Home > Economic policy > A rare outbreak of unanimity on PFI

A rare outbreak of unanimity on PFI

September 19th, 2017

I’m doing some work on privatisation and wanted to look at recent UK experience with the Private Finance Initiative. So, I Googled for PFI in the last year (as Google personalizes searches, your mileage may vary). The result is a surprising degree of unanimity. Across the political spectrum, there is agreement that

* PFI is a disaster, enriching private firms at the expense of the public
* The other side is (mostly) to blame

Excluding some references to an Indian political group and some data sources, the top hits are, in order:

PFI is bankrupting Britain (Guardian)

Private firms poised to make another £1bn(Guardian)

Hundreds of schools held hostage over PFI contracts (Telegraph)

Costly legacy of Labour’s PFI shambles (Daily Mail)

Tories accused of ‘double standards’ for promoting PFI (Financial Times)

NHS ‘leaking millions’ in PFI contracts (BBC)

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  1. bjb
    September 19th, 2017 at 18:53 | #1

    For those, like me, who are ignorant of this term, Wikipedia has a good write up:

    https://en.wikipedia.org/wiki/Private_finance_initiative

    Depressingly, seemed to have originated in Oz. Having watched 4Corners last night, getting very depressed about what our “representatives” are doing for/to us.

  2. John Quiggin
    September 19th, 2017 at 20:00 | #2

    @bjb

    We imported it from UK, then re-exported around the world. We are a few years behind them. Model obviously broken, but the full disaster yet to dawn

  3. Cecilia Spence
    September 19th, 2017 at 21:03 | #3

    Hi John,

    It is so simple. Governments are able to borrow at a cheaper rate than anyone else because they guarantee the repayment of the debt. There is no reason to enter into partnerships to carry out capital projects. Why they have done so must be down to ignorance. so sad

  4. Magma
    September 19th, 2017 at 23:24 | #4

    In North America these are more commonly known as PPPs (or public private partnerships) and are still popular among politicians who want to give the appearance of reducing debt or deficits without actually doing so. Apart from the pols looking for a quick boost, it appeals most to those who claim that corporations are vastly better than governments at most tasks. But a wide spectrum of the public, even those on the political right, see though the ruse and resent the long-term or permanent give-aways of public assets.

  5. Ikonoclast
    September 20th, 2017 at 07:06 | #5

    The PFIs and PPPs were conscious, intentional swindles by those who knew exactly what they were doing. Anyone competent in accounting, let alone in economics, who had done the sums and projections would have known they were swindles. Why did our politicians and bureaucratic managers permit these swindles against the public? Stupidity, selfishness and corruption are the only near explanations. Underlying that, an economic system which encourages stupidity, selfishness and corruption.

  6. Newtownian
    September 20th, 2017 at 08:24 | #6

    As Homer would say……Doh!

    If I remember rightly the argument was that the private sector would be so efficient that the profits provided to them would be worth the trade-off. There was of course nothing in this narrative about the history of rentier capitalism (aka the parasitic upper classes of Britain), the power of propaganda/public relations and the extraordinary failures and robber barons that led to the rise of socialist theory in the first place. My favorite memory was the use of mantras like “user pays” which is up there with “moving forward” or “tomorrow is the next day of the rest of your life” and similarly profound sounding nothings.

    Beyond this I am still unclear how this PFI happenned initially (ater it got going of course it was self reinforcing in that it funded the vested interests who promoted financialization). Was it a deliberate plot on the part the US pushing capitalist ideology a’la Chile…or was it a mutation that crept into the social democratic parties giving up Keating’s pig farms (no mention of methane generation or water pollution) or Rogernomics – a class traitor if ever there was).

    Or was it that social democrats had actually gone to sleep by the 1970s at the wheel and were unprepared for shocks to the system and so failed to recognise the shortcomings of social democratic political and economic theory? (Neoliberals were similarly unprepared in 2008 but by that time there was no alternative as their hegemony was complete).

    I dont ask these as Dorothy Dixers as I’m unclear which contributed the most and whether there were other factors that gave us this laughable gift to the rentier grifters.

    I think this is important because there is no clear push for an alternative now that PFIs are so embedded in people’s thinking as well as the academy.

  7. QuentinR
    September 20th, 2017 at 09:12 | #7

    “Stupidity, selfishness and corruption” covers it, for politicians.

  8. Greg McKenzie
    September 21st, 2017 at 08:48 | #8

    Privatisation was the smoke screen for tax cuts to the rich. Reagan, so much more of an economic vandal than Trump could ever be, dismantled the progressive income tax system in the USA. Of course this meant great losses of tax revenue. To cover this up, privatisation was used as an accounting trick.( Creative accounting is not limited to the boardrooms of large transnationals.) Of course, Margaret Thatcher joined in! Then the western economies, outside the Germany-France-Italy nexus, all played at follow the leader. It took the moral economists like John, to warn us about the twin disasters of privatisation and corporatisation.
    The funny thing is that we now have a LNP government prime minister publically criticising a privatised company’s CEO for only being concerned for the interests of his own shareholders. Now that is a real Doh! moment.

  9. Collin Street
    September 21st, 2017 at 16:02 | #9

    The funny thing is that we now have a LNP government prime minister publically criticising a privatised company’s CEO for only being concerned for the interests of his own shareholders. Now that is a real Doh! moment.

    Well, they’re national socialists, aren’t they.

    [and battler becomes Kämpfer in german, of course.]

  10. Stockingrate
    September 21st, 2017 at 21:44 | #10

    Money today for public spending at the expense of the future.
    Providing lucrative private second careers for politicians and some public servants.
    Providing large fees for financiers and consultanting/accounting/legal firms.
    Enriching private and foreign government owned firms at the expense of the local public.
    Providing foreign governments control over strategic assets.

  11. Peter T
    September 22nd, 2017 at 10:58 | #11

    I think you have to look beyond simple greed or self-interested policy to explain the near-universal turn to deregulation, privatisation, financialisation from the 80s. The first is always with us, and close connections between business and political elites are hardly a new thing. I’m not sure, but I think the underlying drivers have to do with declining ability to extract profits from the mixed economy of 1950 to 1980, a consequent revival of interest in extracting more from the lower classes, lessened pressure to maintain economies geared to national defence (local industry and national solidarity expressed in welfare) and, very probably, the end of a long run of free resource lunches (as in American prairies, forests and mines, colonial extraction..). The latter marks an environmental watershed.

  12. Jim
    September 23rd, 2017 at 08:33 | #12

    I think there are actually two key problems with PFI and PPP transactions.

    Firstly, the benefits are often illusory and we end up with taxpayers actually paying more.

    Secondly, and probably a bigger worry to me, is that it results in Governments selecting projects based on whether PFI and PPP contracts can ‘crowd in’ private sector capital, rather than selecting the projects that provide the greatest net benefits to society. This skews the selection of projects away from projects that provide genuine public benefits, or where the benefits are (inconveniently) too diffuse to capture via transactions.

  13. October 3rd, 2017 at 10:24 | #13
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