A pointless 'privatization'

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According to Nick Timmins in the FT:

The private sector is to be invited for the first time to take over and run a big NHS hospital under plans backed by the Department of Health and the Treasury yesterday.

Needless to say, I'm generally a big fan of privatization, and an advocate of greater private sector involvement in the NHS. And yet the government's proposals do not exactly fill me with joy.

The trouble is in the way the scheme is set to operate. The government will offer a seven-year franchise on the hospital and invite private operators and NHS foundation trusts to take on its running and financial liabilities. But they will not transfer the assets of the hospital, and all staff will remain employees of the NHS.

Within that framework, you have to wonder what good the scheme will do. Sure, an organisation with private-sector expertise might be able to manage the hospital a bit more efficiently, but will they really be able to make much difference if the hospital has to be run more-or-less as it is now, with the same staff, and the same salaries and benefits (which will continue to be negotiated collectively with the Department of Health, rather than individually with the hospital's management)? No.

In the long run, I worry that politicians' obsession with 'private sector management expertise' (valuable though it is) does the cause of liberalization a lot of damage. They need to realize that the point of privatizing things is not just to introduce a new management with a better-developed profit motive. The goal should be to increase autonomy, choice and competition, and to focus services around consumer interests, rather than producer ones.

As things stand, the government's franchise proposal does not achieve any of those things.

Parliament: more transparency needed

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As the Parliamentary Standards Bill limps towards royal assent before the summer recess, picked at and weakened by the government and committee stages, it seems a good time to reflect upon the transparency of government and politicians.
 
On Tuesday BBC Radio 4 broadcast “Expenses: The MPs’ Story", in which a series of MPs gave their accounts of the days and events surrounding the expenses scandal. Listening to the programme there was a sense that they were looking for sympathy or even to pass some guilt onto the public for overacting with such ferocity. As some MPs claimed at the time, there was a ‘McCarthy style witch hunt’ for MPs – well, what’s wrong with that? If somebody had robbed a supermarket, we wouldn’t decide to let them off in case we hurt their feelings – why should it be different for MPs?
 
People such as Anthony Steen MP (who is thankfully standing down at the next election), claiming that the public were simply ‘jealous’ of his big Balmoral-esque house, and Lord Foulkes represent what’s wrong with many politicians. They have forgotten whom they represent and why they are in Parliament, detaching Westminster from the rest of Britain. When people enter politics, they need to accept the transparency and public scrutiny that should come with it.
 
What we need from parliament, and what the Parliamentary Standards Bill will not deliver, is a total change in culture of politics. We need a system that looks out towards voters rather than looking inwards towards personal power and greed, only noticing the electorate every 5 years.
 
Daniel Finkelstein has written a piece in The Times arguing that we should be able to see into the personal dealings of our politicians, and I couldn’t agree more. Finkelstein says the people of Italy have the right to know the details of Silvio Berlusconi’s misdemeanours – and this is true – but I’d still rather have a lothario than a thief running Britain.

Failure, thy name is Royal Mail

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Peter Mandelson was thinking along the right lines when he proposed partial privatisation of Royal Mail (although I would have gone for the full deal). In the end, however, pressure from the Communication Workers Union as well as backbench Labour MP’s sank the proposals. That surrender was a bad move for a government supposedly keen to fix this loss-making institution.

The Royal Mail's pension fund deficit is now running in the billions of pounds (which will be paid for by the taxpayer to the tune of around £12bn) and inefficient practices still prevalent. Even turnaround experts like Allan Leighton, who has helped some of the biggest names in business, have been unable to make a significant difference hitherto.

The Royal Mail has been performing even more abysmally with the gradual opening of the postal market to private enterprise, but the CWU still fails to see the benefits privatisation could bring. Even partial privatisation would mean a more efficiently run Royal Mail, leading way to modernisation in the company’s operations and structure as well as helping to reduce the pension fund deficit (for which the unions are demanding a government bailout).

Striking from union workers has meant a slow down of operations, damaging not only Royal Mail's services, but also its reputation. But the unions are being unrealistic: without the modernisation that privatisation would bring the Royal Mail does not stand a chance against efficiently run, well-managed private sector competitors, in an increasingly open market. Ultimately, the Royal Mail must adapt or die.

Social mobility

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The report from Alan Milburn makes it clear that there is a lack of social mobility in modern Britain. It is in fact lower than it used to be. The grammar schools used to provide a ladder for talented people from poorer backgrounds, but most of these schools were swept away in a fit of egalitarian enthusiasm which resulted in a levelling down and the closure of opportunities.

There is less social mobility than when Labour took office. The key to social mobility has always been education, but despite an emphasis on "education, education, education," it has largely failed people of disadvantaged backgrounds. The government pressurizes universities to lower admission standards for people from poorer backgrounds, thereby discriminating against talented youngsters who happen to have middle class parents.

This is not the answer, neither a valid nor a fair one. The answer is to raise the standard of state schools so their students can qualify on merit. The way to do this is to forget egalitarianism and to allow a variety of schools to flourish, and enable parents of all backgrounds freely to choose between them, taking the state funding with them. We've published on this before, and will do so again. It has worked brilliantly in Sweden and will do the same here. Roll on a government which will implement it.

In defence of hedge funds

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Douglas Shaw of Black Rock spoke at a Civitas lunch this week on the topic 'In Defence of Hedge Funds'. Good luck to him. The industry is about to be overrun by an EU army of new regulations, which will knock any innovatory stuffing out of them. As investment businesses evolve and grow in the US, Switzerland, the Middle East and Asia, the stunted European hedge funds will look more and more like the evolutionary throwbacks of the Galapagos.

I don't know why hedge funds don't spend about a thousand times more on PR, because they have a positive story to tell. Their clients are all large, savvy investors, who probably know their business better than any regulator. There are about 10,000-odd funds, and the sector is diverse and highly competitive. Their leverage was only about 3x before the crash, maybe 2x now – much less than the 8x or so of the banks – so you can hardly say they are structured recklessly. And again, the institutions which lend them that money demand very detailed information about their risk and management profiles.

Oh, yes, they short-sell shares of basket cases like Northern Rock. But that just speeds up the demise of the inadequate, by making prices reflect what is really happening, rather than what half-blind regulators think is happening. It's not the cause of the crash. Indeed, after the ban on short selling came in, the markets continued to fall...and fall. Even the best hedge fund manager does not expect to be right more than two-thirds of the time, but the fact is that hedge funds tend to be more right than wrong – which is why their returns have well exceeded the market indicators and why government agencies, along with pension funds and all the rest, buy into them.

Still, the EU regulation is a done deal, apart from a few drafting points, so maybe it is past the time for 'defence'. Being the sole EU country with a truly global financial market, the UK will lose a lot more than others from all this. But then if the UK loses, the whole EU loses, and the US, Switzerland and the rest gain. But I repeat: why have these efficient, effective investment bodies not spent more money promoting their positive message? Perhaps they are just better at anticipating markets than at anticipating politicians. Well, they are learning the hard way.

Freedom Week at Cambridge

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Last week was memorable for the 30 students lucky enough to win places at Freedom Week. Held at Cambridge in July, the week features lectures on the history of liberty and its relevance to the modern world. Organized by Jean-Paul Floru, Freedom Week is now in its fourth year. Its students stay at Sidney Sussex College, and have a packed programme of lectures, enlivened by social activities which include meals, receptions, punting and a barbecue.

This year's event was agreed by those who attended to be excellent, featuring lecturers of very high quality, and with high level discussions both in the conference hall and in the social activities afterwards. It was helped by the weather, which stayed clear until the conference closed, at which point the heavens opened….
 

Shahbaz Baloch joins the ASI

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As a keen economist (free market economist of course!) I consider it a great privilege to have the opportunity to work at the Adam Smith Institute. I look forward to this week at the ASI and hope to learn a lot about economics and politics. Besides Economics I recently sat AS exams in Politics, Maths and Physics. My main interests lie in political economy and I hope to apply to read Philosophy, Politics and Economics at Oxford University. To me these are the subjects that really govern our lives, day in and day out, and only by studying them can we truly understand not only the workings of a society but also of human nature itself.
 
There has been a lot of cynicism and criticism surrounding the capitalistic system which I myself hold dear, but the thing these critics fail to realise is that long-term prosperity sometimes requires short-term losses. All Gordon Brown’s ‘cushioning’ of the economic cycle during the Blair years did was to prevent those losses from happening naturally, so that they gradually built up into much larger problems – as is evident in today’s political economy. So let's not look at this crisis as a systemic failure of the free market but of an economic trough, which has been magnified by poor governance.

Living in a police state?

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Speaking at an ASI event earlier this year, David Davis posed an interesting question: "How do you know you are in a police state?" It is becoming an increasingly pertinent point. Accepting that we are not in a police state, at what point does it become one?

Of course, it is a question of semantics and one that may be a matter of opinion. Yet increasingly, perfectly sane and respectable people are using the term 'police state', a point of view that I am starting to have increasing sympathy with.

Living in London I would have imagined that it is a largely metropolitan dilemma; one that the shires would have escaped from. Yet reading the indomitable Henry Porter brings to our attention this case in Chatham High Street. The worrying trend of the state keeping increasing tabs on us, while we can’t even take a photo in public is profoundly worrying.

The slope is slippery and we must be watchful. The machinery for a totalitarian state must not be in the hands of even a benign power. As Andrew Porter states: "What is needed now is clear statement from the home secretary on the rights of photographers and the limits of police surveillance". It would be interesting to know where Alan Johnson and Chris Grayling stand on the matter.