Articles:
Get rid of the public v private ideology

It doesn’t matter whether a cat is black or white, said Deng Xiaoping, as long as it catches mice. The great Chinese leader was trying to persuade his fellow communists that capitalism and private ownership should be acceptable, if they made China more prosperous and powerful. That cat principle is a good one for any European thinking about privatisation: forget ideology and focus on what works, regardless of whether it is public ownership or private. London, however, has tested the limits of this idea. Its underground railway commuters are now suffering because the Labour government tried a grey cat instead.

            Let me explain. When Labour won power in 1997, Tony Blair and Gordon Brown wanted to show that they accepted privatisation but were not Thatcherite ideologues; and they wanted to cut public borrowing. So they tried a magic solution: a “public-private partnership”, in which public services were handed to private companies on a contract. So the private firm provided finance and supposedly took on the risk. One of the most controversial applications of this idea was to the London Underground railway, the “tube”, which badly needed money for investment and repairs.

            Big maintenance contracts, previously handled by public sector workers, were given to two private companies. One, called Metronet, has now gone bankrupt. The maintenance workers want their jobs and pensions guaranteed by the government, or the mayor of London. This has been promised, but still one of the trade unions has gone on strike for three days this week, and probably three more days next week.

            The mayor, Ken Livingstone, was opposed to the public-private partnership all along; our new prime minister, Gordon Brown, was in favour. Commuters, who always suffer from a bad service on the London tube at the best of times, are now suffering even more. The question is: what might this mean for privatisation?

            The answer is, first, that public-private partnerships were a delusion. They were a halfway solution that solved nothing. The true risk stayed in the hands of the government. In return, it lost control of the maintenance of the railway. It was the worst of all worlds. Gordon Brown has refused to admit this. But Mayor Livingstone is surely right.

            The second answer is Deng Xiaoping’s: don’t be ideological about privatisation. Railways are particularly difficult cases. The normal benefit of the market, through competitive pressure and innovation, is very hard to apply. Yes, railways compete with roads and airlines, but only indirectly. Angela Merkel found the same thing when her cabinet discussed privatising the German railways, Deutsche Bahn, before the summer. Britain’s experience on its railways is a bad one: privatising maintenance and ownership of the rail network just causes chaos. Public railway systems work badly; private ones can be just as bad. Germany is right to be keeping the network in public hands.

            With airlines, competition is strong and there is a lot of choice: so private ownership has been shown clearly to work better. It makes no sense to keep Alitalia in public hands, for it will just lose more money. But the railways, especially commuter networks in busy cities, are different. There, competition is hard to organise and there is not much choice. It is expensive and difficult to manage such railways in the public sector. But it is no easier in the private sector.

            The hope must be that, 25 years after Margaret Thatcher and Ronald Reagan launched the worldwide revolution of privatisation and deregulation, policy makers will at last shake off their ideological preferences for and against public or private ownership. All that matters is whether the cat catches mice.