Articles:
Going private could be the worst of all worlds

No one, it is safe to say, wants to hear any more about Cornish pasties, nor to find out whether any featured on the menu for those donors’ dinners in the Camerons’ flat. The past fortnight has been apt to give us pasty-faced Brits an inferiority complex compared with that orange-faced Italian, Silvio Berlusconi. At least his inappropriate events taught us the phrase bunga-bunga. But in truth, there is a connection between what was wrong with Mr Berlusconi as prime minister and where Britain’s coalition government is tripping up.

            It lies in the question of how, in a democracy, government should deal with business, which really means how it should deal with concentrations of wealth and power. The right answer is carefully and transparently, at an arm’s length. Mr Berlusconi’s answer, as one of Italy’s richest businessmen, was to use his media power and wealth to capture government—he didn’t just donate to a political party, he founded and funded his own—and then to use government to serve his business and personal interests.

            How nice it is to be able to use the past tense since his resignation last November. But in fact he is still very much there, exerting influence, blocking liberalization of commercial television or any antitrust inquiry into advertising, the two businesses he dominates, while scheming either to return to office or to be the puppetmaster, after an election early next year, for a government he hopes might be fronted by his clean, popular successor, Mario Monti.

            A comparison with Mr Berlusconi will seem outlandish, even offensive, to some. And so it is, in aesthetic terms. But neither aesthetics nor sexual morality were ever the real issues with him. Those real issues were equality before the law, the turning of legislation to private purposes, and transparency.

            Italy is an extreme case of a broader problem for western democracies, one that has become even more acute as inequalities of wealth have grown and, now, as the desperation of governments for corporate investment as a means towards economic growth is also increasing.

            When Labour became intoxicated by the City and favoured “light-touch” (meaning blind-eye) regulation of finance, or when Presidents Clinton and Bush both rolled over in the face of Wall Street lobbying against regulating derivatives markets, a milder form of Berlusconismo was at work. The same can be said of the inappropriate closeness between Labour and Tories alike and News International, owner of this newspaper and, more crucially in business terms, of a majority stake in BSkyB, now Britain’s biggest commercial television company.

            All of which brings us, of course, to Peter Cruddas and the donors. One side of that story concerns the funding of political parties, which is what most of the commentary has focused upon. The other side, however, is what donors want from government. Many are motivated by ideology. But it would be naïve to imagine that many do not also hope for favours.

            The same is true of businesses themselves when they lobby for tax breaks, regulatory changes, extra runways at Heathrow, and all the rest. The difficulty lies in separating the private from the national interest. George Osborne said his budget on March 21st was intended to back business. Put that way, it sounds unobjectionable. The danger is that it might actually be seen as backing specific businesses, rather than business in general.

            The difference might sound trivial, but it is fundamental. In the simpler economic times of the 1950s, Charles Wilson, then chief executive of General Motors, was nominated to be America’s Secretary of Defence, and said during his Congressional hearing that for years he had thought “that what was good for the country was good for General Motors, and vice versa”. The first part of that is fine and public-spirited. The vice versa, not necessarily.

            This is difficult territory for governments, especially ones led by the Conservative Party, which will naturally be suspected of bias. Everyone likes jobs to be created and to cut ribbons at the openings of new factories and offices. Everyone likes businessmen to accompany them on trips to China or India and to see them signing deals valued in billions. But how far backwards has the government bent to make particular deals happen? And what businesses or other economic interests have been treated unequally in order to make the favours and tax breaks possible?

            It might sound a bit preachy, but given the dangers to all our democracies, and the justified resentment against the excessive influence of the powerful, the right approach must be to be pretty Simon pure. Keep your distance. For that reason, governments should not be salesmen, and should not chase around with tax-breaks and regulatory deals for specific businesses.

            It looks bad, even when it is done with good intentions, and it is often vulnerable to the delusion of the immediate gain at the expense of the longer-term. Our embassies can and should be information gatherers, national marketing agencies and networking centres for our exporters. But once they begin to be salesmen for particular businesses, alarms should go off.

            There is another area of business-related delusion, which lurked in the background of Mr Osborne’s budget, and Mr Cameron’s speech about infrastructure. It is the worship of the private, regardless of costs and controls.

            Now, I am all in favour of privatisation, competition, efficiency and all that. But answer me this: how can it possibly be right, in a budget that boasted of government borrowing costs being the lowest since the Norman Conquest (I paraphrase), that it is also considered necessary and desirable to have pension funds and others finance roads, railways, airports and other infrastructure directly, at a higher cost than if they simply bought gilts?

            The answer begins, I know, with the credibility of the government’s fiscal plans and of Britain’s level of public debt. But the whole trouble with the Private Finance Initiative during the 1990s and 2000s was that it built public assets at higher cost, with risks not genuinely transferred to whichever private firm was involved. The main risk surrounding virtually all infrastructure projects is political—the danger of public objections or of changes of policies and parties. So that cannot be transferred.

            A big infrastructure programme delegated to the private sector risks being the worst of all worlds: it will be high cost; it will be a feeding frenzy for the lucky businesses involved; it will involve all sorts of political wrangling; and it will give rise to the next big scandal over party donations, peerages or what-not. As often as possible, prime minister, dine just with your family.