02 Jun

Big corporations are bigger than the Big Society

Posted By polity_admin_user

crouch1News that the UK government has been spending 56 million a day sub-contracting its own activities to private corporations makes interesting reading. There have been repeated government claims that, under the Big Society programme, it is concerned to ensure that a wide range of different kinds of organization would win such contracts and not just firms.

To see how the government contracting business is stacked in favour of the big corporations one can look at the plans for sub-contracting the delivery of much of the National Health Service that are at the heart of the controversial Health and Social Care Bill. Here in particular, privatization to corporations is explicitly presented as only one of a number of outcomes of the competition regime proposed.

But look at the realities of the situation. NHS medical practitioners and hospitals are (unsurprisingly) primarily health-care professionals. They are not expert in marketing or in contract-winning. They do not have the competence, resources or time to lobby and sweet-talk contract commissioners and put a shiny advertising gloss on their work. Much the same is true of the voluntary organisations which are invited to bid for some contracts.

The private health-care firms, mainly giant US corporations with extensive experience of running health care in that country’s private system, do have the appropriate experience and knowledge. They also have very strong incentives to pour money into contract bidding. Given their large resources, it makes considerable sense for them to risk loss-making bids for UK health contracts in the first instance.

Non-commercial competitors will be unable to match them in this exercise and will be driven from the market. These will therefore not be there to compete the next time round, when prices can then be raised. Public-service contracting rules are unable to counter loss-leader tactics of this kind and will, as so often in the past, be naïve counterparts to very wily and strategic corporate bargainers. There is therefore no level playing-field in competition between corporations on the one hand and existing public providers and the voluntary sector on the other.

Further, it must be noted what competition is about here. It is competition for the winning of contracts, not for the provision of health care. The ultimate consumers of the health service are merely users; they are not part of the market relationship, which is between commissioners and contractors. Competition over how best to win a contract from a public service commissioner is not the same as competition over how to provide the best health care to a public. This is especially the case when, as is necessary, contracts last for several years.

In this country and elsewhere there have been many examples in recent years of privatization contracts of this type, across a wide range of public-service activities. A notable feature has been the emergence of a small number of corporations, with origins in traditional areas of government contracting like armaments and road-building, who have spread their activities to areas very new to them, from back-office local government services to nursery schools. The most striking recent case was the award of a contract for running parts of the UK 2011 Census to Lockheed Martin, the US armaments contractor.

The core business and expertise of these firms is in political lobbying and public contract-winning, not in providing the actual services they are claiming to be competent at providing. This is logical; their market relationship with a customer occurs at the point of gaining the contract, not providing the service.

The Health and Social Care Bill will lead, within a few years, to the privatization of these services to a small number of large corporations. Many of these will have their headquarters abroad. It is impossible that the proposers of the Bill do not know this, and it must be assumed that they want it. There is therefore a clear dishonesty in the official claim that these changes are part of a localization agenda.

Decision points, and the appropriate addresses for complaints and queries by users, will be removed to levels far more remote than a UK primary care trust. So powerful have corporate lobbies become that politicians are willing to play such games with the NHS.

From health to banks
The aftermath of the financial crisis presents a similar story. In the UK this has been redefined as a crisis caused by excessive public spending. It was not; it was caused by extraordinarily irresponsible behaviour by bankers, who made, retain, and indeed continue to reap enormous rewards for their pains.

In the USA, President Obama’s fairly tough financial regulation bill is being drastically watered down by a Congress highly responsive to the millions of dollars brandished by the financial sector’s corporate lobbyists – just as his health service bill was watered down following lobbying by that sector’s corporations.

In the UK government refuses to call the bluff of banks who make unlikely claims that they will leave the country if regulation is increased, while hobbling any attempts at the international action that can meet those claims head on.

In the 2010 general election British voters had a choice between a party that crumbled before corporate interests and one that is in large part constituted by those interests. It is not so different for voters in Greece, Portugal and Spain. Democracy enables us to choose between those who do not dare confront corporate power and those who represent it.

In some fields professional institutions that stand outside the political system – such as the medical profession – offer some defence against this impenetrable wall. In the case of the financial sector the only professions are those of the sector itself.

Not surprisingly therefore bankers see no reason to change their investment strategies, to accept tighter regulation, or to moderate their earnings – earnings that in principle are the rewards of risk-taking but which are today guaranteed by taxpayers.

Colin Crouch
is professor of governance and public management at the University of Warwick Business School. His book The Strange Non-death of Neoliberalism is published this month by Polity.