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The Privatization Agenda Goes Bust

A UK construction giant's failure should be the last nail in the coffin for twenty-five years of privatization dogma.

Carillion-operated vehicle parked on sidings at the southern end of Bristol Temple Meads station, 2006. Chris McKenna / Wikimedia

The collapse of Carillion, the mammoth UK government contractor that went bankrupt Monday, was wholly made in Britain, although it has negative consequences internationally.

The reason for Carillion’s bankruptcy, which puts vital public services and thousands of jobs at risk, is that the firm and its component companies grew fat during the first phase of neoliberal economic policy and could not cope with the more recent phase, austerity.

The immediate cause of the collapse is a failed acquisition spree since the crisis began. Yet the underlying cause is the disastrous relationship successive governments have had with the private sector. Whether the Thatcher, Major, and Blair governments believed the nonsense they spouted about the superior efficiency of the private sector is immaterial. Only the willfully ignorant could ignore the litany of failed privatizations and the extortion of PFI “public-private initiative” contracts that followed their policies. The real purpose of Thatcherite economic policy, which has become widely known as neoliberalism, was precisely to hand state resources and revenues to the private sector.

Carillion, and the companies it acquired, expanded rapidly as it was fattened on the force-feeding of outsourcing, privatizations and PFI. Its ‘business model’ was to acquire as many of these companies as possible that benefited from public sector handouts, and increasingly to hide the debt incurred in off-balance sheet special purpose vehicles.

The model came crashing down because of austerity. The main reason the company’s revenues are flat between 2010 and 2016 is that the Tories (and the Coalition before them) slashed public sector investment in roads, rail, ports, and housing, and took an ax to real current spending, in areas such as education services, the NHS, the justice, system, and so on. The pace of new privatizations and PFI since 2010 was not enough to top up the bucket with a big hole marked austerity.

Where now?

Clearly, no tears should be shed for the private sector shareholders who continued to receive fat dividends even when Carillion started to make losses. The directors continued to pay themselves hefty salaries and bonuses even as the company floundered. Some will be paid still.

It is those reliant on public services — that is, the overwhelming majority of society — who face even higher bills and lower living standards as a result of the collapse. The workforce will face job losses, and pensioners will be concerned about their futures. Mostly, this will be without the support of a union, as Carillion was viciously anti-union.

There must be no bailout of the failed Carillion company. If possible, the directors and their advisers and auditors should be investigated to determine whether they are in breach of company law. Company law must change too. Directors must have a financial liability for this type of failure, including compulsory claw-back of salaries and bonuses, as well as liability for pension scheme failure. Auditors, lawyers, and accountancy firms must also be held to account. A windfall levy should also be considered on all past and current holders of PFI contracts in order to fund the inevitable losses, with a view to driving PFI out of the public sector altogether.

The vital public service contracts for staffing prisons, cleaning hospitals, and providing school meals and so on, should be taken back into public hands, the natural home for the provision of public goods. Similarly, construction activity must not be halted; the infrastructure deficit and housing shortages are already too great. The Carillion workforce and tens of thousands of workers in ancillary companies can be incorporated into new direct labor organizations.

The claim by George Osborne and Andy Street, the Tory mayor of the West Midlands, that the problem lay in the government’s failure to use “small and mid-sized firms” in its contracts is ridiculous. The scale of such contracts is beyond the scope of these firms. Carillion used the familiar, monopolistic approach of buying up mid-sized rivals, which is a general tendency of private sector operations.

Above all, the fallacy that the private sector is intrinsically a more efficient provider of goods and services should die with Carillion. This is a failure of outsourcing, PFI, and privatization. They should all die with Carillion, and under a Corbyn-led Labour government that process can begin.