference, becoming their own boss, running an Organisation differently to ones they have worked in, treating their employees more respectfully, can find themselves 10 years down the line finding themselves earning 50 times more a year than some employees with the self-justification that they started this company, that these people are lucky to have jobs at all, broken by previous employees who abused their positive intent by working employment law in their favour, breeding mistrust and calling to a fundamental urge that is survival. Quickly thoughts move to making as much money personally as possible and getting the hell out, as Employment Law is against them, people want more as soon as you give them anything and this dream has become a nightmare. Perhaps becoming a share-holder in other ventures and letting someone else have the headache of running the business.
    The public servant, with similar aspirations, can also find themselves caught in a culture that discourages innovation, as it can leave others who have been here longer exposed to scrutiny, beaten down by ever-changing legislation which means having to re-think, re-organise, due to changes beyond their control, driven in many instances by short-term political gain. 10 years later they are the ones signing contracts in order that they can avoid having less to work with next year, suggesting to new bright-eyed public servants that, as admirable as their desire to change is, to listen to their voice of experience , do themselves a favour, and keep their heads down. The urge to then focus on better pay conditions, job security and pension, can be justified by the fact that they are still a public servant, and they can perhaps give more to charity if they are better paid, have their own security guaranteed…..
    Until we re-evaluate and start to believe in what we see as wealth, our essentially selfish psyche will respond to those that appeal to it for, yes, their own personal gain based on the same perception of wealth and success we have.
    The lessons we teach our children such as how much better you feel when you share, so rapidly become beaten down by adulthood. We forget how good it feels to share, or delay our intention to share until we have enough for ourselves first.
    We need to all take a look inside ourselves, and then take a huge step back and re-connect with the fact that we all play a part in this. We can have more ethical companies who stay true to their initial mission statements, but only if both employers and employees genuinely engage with the joy of sharing and keep each other in check. We can have a sustainable Health Service if we strive for mutual respect, which means taking some responsibility as patients and trying to meet this precious service in the middle in terms of effort.
    Are we becoming rich when we need to become enriched?
    Are we getting connected at the same time as losing real connection?
    Are we looking for big answers from ones that are easy to blame, rather than creating small solutions individually?

    I don’t believe there is any such thing as a selfless act. I do, however, believe that we can re-connect with the childish buzz we got from being rewarded for kindness, for sharing, for looking after our friends and siblings.
    If we believe what we tell our children and strive to practice what we preach, surely our intent will effect the organisations of the future…….

    • Thank you for your post . I agree with your the idea that it is not looking at the polarized view, it is about reshaping from the both. We have lost contact with what you call the childish buzz…quite simply, we are a culture so out of tune with our hearts, there is almost no place for hope.

  16. […] Scriptonite Daily : 4th April You Cannot Run a Public Service like a Business, and Here’s Why What they fail to understand is that a public service and a business are inherently different beasts and asking one to behave as the other is like asking a fish to ride a bicycle. What is a Public Service? The primary aim of a public service is to provide a service to the public.… […]

  17. Ian Lowe says:

    The end goal of for-profit businesses and public services is different, true, but you miss out an entire field – the non-profit social enterprise.; arguably the best structure of all.

    The problem for all public services is that they only spend money – they do not raise it. I have worked in a multitude of organisations – third sector, commercial and public sector; and in far too many cases, the public sector organisations will waste money till the cows come home – they buy kit they don’t need to protect “their” budget for next year, they claim overtime for being in the office, whether they are doing something useful or not.

    They lose all sense of themselves as trying to use the public funds as efficiently as they can to deliver something society needs, and just complain that they don’t (and never will) have enough money.

    Social enterprises on the other hand – now we are talking. Raise your own money by winning business/grants and work as efficiently as possible.

    Privatisation of public services is a complete and unmitigated disaster. Handing the running of services over to non-profit social enterprises… that, I would humbly propose, is the best of both worlds, and well worth considering.

    • Scriptonite says:

      I agree that social enterprise certainly has a place. I left it out of this particular post as I’d already reached 2000 words and risked losing my audience before I’d finished 🙂

    • Rob says:

      I’ve also worked in a good number of areas within public, third and vaguely hybrid organisations too. I have to say I recognise the comment about money-wasting, but it’s a fairly sweeping generalisation. In my experience, I’ve seen this happen – I’ve seen ridiculous spending, inappropriate budget-stuffing and overtime taking etc. However, this was usually a) limited to only a small number of cases b) linked to people’s professionalism, which is tied to conditions and pay to a degree and thus a result of failing support for the public sector and c) usually involving trifling amounts of money compared to that the government spend on far more debatable things.

      I’m not defending it when it happens at all. I just know that I was never guilty of these things, and would often work extra ‘gratis’ instead. It’s all very well saying ‘they’ lose all sense of themselves having a duty to spend efficicently, but that isn’t fair to a lot of people. Plus it is true that, too often, there isn’t the money to deliver even close to an optimal service. It’s frustrating and disillusioning to those who actually want to deliver a good service. If budget-retention via frivolous spending occurs, the problem is with the culture and practise in management, not the majority of staff. This is the sort of thing that better conditions, higher expectations of professionals and, simply, different ways of doing things in local government would fix without ever resorting to the private sector. What actually needs to happen is a realisation at higher levels that some public sector areas arew simply difficult to prove outcomes for; that sometimes success measuring needs to be more complex than a short term ‘how much money is going in’ question.

      • Ian Lowe says:

        I agree with most of what you say – I feel the need to point out that I find issue more with the structure than the people; poor management from the very top leads to a lot of the issues around overtime etc. Unfortunately, in the UK at least, the budget stuffing and frivolous spending is driven directly from the Treasury. Having just gone through the end of year debacle (and working with a Public Sector body at the moment), it is absolutely the directives from the Treasury which restrict the ability to budget forward and retain savings that causes poor behaviour.

        Magnified across all of government spending, I am sure that this wastage contributes heavily to the actual lack of resources at any point in time.

    • Thank you for your post, I agree. I am currently launching a social enterprise and what has me so interested, is the fact that my non-profit colleagues are astounded at the speed in which things happen. I am a business leader who ran a global team for Citibank. I left there because the goals did not align to my beliefs. I thank God every day for the experiences I had there, and now leverage those ideas in the philanthropic world. A win for all!

    • Anonymous says:

      Not true. Railways raise money by charging fares, the old Electricity Boards raised money by charging for the use of electricity etc.

    • Erik says:

      Good point, though obviously this has somewhat limited application; you can’t run a hospital or a school on this model, for instance, because of the high amount of funds and skills necessary.

    • I would also point-out that ‘protecting your budget’ is not a practice limited to G. The
      ‘spend it or lose it’ management truism functions as a basic law for all P&L owners in all large corporations as well. I wonder when we all subscribed to the idea that large corporations are ‘efficient’?

  18. Jack Simons says:

    Whenever the “social services” that are often not always set up with even the right intentions are a failure, then the socialists claim that they were not socialist enough, if only the last remaining parts of a commercial enterprise was removed from the industry then it would be a success. Some what similar to when the government takes over a successful industry in the name of the “public good” only to run it in to the ground and then decide to quasi-privatize the industry or market socialism ie controlled competition, high prices, low quality, low supply. Of course then the socialists or government fanatics as i like to call them, blame the private sector and the profit motive for the high prices, low quality and low supply.

    The primary aim of a public service is to spend money and masquerade as a public good or service ie pretend to be about the public first and not the interest of the individuals (people) in the state and national government who are spending the money.

    I don’t know how long you have lived or where (possibly soviet russia?) but it can’t be long because food, water, energy, access to health services, housing, sanitation and sewage, social care and core manufacturing industries were never and have never been considered too important for the private sector to provide. In fact if you look at history you will see that it has been predominately the private sector or individuals within a market place exchanging goods and services that has been the predominate with regards to the facilitation of the essential goods and services. It is only realy the 20th century that saw a rise of this notion that the government needs to provide the so called essential services. Even then i argue that the food, water, energy, access to health services, housing, sanitation and sewage, social care and core manufacturing industries are too important too allow the government or a central planner to control. These goods and services should remain uncontrolled to prevent economic price problem and the distortions of incentives that negatively affect price, supply and quality of said and goods and services.

    You are speaking in the past tense as if there was a yesteryear era that believed in what you believe but that is no longer the case… This is very manipulative language and a very strange way to explain your point.

    Aside from this practical view, there were also two core value statements: 1) A person or entity should not seek to profit from a person’s need to eat, heat their homes, drink water, be treated when sick or have a roof over their head. 2) A person’s access to such necessities should not be based on their ability to pay.

    Firstly it is not a very practical statement to merely say that those specific goods and services are too important thus they should be turned over to a fictitious “public good” which is realy just a masquerade for the truth which is a centralization and monopolization of the specific industry that supplies said good or service in the hands of individuals that reside within the central organization structure that will be required to enforce the restrictions on this specific industry.

    Public services are not democrat, the election of specific parties and its politicians is a democratic process. But the planning, operation and facilitation of a government run and monopolized industry is not democratic. The people are not able to have any input on how that service is run and often over zealous unions gain alot of power and it creates a racket. Where the government employees end up earning a lot more than they would have if the service was private, which leads to a higher cost associated with running the operation. This is then forced on to the consumer as high costs or higher taxes or more government debt. This idea that there is a economic recycling machine when it comes to (pretending) to remove the profit from specific industries is ridiculous. The money is no more recycled when it is paid to employees of the private sector or employees of the government. The only real economic “recycle” that i am aware of is the idea of government employees paying taxation which is realy just an accounting trick.

    Capitalism is the most effective system that we have available, when it comes to the efficient allocation of resources and meeting demand. Thanks to the price system and the utilizing of the division of labour we can enjoy the modern luxuries that we all take for granted.

    Sorry what three reasons must we make food and sanitation universal and eternal, i must have missed them?

    This is the purpose of a public service.

    The purpose of a public service is not some eternal enlightenment for the betterment of mankind, whoever sold you on that one let me know, i want to meet him.

    part 2:

    What is a Business? A business is a commercial entity. The primary responsibility of a business is to create a profit for its shareholders. A corporation may well have other aims, but all must be subservient to this primary aim or the corporation will cease to exist, or be taken over by another corporation.

    Not all businesses have share holders to please. Businesses with and without share holders to please often run at a loss for many years before they start making a profit. They have to operate at a profit or their business operates at a loss. This is basic economics, if the cost of the business operation is more than they can make from its operations then it costs more to run the operation. This cost profit trade off does not magically disappear when the government monopolizes an industry, the losses just get socialized and due to the lack of profit motive, the incentive to reduce losses no longer exists. Without this indicator any type of structure that is operating, this business/industry, will inevitably collapse because it can not retain the necessary investment to continue operations. So to the contrary the profit motive is an excellent mechanism that brings lower prices, higher quality and high supply.

    Of the 23 million UK workers in the private sector, just 3.2 million (13.9%) have a workplace pension. Of the 6 million public sector workers, 5.3 million (88%) have a workplace pension

    Haha, you sight this as evidence that the public sector is better? This is why the uk government is almost £1 trillion in debt. Thanks to the overpaid public sector workers and over zealous spending from the government employees who are in the position to spend other people’s money.

    It is difficult to compare public and private sector wages because government often monopolizes industries that it operates in thus there are no relative private sector jobs to compare it too. The private sector also operates in some industries exclusively, well from your perspective i could say that the private sector operates in areas that government has not managed to monopolies and take over yet. There is also the problem of economic distortions due to the interference in the market by the public sector. For example, the nhs pushes up the prices of the private sector health care substantially putting private healthcare out of reach of everyone but the upper class. As a result of this the nurses wages in the private sector and the NHS are not a good comparison due to this distortion.

    The reason it is better to work in the public sector as i have already explained, is that without the profit motive it distorts incentives. This is what i call the problem of “voting for your own boss”. For example, if you have 8 people working at a fast food restaurant and they have a boss that is a bit annoying. One day they are told that they can now vote for their boss. Out of the boss selection there is one specific boss that results in the best choice for the 8 workers based on their interests. Thus if the employees could vote for their own boss, inevitably the business would operate at a loss and fail because the employees will always vote for the boss that offers them the best deal. This can be related to the relationship between unions and the government. Where if you allow employees to set their own salary and own pensions irrespective of the input costs associated with that specific industry it will result in losses and failure (ie government debt/collapse). Of course the politicians just have a short term objective of getting elected and keeping their constituents happy during that time. Thus they end up giving the employees the best boss for their interests. This is what i call the “problem of democratic socialism”

    The privatized energy market …. and blaming market socialist (Italian fascism) rail way in the uk on private sector…

    The high cost of fuel in the uk is a result of the government’s taxation on the fuel as well as restrictions on the import, supply and sale, as well as other normal economic factors. But it is commonly known that the big oil has a close relationship with governments around the world. The first place to look when it comes to high prices is the government fuel tax and interference in the market.

    The train services are not a result of the governments BS market socialism. They allocate specific private companies a monopoly over a specific area and then claim it is a private sector company. It has all the best of the public sector, high prices, low quality, big unions, monopolized lines, centralized pricing and so on, but at the same time is allowed to operate for profit. This in my opinion is what i would call Italian fascism or closer to market socialism than free market capitalism. For it be considered real free market, you would have to remove the government involvement completely, including the way in which it selects the company to hand the regional monopoly to and the centralized pricing. ie you would have to have one train from one company arrive at the station and the next train to arrive is from another company, like air planes market.

    might do a part 3.

    • Scriptonite says:

      Thanks for taking the time to write such a long comment. I am however afraid that it is opinion. None of your arguments here are substantiated or referenced. I get loud and clear that you have strong views about socialism. If you do a part 3, I’d recommend some referencing to support your assertions as we have lots of canny commenters on this blog who’ll tear you to intellectual shreds for unsourced ranting 🙂

      • I like your thinking enough to spend a spot of time on replying to your reply. I live in California and I have a degree in economics and I observe my environment and make economic assertions based on evidence. First, I agree that privatization and its assertion that every public service should be run like a household or a business is actually based on ideology, not on sound economic thinking. It doesn’t make sense to operate a social safety net like Medicare based on whether it runs a profit, for example. Policymakers really should stop reading Ayn Rand novels and listening to the Cato Institute’s so-called thinkers and pay attention to the real world for a change. Second, private non-profits have their limitations on what they can accomplish based on grant writing and tax-deductible contributions from corporations. A better model might be for government to offer up funds for specific social objectives and let non-profits compete for those funds based on how effectively and efficiently they can meet those objectives. I’ll bring that up in the context of NASA in a moment. Anyway, this brings me to my last point, which is that public sector enterprises are often quite inefficient—whereas a board of directors of a corporation authorize stock incentives and salary increases for CEO performance for increasing revenue or market share or whatever, public sector enterprise managers often sit around and figure out how they can divert employee salaries into their own paychecks and pensions instead of focusing on how their enterprises can better serve the public. Happens all the time here in California, which is one reason why people here don’t have confidence in the public sector—the stories of public sector employees earning $300K per year on the job and then retiring and drawing $200K per year for the rest of their lives are true and documented and I can provide attribution if someone wants to keep me intellectually honest. Let’s face it. Competition is a really good way of creating efficiencies in a market or industry–I mean, hey, we’re human beings because of billions of years of evolutionary competition, and it’s good to be a human being in my opinion. So I think we would have a much more effective public sector if we introduced some competition into the mix. That’s why I’m thinking the idea of having private non-profits competing for government money set forth to achieve social objectives is a good one. Something similar works for NASA–Obama got smart and told NASA to outsource its launch and crew capabilities, and now we have one company that is providing cargo service to the station that outclasses anything any government can currently provide, namely the ability to return cargo to Earth from space. And another company is ready to begin doing the same thing–their rocket and capsule are sitting on Wallopps Island spaceport as we speak. Yes, these are private, for-profit companies, but the point is that when NASA quit the space shuttle business and opened up space launch capabilities to competition the capabilities got more capable, offered cheaper services and created greater innovation than NASA ever did, and now the government can buy space travel cheaper than it could do it themselves. So yeah, let’s look into how we can promote competition for offering public services, don’t make the providers be concerned with turning a profit, and let the efficiencies come forthwith.

    • Ian Lowe says:

      You have touched on the issue at the end here – transport systems represent the perfect example, because Britain has seen the worst of both models.

      In the early days, our railways were pure free market – and we had the very sort of all outcomes, huge sprawling networks competing for limited physical resources (you can only cross a river or cut through hills at so many places) and ended up with none of them able to sustain business – they collapsed, leaving horrific mess and damage across the country – in the end, the Beeching Axe fell, and the current network emerged – and then we saw the horrific situation of a unionised, state owned monster that just got worse and worse…

      We truly have to chose between the best of two bad situations…

      But here’s the thing – on a small island like the UK, fully free market train systems just cannot work – there simply isn’t the space for multiple networks of rails, stations etc. The same goes for water mains, gas mains… you cannot have six companies dig up our small streets and build competing gas networks that don’t cross over – it would be a nightmare for safety, let alone the environmental impact. the roll out of cable TV networks in the 80s only happened because the government cut deals with companies to steam-roll over wayleaves and private property ownership (ironic, in that the beneficiaries of the government abusing private land owners were American corporations).

      Whenever you have severe scarcity of resource, and the profit motive of a single individual or company, you need regulation and control. I sometimes think that living in such a large, sparse country is one of the things which gives Americans such a skewed view of government planning and regulation – also, I imagine, why the densely populated areas tend to be democrat rather than republican…

    • facecuddle says:

      Your definition of socialism? Incredibly muddy. Your comparisons to Italian fascism and the USSR as a thinly veiled reductio ad absurdum? Laughable.

      Let’s get started on this gem.

      a) Use of frankly ridiculous ahistorical rhetoric about the change in emphasis on public / private sector. You aren’t actually making an argument or an evaluative point here, you’re just sort of… saying things, e.g. ‘it has been predominately the private sector or individuals within a market place exchanging goods and services that has been the predominate with regards to the facilitation of the essential goods and services’. Aside from the numerous grammatical errors in this statement, I’m not exactly sure what point you’re trying to make, other than ‘the market is a thing that we have’. You don’t really bother to make any connection between ‘privatised industry existing’ and ‘why this is good’, you’re just saying ‘privatised industries has done a good job of being privatised industries and this is proved because of the fact that they still exist’. Most of Europe had absolutist monarchies for the best part of 900 years, but their long life was a testament to the very nature of their resilience, rather than to their effectiveness. However, I’m sure that you will address this issue in whatever genius economist jargon you’re about to come out with. ‘This is very manipulative language and a very strange way to explain your point.’ I’ll just leave that there.

      b) ‘Public services are not democrat, the election of specific parties and its politicians is a democratic process.’ I have numerous problems with this statement, so let’s get started. Firstly, by saying that ‘public services’ are not ‘democrat’ (I assume you mean democratic), you are already implying that privately-run services, in contrast, ARE democratic. Based on what I presume is your definition of ‘democracy’, (an extremely narrow one), I imagine you believe a democracy to be something that a) everybody has the ability to participate in, and b) everybody has an equal ‘vote’ on how an organisation (be it the State or the railways) is run, and c) there is freedom of choice. Based on this definition, the election of specific parties and [their] politicians is indeed a ‘democratic process’ and thus we can find no problems with that statement if we don’t question the definition itself. There is universal suffrage, and everybody has an equal vote and freedom of choice, supposedly. So, let’s translate that to a privately-run industry such as the water industry. Can everybody participate in a way that allows them to have a meaningful input into how that privately-owned organisation is run? Absolutely not. Not everybody can afford to pay. It’s a meritocratic form of organisation, where only some are allowed to ‘participate’ based on how wealthy they are (which here translates to consuming the good or service produced by said industry). Does everybody have an equal vote in how the trains function? If we take a vote to mean pound sterling, then absolutely not. If you have more money than me to spend on services such as a first-class carriage, then you have more votes than me. You spend more money on a first-class carriage than I do a regular carriage, so the train company will focus on raising the prices of first-class because of the status attached to it (as demonstrated by the lovely extra money they have coming in from the people stupid enough to waste their money on such nonsense). So we don’t have an equal vote. Do we have freedom of choice? You’ve stated yourself that private companies operate monopolies on different railways, so, no. A private industry is not ‘democrat’ by your own definition, and far less democratic than a public service which ensures able participation by all (at least to a greater extent).

      c) ‘The purpose of a public service is not some eternal enlightenment for the betterment of mankind,’ This point was never made once in the entire article. The purpose of a public service is to be fully available to the public. It’s sorta in the name.

      d) You keep talking about how a public service is doomed to fail due to the lack of a profit incentive. This argument is based upon the foundational assumption that stuff only ‘works’ if there’s profit involved. This takes us into some seriously socio-philosophical territory which you are clearly ill-equipped to deal with as an economist. You’re basically just doing exactly what the article addresses, which is discuss a public service (the aim of which is to NOT make a profit) in terms of a private one. Government is not a business, and we are not actually dealing with real money because market economics are understood in a manner innately abstract from social reality. Economists would probably try and describe friendship in terms of profit incentive. It seems like you’re arguing for an exclusive system available only to those who can afford it, but public services and public sector workers exist to ensure that everybody (yknow… the public) is able to have access, NOT to be economically efficient.

      e) Stop saying market socialism. It is most certainly not a thing that we have in Britain right now. And it has nothing to do with Mussolini.

      f) You keep saying things about unions that I dont even

      g) I don’t know what you’re implying when you talk about total privatisation, but the practical issues become immediately apparent. Who will own the train stations that this diverse plurality of rail companies operate in? Who will own the rails? Will one company have to pay subsidy to another each time they use a railway bridge? Who would organise train timetables? How will we organise where to put new railway tracks? What about the underground? Will different companies own different lines? It’s an utterly ridiculous proposal that would implode in on itself within days.

      • Scriptonite says:

        *doffs cap in your general direction

        Excellent and robust response. Your central point is worth restating actually: the criticism’s made of public services from the marketeer/neoliberal community is because they are measuring a public services with the same metrics as a business. They do not understand that they are fundamentally differet things or WHY they need to be fundamentally different things. You are also right that this is indeed a psycho-sociological issue more than an economic one. It is a person’s mindset, ideology, empathy, which determines their abaility to absorb the distinction.

        • Glynn Smith says:

          Economists would probably try and describe friendship in terms of profit incentive. 🙂

          That is exactly how many come across. It’s all very binary isn’t it.
          A managing director once told me how he sees everything in black and white as though I should find that worthy of applause. I still grapple with his claim’s synesthetic greys, mauves and browns to this day.

          • facecuddle says:

            Economics are just entirely detached from the actual wellbeing or happiness of the people they affect. When the USA has had its highest GDP in the past, economists would tell us that living standards would be extremely high and that all were profiting from this – but at these points in time, real-life poverty has been at its highest. Sort of like how pharmaceutical corporations receive their biggest profits when obesity, cancer and diabetes rates are at the highest. I think the way people treat economics as a meaningful tool for analysing society is utterly arbitrary and it’s something that really needs to be challenged. Economics isn’t a useful tool for analysing anything other than economics because the market is always abstract.

    • “For example, if you have 8 people working at a fast food restaurant and they have a boss that is a bit annoying. One day they are told that they can now vote for their boss. Out of the boss selection there is one specific boss that results in the best choice for the 8 workers based on their interests. Thus if the employees could vote for their own boss, inevitably the business would operate at a loss and fail because the employees will always vote for the boss that offers them the best deal. ”

      Other people have responded very well to some of the other points you have made but I would like to pick you up on this one specifically. What you are saying here is simply factually incorrect. It is in no way inevitable that your hypothetical fast food business would fail. The workers have every reason to want the business to succeed so they can keep their jobs! Many businesses are run as co-operatives and have been successful for years and years.

      • Ian Lowe says:

        I find myself nodding in agreement – the most financially successful version of this sort of democratised, self interested shared ownership being John Lewis.

      • Glynn Smith says:

        Exactly so Georgia.
        I worked within a team where the boss would allow staff to take 4 hours to attend their child’s open day. The staff would willingly give 20 hours unpaid overtime in return over the following months. The team had the lowest number of sick days by far throughout the company and were the most diligent team as regards efficiency. They went out of their way to avoid wastage and tendered totally impeccable expenses claims. They were part of a mutually supportive social team.

  19. […] undermines the confidence of the disadvantaged and boosts the con dence of the advantaged.” You cannot run a public service like a business, and here’s why – Are businesses and public services fundamentally different? (via) Iceland’s […]

  20. Alex B says:

    Presumably, seeing as you state that “A person or entity should not seek to profit from a person’s need to eat”, we should have, um, a National Food Service. Obviously that would need to extend all the way back to production and the farms run collectively by the state as, um, Collective Farms. And, of course, we wouldn’t want to waste capacity for growing unnecessary luxuries, but use them to grown the Scientifically determined optimal daily diet for each citizen.

    I’m surprised that no-one’s tried that already.

    Also, I’m surprised that you don’t elaborate further on your point about workers’ remuneration; why not be forthright that the public sector should, first and foremost, be about providing comfortable conditions and high pay for its employees? Of course the service to the public is important – which is why they’re called public services, but that requirement is met by putting the words in the description of the service; like putting ‘Democratic’ in the name of a nation state ensures that it actually /is/ democratic.

    • Glynn Smith says:

      I think most would agree that the word ‘public’ has fewer interpretations than the word ‘democratic’. We all know that a public thing is available to all. The word ‘democratic’ often requires further adjectives to explain it’s use. Frequently it’s use is inexplicable.
      The word ‘democracy’ is grasped at to describe governments that are actually an oligarchy. I’m sure someone could put forward an example.

      • Scriptonite says:

        This is an excellent point. Many examples in our midst. Big questions about the representative capacity of our own style of democracy in UK:
        1) the influence of money, nepotism and corporate media
        2) the lack of voter participation
        3) the level of understanding/education of electorate in issues that matter
        4) the role of local government being reduced over decades from decision makers, to decision influencers, to decision enforcers.
        5) an electoral system which marginalises new parties or parties outside the ‘big three’
        6) the curtailing of cicil liberties e.g. freedom of speech, assembly & protest which reduces capacity of resistance to unpoopular dictat

        I could go on but I think that captures the biggest themes. Participation, an informed civil society, genuine representation, legally binding & enforced civil liberties and a political organisation reflective of diverse public opinion are key to any governing force which can consider itself a fully optimal democracy. The UK is currently a very long way from embodying such ambitions.

        • Those things are all important, but I think there’s also an argument to be made for the centrality of party politics per se in the failure of our democracy to be representative, and also the slicing up of the country into geographical blocks so that the views of anyone who disagrees with their local majority (or plurality) can be safely ignored.

          • Right. The profit motive distorts both the private and public sector, as does the desire for power. Those are commonalities, the differences are other than those, I think.

      • Alex B says:

        I fear I wasn’t explicit enough in my final sentence. I was, of course, referring to such bastions of /true/ democracy as the Democratic Peoples Republic of Korea, the Democratic Republic of the Congo, the Democratic Republic of Vietnam and the Deutsche Demokratische Republik.

  21. Lilian says:

    This is the best thing I’ve read all week. Thank you.

  22. Franklin Scrase says:

    This is absolutely spot on. Could the real reason why governments are so keen to turn public services into private business be more to do with banking than anything else? Since the end of the gold standard in 1971 the money supply has sored exponentially, primarily as commercial bank debt. In the first few years this led to inflation and Bank of England lending rates as high as 17% as government spending increased money supply, causing inflation. Thatcher and co reigned in government money printing, but still needed to expand the money supply to get tax revenues up, so they privatised, making opportunities for bank lending for investment (secured against property assets that then took on their own inflationary bubble). This then became a key part of government policy. When they ran out of things to privatise they went for Private Finance Initiatives, then came selling services. All the time the objective has not been efficiency, it has been how to bubble the economy without it looking like a bubble. In 2009 we had reached the end of the road when BoE interest rates hit 0.5% (meaning that the economy could not provide a return on capital because it was shrinking as the bubble burst). The current government is now mortgaging tax expenditure to try to create a demand for credit and so keep the ship afloat. It is worse than just confusing public service with business. It is using public expenditure to expand credit because if the expansion of credit slows the country goes into recession. The myths and out right lies that are being peddled to promote these policies are looking more and more like the latter years of the Soviet Union and so is the infrastructure for oppression. Keep up talking the truth.

    • Allan Baldwin says:

      No, its the General Agreement in Trade In Services (Gats) which is a WTO agreement which seeks to liberalise ie marketise all trade in service industries and make their provision open to cross border competition. suits the US.

  23. peterbatt says:

    Reblogged this on Peter Batt and commented:
    One of the greatest myths of our time is that public services can be made more efficient if we run them as businesses. The commercialisation of our public services has been a manifest failure, and the response offered by the mainstream parties is that we simply haven’t commercialised them enough. What they fail to understand is that a public service and a business are inherently different beasts and asking one to behave as the other is like asking a fish to ride a bicycle.

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