NHS & PFI
The latest London Review of Books has a great review article by David Runciman (subscription only, unfortunately). The books covered are Restoring Responsibility: Ethics in Government, Business and Healthcare by Dennis Thompson , NHS plc: The Privatisation of Our Healthcare by Allyson Pollock and Brownâ€™s Britain by Robert Peston.
Of these, I’m most interested in the book by Pollock, who’s been a prominent critic of the Private Finance Initiative, particularly in relation to health care. I think the biggest problems with the PFI are going to emerge ten or twenty years into the contracts, when any safeguards written into the original contracts will be obsolete, and the private party will have an incentive to extract as much rent as possible from the remaining life of the deal.
The whole idea of governments signing these long-term contracts is dubious in many respects. It’s bad public policy for a government to bind its successors in this way. And it’s bad commercial policy to sign 30-year contracts for services where ordinary principles of risk allocation would suggest a term more like five years. The PFI and similar initiatives have already run into plenty of problems, but I think the worst is yet to come.
A particularly egregious example came to light in Australia recently. The late, and not much lamented Kennett government signed contracts giving monopoly rights monopoly rights to operate gambling enterprises to two firms, Tabcorp and Tattersalls.
It now emerges that, if these contracts are not renewed, obscure clauses entitle the monopolists to compensation of up to $1 billion.