When privatization is a good idea, and when it isn’t

There was some rather surprising news last weekend. British police departments, under pressure from budget cuts, are outsourcing functions to private companies. That in itself isn’t new, but the scale and scope of it is pretty unheard of. Private companies already run detention centers and handle admin, but current proposals may see them take over duties such as neighbourhood patrols or crime investigation.

It’s the latest in a series of discussions about privatization that are going on at the moment. The other big one is the NHS. The government wants to reform the National Health Service and make it more efficient and more accountable. Critics of the plan say it’s privatization by the back door. A lot of people are very upset about this, but it shouldn’t be a surprise. If we didn’t want this discussion as a nation, we shouldn’t have voted Conservative in the manner that we did.

The trouble with privatization is that it’s actually very hard to discuss it seriously. It is too often a matter of ideology – government bad, private enterprise good – or its opposite, depending on who you ask. This unhelpful polarization pushes people to extremes to make their point, and the idea of privatizing things like healthcare or policing is presented either as an almost magical solution (see below right) or some kind of betrayal (see below left).

But of course there is nothing inherently wrong about privatization. Some things are best run by private enterprise, and some things are best run by governments.Here’s an experience I had recently that illustrates the benefits of privatization:

Last year I spent a whole afternoon trying to get a prescription for my wife from a hospital pharmacy, the day after we’d gone home with the baby. The midwife at the reception desk wrote it but it required sign-off from a doctor, so I waited for one to drop by the ward. That was an hour. Then I was told that the signed prescription had to be delivered by hand to the pharmacy, and that I should wait for an orderly to drop by. After half an hour, I repeated my initial offer to deliver it myself. They begrudgingly agreed and I took it downstairs to the pharmacy. The pharmacist told me it was ‘highly irregular’ and I should have waited for an orderly.

Another hour passed, and then I was shown a paper bag. These were the drugs, the pharmacist said, but she couldn’t give them to me. Because they were specialist items, they could only be handed to me by a midwife, and obviously there wasn’t one in the pharmacy. I would have to wait for one. I refused, and made the pharmacists’ assistant walk with me back to the ward. On the way, we met one of the midwives in the elevator. I asked if she could give me the drugs. She said she was busy. I told her all she needed to do was literally take the bag from the assistant and give it straight to me. “Seriously?” she asked, “for fuck’s sake.”

The whole process reminded me of getting money out of the bank in Madagascar in the 80s. That took a whole afternoon too, taking a number, coming back at a certain time, a cashier counting out the notes and a second one to witness it and confirm the count, lots of rubber stamping and form filling. That was before computers and in a third world country, so at least there was an excuse. In England in the 21st century, there’s no reason to rely on hand written forms, hand delivery, and physical sign off. The whole process could have taken five minutes. Fill in a form on the computer, and send it to the doctor’s PDA or phone. They sign it off electronically on a touchscreen, and click ‘send’ to relay it to the pharmacy. They fill out the prescription, the midwife confirms electronically that its for me and I pick it up. So why doesn’t that happen?

The only way the hospital pharmacy can get away with its arcane bureaucracy is because it gets its budget every year, and doesn’t have to justify its processes. It’s just part of the massive cost of running a hospital. Since nobody is going to countenance cutting hospital funding, it can expect the money to be there in perpetuity regardless of how efficient or inefficient it may be. And since the hospital only has the one pharmacy, it has a monopoly. There’s no alternative quicker service that customers might choose to use instead, that would keep the hospital pharmacy on its toes.

This would be a good candidate for privatization. Not the whole hospital, just the pharmacy. A private company would take it on under contract. It would have to streamline its processes in order to make a profit. If it didn’t deliver a good service to the hospital and its patients, the contract would go to someone else. Everybody would benefit – the people in the waiting room, the doctor who has to call in periodically to the ward to see if there’s anything to sign, the orderlies run errands, the midwives too busy to fill in paperwork, the mothers waiting for the busy midwives, the hospital accountants, and the taxpayer who pays for all the faffing about.

Privatization can be a good thing, when it is done wisely. But that doesn’t mean it’s always a good thing, any more than you can say that free markets are always a good thing. (Nobody wants a free market for slaves, votes, or passports, do they?) It is vital to make decisions about privatization on a case by case basis. There’s no doubt that some privatization, of certain services, would work for the NHS. Other things shouldn’t be put up for sale.

Like the police force. There are all kinds of back-room functions that can be outsourced, but not the actual policing. Neighbourhood patrols and crime investigation are as step too far, because the safety of our streets isn’t something that is bought. It is created by the community, and the police is part of that community. There are all kinds of functions that a private company would not be able to fulfil – would G4S turn up to secondary schools to talk about knife crime, or drop by the local residents association to talk about antisocial behaviour? Would they support neighbourhood watch schemes or visit the elderly in their homes to talk through their security concerns?

Law and order isn’t a commodity. You can’t buy it in. It is built, through trust, relationship, face to face time in the community, and by engaging people in the places where they live. There are no shortcuts to those processes.

I don’t know how serious police forces are about outsourcing their core functions. We’ll get a sense of how viable such things might be as the ideas reach the media and people start to talk about it, but there’s plenty more discussion to come on privatization. Let’s have that discussion, but let’s look at each idea on its own merits, neither applauding it nor condemning it without knowing the facts. Let’s be guided by common sense and not ideology.

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3 Comments on “When privatization is a good idea, and when it isn’t”

  1. Byron Smith March 17, 2012 at 2:01 am #

    (Nobody wants a free market for slaves, votes, or passports, do they?)
    The rich.

    That aside, I noted the irony that the group responding to the outcry over the initial reports of police privitisation and defending the idea was the ACPO (Association of Chief Police Officers), itself a private company.

  2. Jeremy March 19, 2012 at 8:56 am #

    Yes, ACPO is a somewhat shadowy presence within the police force. Not sure how that came to be, exactly.

Trackbacks/Pingbacks

  1. All That We Share, by Jay Walljasper | Make Wealth History - April 3, 2012

    [...] ideological baggage. For many economists, the most obvious solution to managing a resource is to privatize it and turn into a commodity. If someone owns it, they’ll look after it. Those who oppose [...]

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