Carillion’s fall – privatisation and magical thinking

You may like privatisation, but not a lot.

You may like privatisation, but not a lot.

This article is about magical thinking. Privatisation. And a disaster. Let’s start with the latter, and a question. Was it a surprise when Carillion keeled over and died last week?

It called in the liquidators, with debts of almost £1 billion, and left the Pension Protection Fund a bill worth £800 million. In the UK alone, 19,000 jobs are at risk. Oh, and the board of directors gave themselves £4 million in bonuses in-between several profit warnings last year. As you do.

The truth, of course, was that it was doomed for a long time. ‘Too big to fail’ is all too often short hand for ‘any time now’. Carillion’s woes date back years. In 2011, even as then-Chancellor George Osborne sang its praises, its hidden debt and cash flow problems had already taken hold. A company that can somehow have both a rise in revenues and a fall in profits is not long for this world.

Friends with (dubious) benefits

So why did the government give Carillion £1.3 billion worth of contracts even after the profit warnings? One could accuse the government of gross stupidity. This is, after all, the same outfit that called an election last year and went on to almost lose it. Its handling of Brexit is high farce. It can’t even get an aircraft carrier right.

Milton Friedman-shaped fairies.

But the real problem is far older and longer lasting than the May government will ever be. Carillion bid for every public sector contract it could get its paws on. Despite knowing the full extent of its wretched state, the government kept awarding those contracts. Why?

The great dogma of our age, of course, is that the free market is best and all things flow from it. This dates back to the late 1970s and the rise of Thatcher. But calling privatisation a faith is a bit rude to faiths that don’t go bankrupt while running your local library or hospital. The truth is much more primeval and, frankly, feral.

All top hat, no rabbit

Because the fervent belief in privatisation is a kind of magical thinking. (To whit, the belief that two unrelated things can, through reasons not quite clear, have a direct effect on one another.) We all have superstitions, of course. We can barely move for all our cognitive biases. But magical thinking in the power of markets is far more pernicious. It is a belief of the rich and powerful pursued at the cost of us all.

It also has a seductive logic. Why come up with answers to complex problems when you can slap on a bit of free market economics? They say to a hammer everything looks like a nail. To a free market magus, everything looks like a fruit machine.

So, if your hospital is a bit dank – privatise the cleaning service! If your school has budget issues – outsource its meals! British Rail being a bit, well, British Rail? Privatise it! Need to build a public building? PFI! Privatise this! Privatise that! Privatise everything! The market works! It always works!

Markets with everything

Now, before you gather some millennials, pitchforks and torches, do take note of this. I sit here writing on a laptop made by a private concern. Private enterprise, in the form of dear old Ikea, has furnished my gaff no end.

After I have written this, I will waste many a happy hour on my games console. I will eat dinner tonight bought from a supermarket. Books, magazines, washing machines, carpets. Everything I own, for the most part, is thanks to free market economics of one sort or another.

And yes, some past privatisations were less a folly and more a trip down the dump with your knackered old sofa. British Telecom was awful. (And its adverts were creepy). British Leland was, frankly, just plain crap. Many other nationalised industries needed a level of reform that the UK could never quite fathom.

But as anyone who’s been shafted by sky high rail fares or done over by gas and electricity bills will tell you, privatisation is not a panacea. In fact, there are some things you should never privatise. Though, no doubt, the government will keep on pushing them in that direction, a lucky tribal fetish clutched tight to its pinstripe bosom.

Schools, health, policing, fire services, the Post Office, road repairs, the Olympics… Not only has the profit motive failed to make these services better, but it has made them worse. The only net beneficiaries are rich spivs like John Chisholm and rictus-grin opportunists like Richard Branson.

Putting the Vice into Vice Chancellor

There is no surer example of this than the effect it has had on the university sector. Students are not customers, no matter how high their fees get. Yet still we have the ugly spectacle of inept Vice Chancellors being paid like captains of industry. The excuses have a familiar ring about them. So too does the poor value for money. As this shows, all marketisation brings the public sector is a corrupt sense of entitlement, a sense that you can ram your snout in the trough because you’re worth it.

To a free market magus, everything
looks like a fruit machine.

But the real problem with magical thinking is that when failures turn up, as they often do, the magical thinker will not blame the real cause, but a lack of proper faith. If free markets don’t work, it’s because you’re not doing it properly. More privatisation! More! (And so on.) This odd mix of Chicago School economics and belief in Milton Friedman-shaped fairies carries on not because it works but because people want it to be true.

It is the equivalent of an unshakable belief in Homeopathy. Or blind faith in the Daily Mail and swans breaking your arm. All in the end are rooted in a toxic mix of vanity and wishful thinking. For Carrillion employees and sub-contractors, of course, no amount of wishful thinking will help at all. But its top brass will do very nicely. After all, reality can always be avoided, but only if you have enough money.

Image by Kenny Louie @ Flickr. Used and modified under the terms of the Attribution 2.0 Generic (CC BY 2.0) licence.

Alexander Hay
About Alexander Hay 75 Articles
Alexander Hay is a writer and polemicist based online and in print.

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