Privatisation may not work well under corporatism

This is not some woolly Lefty thing. We live in a corporatist not a free market capitalist society. That has implications for privatisation that we need to face up to

Royal-mail
Good to go for privatisation?
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Simon Miller
On 14 September 2013 14:11

We must be sometime close to an election as the government this week announced the part privatisation of the Royal Mail. 

The project is of course designed to fill the coffers with a bout of pre-election money while satisfying the requirements of the paymasters in Europe for the privatisation of mail services. But there is something about this announcement that makes me uneasy. 

You see, while it is bad enough that Georgy Boy fixed the books by grabbing £28bn of assets from the Royal Mail pension scheme, what most people fail to realise is that Georgy Boy also landed us with £37.5bn in liabilities -- around £385 per household -- which puts the £3bn valuation of the Royal Mail into perspective.

In effect, we will be selling off an asset, once again, for peanuts whilst copping the bill to make it attractive in the first place. And it’s not that I just fail to believe that the Royal Mail would cease 6-day universal collection and delivery as soon as it was feasible to do so. 

Nope, it is, and take a deep breath as I may surprise you, that I believe that certain things should not be privatised in the system that the UK has today. 

I know, I’ve confused some of you now, but it’s down to the simple fact that for capitalism to work it demands competition. Through competition you get choice but as we have seen over the last twenty years there are areas where it is impossible to get that choice -- only the illusion of choice.

Take energy companies. Where exactly is the choice? 

Despite the soothing words of the impotent regulator, in effect a cartel is being operated. As I have written before, price rises are suspiciously closely matched by each energy company while at the same time price cuts are universally poor.

There is no choice, only the illusion of choice. Every bill you get is a stitch up. Prices are once again expected to rise by 5-10 percent but where were the price cuts when the UK Gas price dipped below 60p/therm or oil dropped below $100/boe? Indeed, the predicted drop in price in 2014 is going to feed through to customer bills, isn’t it energy companies? How does an energy bill double in price despite actual energy usage remaining unchanged? Where are the benefits for the consumer? 

The same happens with water. Take Thames Water. It announced it was going to add £21 to users’ bills to pay for its supersewer. Now, if I was in London that particular year and had to pay £21 for someone else’s benefit I’d be pretty peeved, so why can’t the shareholder take the hit?

And here’s the thing. As profits and dividends rise, the responsibility of the company is legally with the shareholder -- or larger owners as is the case with some energy companies. It is not with the consumer. Seriously, directors of a company have a fiduciary duty to the shareholder by law. So market share, share price, dividends are far more important than the needs of the consumer. If these coincide, excellent but you need the pressure of competition to do that. 

The consumer is ripped off left, right and centre by utility companies and there is nothing we can do, because we do not have a choice. We cannot truly switch to another company to make a difference to our bills because of the cartel that is in operation. 

And because we cannot gain from switching, the price pressure of capitalism fails.  Take a look at telephones, the one area where privatisation seems to have worked. 

Because we can change, because there are plenty of small, independent operators, prices are on a constantly downward trend -- because of price pressure through choice. 

OK, there is still an issue about infrastructure -- such as BT-owned fibre optics -- but it is up to companies like Sky or Yorkshire or EE to make the deals with BT and offer a good price to the customer. Capitalism working. 

And again, because they can, smaller operators can operate in this market. Where can they operate in the utilities market? What effect would there be on smaller companies having a behemoth like the Royal Mail with the leash off? It may be survival of the fittest but when there is a state-created inbuilt advantage, then it is sending an armoured man into a bare-knuckle fight that neither benefits competitors nor customers. 

This is also why, in its current format, the BBC should not be privatised. Not because it is wrong for it to be privatised, but because the giant would wipe competitors away. Its dominance in our lives is bad enough as it is, but think what it could do without the so-called restraints of its Royal Charter. 

In essence, competition should lend itself to fairness. But to have competition, you really do need a capitalist system.

We do not live in a capitalist society. We live in a corporatist society. Think of the damage that supermarkets do to farmers. Sure, you get a great price but supermarkets are using their position to dominate and abuse the market. If a man is holding a gun to your head you don’t have much room for negotiation. 

A fair price is not some woolly liberal thing, it is the essence of capitalism. A fair price between vendor and buyer is one that is equitable to them both. In this corporatist world we inhabit, we see utility companies, broadcasters and supermarkets demanding a price of the vendor, or demanding a payment by the customer that is neither fair nor equitable, all to satisfy their owners. 

That is why this week’s announcement has made me uneasy. A privatised Royal Mail could go the BT way, bringing prices down, raising competition, benefiting customers, but I fear that in this corporatist world, it is more likely that once again customers and competitors will lose out. 

Simon Miller is a contributing editor to The Commentator. Follow him on Twitter @simontm71

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