In Public Policy, Profit Should Not Be a Dirty Word

Jeremy Corbyn? Sensible policy suggestion? No, I am not living in some kind of parallel universe where the Labour Party have a 15 point lead in the polls and Jeremy Corbyn is widely regarded as the greatest opposition leader of this or any other age. But even a broken clock tells the time correctly twice a day. This, of course, is with regards to a policy proposal put forward which wants to put the British railway services back into public ownership. It is something which has been favoured by the British public for a long time now, and it is not the first time the Labour Party has toyed with the idea in the last decade. Of all of the privatisations that took place under the watch of Margaret Thatcher and John Major, rail has been by far the least successful. Difficulty in driving down real prices for rail fails, floundering service quality and an industry which seems entirely unwilling or unable to innovate; all have contributed to the public perception that it was a mistake that ought to be rectified. By the same token, recent announcements by the US Justice Department have made it quite clear that there is no appetite to continue making use of private prison facilities. As it was put quite bluntly by the Deputy Attorney, "They simply do not provide the same level of correctional services, programs, and resources; they do not save substantially on costs; and ... they do not maintain the same level of safety and security," A damning indictment indeed for private sector involvement in the provision of public services.

This shall provide fuel to the flames of those who make vacuous and sweeping declarations such as 'People before Profit' or to ensure that 'our' public services continue to be provided by the state as a point of principle. However, it is this exactly this sort of thinking which results in the making of bad policy. There are a number of examples where profit has been harnessed in a way that it can be beneficial to the masses. Is there any better example than the pharmaceutical industry. Yes, big pharma has a tendency towards moral bankruptcy the moment the name 'Martin Shkreli' is uttered. But it is through the ability for these firms to be able to reinvest large profits into costly research and development which has saved millions of lives all over the globe. It is possible for international pharmaceutical companies to cross subsidise medicines in impoverished countries, in a way that national governments would never have an incentive to do. The other example are much maligned financial products. The provision of private pension funds and insurance products ensure that those who face risks can mitigate them. In the process of allowing such firms to make profits, they secure the financial future of themselves and their families.

Indeed, it seems that policy makers of the left have missed a trick. What most people desire in vital areas such as education and healthcare is high quality, free at the point of use. Who is providing such a service is very much a peripheral concern if you have a broken leg which needs to be fixed, or are expected to pass a standardised set of exams at 16, 17 and 18. The real aim ought to be to ensure that this is the case in all industries, and that such a set up is sustainable for the public purse in the generations to come. Alas, we have come to a time and a place in world politics which is so polarised that to say such a thing is either; to be the enemy of free markets, or to be a neoliberal scumbag who wishes to exploit the working classes. But one should never care for labels. Profit is not the dirty word we have cracked it up to be. There is, however, a phrase that really ought to strike fear into all of our hearts. That word is inefficiency.

When the King's Fund (a leading UK healthcare think-tank) talks about the 'growing crisis in the NHS', the greatest concern is not the involvement of the private sector. Instead, it is the inefficiency in the way in which administration is undertaken and resources allocated that are seen as the greatest challenges facing any government's health policy. Yes, investment is a crucial plank to good healthcare. But having a system which cripples doctors and prevents them from what they really want to do (just in case anyone is unsure, that is treat patients) is a far greater threat. And yes, the British left found its reactionary streak and treat the NHS in its current form as gospel. What many fail to realise is that, if there are not radical changes to the way in which the NHS is governed and structured, then an economic downturn could result in the nation defaulting onto the woefully substandard American private insurance model. Public policy is all about outcomes, and to forgo better results because somebody makes more revenue than they do costs is the most painful folly.

This is not to say that profit is some kind of inherent good, or that the private sector should be the only port of call in all public sectors. This framework of inefficiency helps to explain why it is that rail privatisation (especially the half baked model of the UK which created local monopolies and kept the infrastructure in public ownership). Indeed, my secondary school level understanding of economics tells me that to have an industry which has low scope for service innovation, high sunk costs and capital maintenance costs, and faces challenges by alternative forms of transport is likely to have monopolistic tendencies. You cannot try to force competition in an industry which is simply not set up for it. Thus you are left with the only options that will allow you to operate with the necessary cost structure and economies of scale. That is private monopoly or public monopoly. Given the valuable nature of having an accessible rail service which all working professionals can utilise, the latter sounds like a more appealing option.

But this was a decision that was not based on how much money was being made by business executives. Until we keep up the 'ideologically pure' pretense that this is what we really ought to care about, then policy will continue to flounder. When it comes to the services that so many of the impoverished and disadvantaged are reliant upon, there is no time for zealotry.