Free Schools Failure

[TopBadger]

Yep, that "Great Idea" the tories imported from Sweden, Free Schools, has been deemed a failure by Sweden's education minister

Hopefully Labour jump on this...

When will folks learn that creating profit motives in essential services for society is not good?

[bjn]

Yep, that "Great Idea" the tories imported from Sweden, Free Schools, has been deemed a failure by Sweden's education minister

Hopefully Labour jump on this...

When will folks learn that creating profit motives in essential services for society is not good?

Well it's certainly good for the shareholders.

[IvanV]

Yep, that "Great Idea" the tories imported from Sweden, Free Schools, has been deemed a failure by Sweden's education minister

The minister actually still thinks free schools are a good idea, rather the rules need changing.

In spite of the schools’ problems, she insisted friskolor still had an important place among Sweden’s schools, which she said offered choice without fees.

When will folks learn that creating profit motives in essential services for society is not good?

Better nationalise food production and distribution, and housing services, immediately then.

All free schools in Britain are run by not-for-profit organisations. So whatever problem exists with free schools in Britain, it isn't the profit motive.

[bob sterman]

Yep, that "Great Idea" the tories imported from Sweden, Free Schools, has been deemed a failure by Sweden's education minister

Hopefully Labour jump on this...

When will folks learn that creating profit motives in essential services for society is not good?

You mean the same Labour Party that created the situation where the NHS is paying billions to profit driven PFI companies?

[IvanV]

Yep, that "Great Idea" the tories imported from Sweden, Free Schools, has been deemed a failure by Sweden's education minister

Hopefully Labour jump on this...

When will folks learn that creating profit motives in essential services for society is not good?

You mean the same Labour Party that created the situation where the NHS is paying billions to profit driven PFI companies?

Mr Brown's off-balance-sheet-financing trick, to make the national accounts look better.

I think the Labour Party, like nearly everyone, now knows that was a mistake and won't be repeating it.

After their Corbynite excursion, I don't believe the Labour Party's present attitude to private provision is as restrictive as TopBadger's.

[El Pollo Diablo]

The Treasury, even under the Conservatives, is fairly strongly set against PFI or similar positions, and a proposal to use it for investment generally needs to have a pretty good business case in order to do so.

Spoiler:

*cough* Euston *cough*

[Fishnut]

I would like to ask a potentially stupid question. Can someone please explain to me how contracting out essential services to for-profit companies benefits taxpayers?

The way I understand it, for-profit companies who provide a service for the public charge more than it costs to deliver that service in order to make a profit. That means that whatever the government/council etc pay that provider is more than those services cost to deliver. So if the government/council etc delivered those services themselves then they could do so without the need to pay for the profit and thus save taxpayers' money.

One argument I've seen is that for-profit companies can specialise and become experts and so be able to deliver services more efficiently. But in practice that rarely seems to be the case. What we actually see seems to be companies cutting corners in order to maximise their profits at the cost of quality. And many of these for-profit companies (at least for things like schools) don't seem to be experts in the industry anyway.

[El Pollo Diablo]

I would like to ask a potentially stupid question. Can someone please explain to me how contracting out essential services to for-profit companies benefits taxpayers?

The way I understand it, for-profit companies who provide a service for the public charge more than it costs to deliver that service in order to make a profit. That means that whatever the government/council etc pay that provider is more than those services cost to deliver. So if the government/council etc delivered those services themselves then they could do so without the need to pay for the profit and thus save taxpayers' money.

One argument I've seen is that for-profit companies can specialise and become experts and so be able to deliver services more efficiently. But in practice that rarely seems to be the case. What we actually see seems to be companies cutting corners in order to maximise their profits at the cost of quality. And many of these for-profit companies (at least for things like schools) don't seem to be experts in the industry anyway.

It doesn't.

The generally mentioned benefit is that having privately-financed public investment bolsters the amount of money governments are prepared to invest themselves, and in turn limits the amount of borrowing that takes place. Given that Governments can generally borrow much more cheaply than other entities, this is not a financial decision but a political one - making Government debt look smaller, and in doing so paying more in opex over time (which is another Government's problem).

The NAO report linked above mentions three purported extra benefits of a PFI-style solution, which are (a) certainty over construction costs, (b) improved operational efficiency, and (c) higher quality and well-maintained assets:

1. The report says that, after surveying governmental project managers, PFI projects have generally delivered closer to the price forecast, so costs are indeed more certain. However, this doesn't mean those costs are lower - they aren't, they just change less. 2/3 of PFI projects tend to be the simplest ones which have the lowest risk. The mechanisms by which costs are made more certain in PFI projects are also available to the public sector. Overall, the funding mechanism appears to make no difference to overall costs.
2. The report found no evidence of any improved operational efficiency in PFI-delivered hospitals.
3. PFI infrastructure does tend to have higher quality and well-maintained assets, but this is because the delivery and service contracts restrict them to this performance level, whereas public sector organisations have the options of downgrading service to save operational expenditure. However, it is perfectly possible to ring-fence public sector maintenance budgets and commit to certain performance levels, but this is not usually done, because normally the government wants to raid opex to give rich people more money.

So, the main benefit of PFI is that by signing a contract to pay significantly more in the long run, a Government protects public infrastructure from the Government.

[Fishnut]

Thank you for the explanation.

I'm almost glad I'm not missing anything as it means I'm not as woefully ill-informed as I feared. But I'm also annoyed that I'm not missing anything because it means we're spending more money than we need to.


Am i right to assume that while the specifics are different, 'overpaying in order to make it look like we're spending less right now' is also at play with the outsourcing of services like running schools, refuse collection and social services?

I had a skim of the report and was struck by this line in the first paragraph,

This briefing was prepared prior to the announcement on 15 January 2018 that the construction company Carillion was in liquidation.

it led me to this piece in the Conversation,

The UK’s second largest construction business had a network of [PFI] contracts, worth billions of pounds, providing essential public services across government departments. The NHS, defence, education, energy, and prisons have all been left exposed by its collapse.
...
The evidence shows that PFI is always more costly relative to its publicly funded alternative – a recent government report found that some are as much as 40% more expensive. These extra costs, meted out to the private sector, go on to line the pockets of shareholders – many of which hold their earnings in offshore companies, therefore paying little to no tax on these earnings in the UK.

[IvanV]

I would like to ask a potentially stupid question. Can someone please explain to me how contracting out essential services to for-profit companies benefits taxpayers?

The way I understand it, for-profit companies who provide a service for the public charge more than it costs to deliver that service in order to make a profit. That means that whatever the government/council etc pay that provider is more than those services cost to deliver. So if the government/council etc delivered those services themselves then they could do so without the need to pay for the profit and thus save taxpayers' money.

One argument I've seen is that for-profit companies can specialise and become experts and so be able to deliver services more efficiently. But in practice that rarely seems to be the case. What we actually see seems to be companies cutting corners in order to maximise their profits at the cost of quality. And many of these for-profit companies (at least for things like schools) don't seem to be experts in the industry anyway.

It doesn't.

It is incorrect to conclude from this that all contracting-out/private provision solutions are bad.

The NAO report considers only a subset of contracting-out methods, PFI1 and PFI2, that it accurately assesses as misconceived. They are notable for the following features:

They are capital intensive - eg building services where the main service provided is the building itself
The capital resource required to provide the service is largely specific to the customer - it isn't a building (or other large capital item) that is easily converted to or from other purposes

This does not mean that all contracting-out/private provision solutions, even capital intensive ones, don't work and are poor value for money. Unfortunately, the PFI wave was focused on situations with these features. It was distressing. People who had been designing privatisation solutions for years knew perfectly it wouldn't save money. But it was done for the fake benefit of going off balance sheet, which some people thought was a clever trick until Enron collapsed. And doubtless cleverly marketed by the financial providers who would make a killing from it.

Often, the opportunity for efficiency to be found in private provision is where there is a higher proportion of operating costs and a lower proportion of it is capital cost. Because then, the government's lower cost of capital - government pays a lower interest rate - does not come into play. (Though sometimes it needs to be understood that government's lower interest rate involves a hidden subsidy of risk-taking.)

But even in relatively capital intensive services, private provision can be efficient. It is perfectly fine for a public sector body to rent generic office space. It could well often be efficient. Private providers are efficient at providing office space. It may be capital intensive, but it is generic capital that can be used for many other occupants. The public sector often does not need to build and own their own office buildings to achieve efficiency. Indeed, they can be bad at it and save money by renting privately supplied offices. Lots of central government administration functions have moved out to Canary Wharf, Stratford, etc, to rent privately provided offices, because it saves a lot of money.

But renting a school is something else. There isn't much of a market in school buildings. There is no reason to believe others can provide school buildings more efficiently, because they don't often do it. And they won't provide it in a way that you can walk away if they mess it up. So it is much better to use your own low cost of capital and build your own school, which is specific to your requirements.

I mention less capital intensive services as usually being a better bet to save money by contracting out. The classic early case of service privatisation was bin collection. It saved money to contract out bin collection. It wasn't difficult for a competitive market in bin collecting to be created, and generate efficiencies in bin collection. But that doesn't mean that private provision is always better in services with low capital intensity. There can be other difficulties. Monitoring the quality of service to make sure you are getting value for money is very hard in some services. The private sector can be inexperienced at providing a particular service, and be unfamiliar with the methods needed to provide it effectively or efficiently.

[sTeamTraen]

I would like to ask a potentially stupid question. Can someone please explain to me how contracting out essential services to for-profit companies benefits taxpayers?

The idea, which I remember my Tory-voting, local government officer Dad being quite keen on when it was first mooted in the 1970s, is that public sector employers have a lot of bloat, because people with "jobs for life" often go sick, burn out, stop working, etc. In contrast, in the private sector, everything is lean and dynamic. Managers are always looking for ways to improve efficiency because bigger margins mean bigger bonuses, and workers don't have quite the same degree of protection as their public sector counterparts (even back in the 1970s, when most people could probably name more union leaders than cabinet ministers), so they, too, will shape up. So if you have a £10 million budget, you can (again, on this account) save 20% with Privatisation™, and even though the private company will want their margin (£1 million), you've still saved the rate/tax payer a million squids.

There are some grains of truth in this. Anyone who has tried to manage people in a public sector job will have to admit that there are a number of staff whose departure would increase productivity even if they were not replaced. In any NHS trust there are several people totally taking the piss with sick leave. (Not directly related to this argument, but there is also always far more bullying in the public sector (and it may be even worse in charities) than the private sector, because it attracts both the bullies and the bulliable, just as there is a lot of child abuse in the scouts and the church because if you want to abuse children, that's where they are.)

However, the problems, as we are learning, are numerous. The model of the private sector that was used seems to be that of Margaret Hilda Roberts's dad running his corner shop, whereas large private companies can be almost as bureaucratic as your local council. And that "British" services company to whom you gave a 10-year contract is now probably owned by MacQuarie, Deutsche Bahn, and the Ontario teachers' pension fund. But the biggest problem is moral hazard: These companies often can't be allowed to fail, because they are providing services to vulnerable people. And even if you have a good independent regulator (see "regulatory capture" for the opposite), who is keeping an eye on operational efficiency and sustainability, their failure can be the result of financial engineering in the back office, which is hard to monitor.

[El Pollo Diablo]

Stuff

More stuff

Lots of good stuff

Fair enough, that's a good clarification, and I probably railroaded myself onto PFI because it's close to the questions circling around where I am right now. But yes, often there are benefits to contracting out certain services, where it's a core provision of a contractor and they've found good ways to make the service efficient (hopefully without forcing employees into penury). And obviously, most capital delivery is by private companies, even if the assets are owned by public sector orgs.

[Allo V Psycho]

(Informative stuff and...)
I mention less capital intensive services as usually being a better bet to save money by contracting out. The classic early case of service privatisation was bin collection. It saved money to contract out bin collection. It wasn't difficult for a competitive market in bin collecting to be created, and generate efficiencies in bin collection. But that doesn't mean that private provision is always better in services with low capital intensity. There can be other difficulties. Monitoring the quality of service to make sure you are getting value for money is very hard in some services. The private sector can be inexperienced at providing a particular service, and be unfamiliar with the methods needed to provide it effectively or efficiently.

Anecdata alert.
I remember when they privatised refuse collection in a largish UK city. That included emptying the street litter bins (in those days wire baskets attached to lampposts). I saw the crew come round, and the runner dashed up to the bin, plunged both gauntleted hands in and pulled out all the rubbish. He then ran back to the truck and dumped what remained in his gloves in it, before dashing to the next one. About half the rubbish was dropped in the street. It looked to me as if the factors measured by the private company (and probably by the contracting council) were (a) the number of empty bins and (b) the time taken to empty them (both easily measured). Rubbish dropped in the street (hard to measure) was not a factor. As they worked their way down the street, what had been a relatively litter free area (because many people had been using the bins) became a litter strewn area (which I suspect would encourage others to just drop their litter in the street, because everyone else seemed to be doing it). Efficiencies?

The second was when I was working in a psychogeriatric ward. At first, the cleaners were employed by the NHS. They were generally middle-aged Scottish wifies, who had worked 'their' wards for years. They were proud of their wards, and would clean the visible and invisible, even when the invisible were by definition hard to score. And because they were very familiar with the task, they could operate with speed and efficiency, and were relaxed about the tasks, so they would chat to the patients, whom they often knew by name and history. The NHS staff blessed their presence, because the physical work of nursing and doctoring was very arduous, and there wasn't enough time to talk to patients, even though the patients plainly valued and benefitted from the human contact.
When cleaning services were contracted out, things changed. Now the workers were casual, often immigrants, since 'cost savings' included cutting wages. They were measured on visible cleaning, and speed, so the 'hard to see' things were neglected. Of course, talking to patients was out: and since the cleaning staff changed so often, they didn't know the wards or the patients, and didn't have even enough time, really, even for the basics. I don't have temporal data on the rise of hospital acquired infections and the privatisation of cleaning, and anyway, correlation isn't causation, but even so...

I'm not sure how to draw general principles from these observations. Something along the lines that there are some things that don't readily appear on balance sheets, but are real nonetheless. Pride and ownership of work may be among them. For many people, their job is more than just a source of income, it is a source of pride and self-esteem. Is a balance sheet driven approach at odds with this? In most (public service, education and health-related) places I've worked, no one does what they are paid for. Most do far more: a few do far less. What's the balance?

OK, I'll stop these probably irrelevant ramblings at this point.

[Allo V Psycho]

There are some grains of truth in this. Anyone who has tried to manage people in a public sector job will have to admit that there are a number of staff whose departure would increase productivity even if they were not replaced. In any NHS trust there are several people totally taking the piss with sick leave. (Not directly related to this argument, but there is also always far more bullying in the public sector ... than the private sector, because it attracts both the bullies and the bulliable, just as there is a lot of child abuse in the scouts and the church because if you want to abuse children, that's where they are.)

(Emphasised part) That's really interesting. Is there data on that? (not being snarky, genuinely want to know). I know the evidence that there is a surprising amount of bullying in the NHS.

[Sciolus]

But even in relatively capital intensive services, private provision can be efficient. It is perfectly fine for a public sector body to rent generic office space. It could well often be efficient. Private providers are efficient at providing office space. It may be capital intensive, but it is generic capital that can be used for many other occupants. The public sector often does not need to build and own their own office buildings to achieve efficiency. Indeed, they can be bad at it and save money by renting privately supplied offices. Lots of central government administration functions have moved out to Canary Wharf, Stratford, etc, to rent privately provided offices, because it saves a lot of money.

It always bemused me that Thatcher was selling off council houses and telling everyone how much better it was to own their property than to rent it, at the same time that she was selling off government estate and renting it back.

If there are any examples of the latter working well, as opposed to enriching tax avoiders or enriching slum landlords, I would love to hear them.

[sTeamTraen]

(Emphasised part) That's really interesting. Is there data on that? (not being snarky, genuinely want to know). I know the evidence that there is a surprising amount of bullying in the NHS.

I think there is/are data, but I don't have it/them to hand. I read this for the first time some time before I got into the actual science racket business. I could of course put "prevalence of bullying in public vs private sector employers" into Google and hit my Scholarfy button, but so could anyone.

[JQH]

Maybe bullying in the public sector is more widely known about because more people there are prepared to take on their managers because they can call on union representation.

[dyqik]

Maybe bullying in the public sector is more widely known about because more people there are prepared to take on their managers because they can call on union representation.

IME, the only way that the private sector is more efficient than the public sector is that they get away with abusing staff, business regulations, and basic human dignity more.

[jimbob]

There are some grains of truth in this. Anyone who has tried to manage people in a public sector job will have to admit that there are a number of staff whose departure would increase productivity even if they were not replaced. In any NHS trust there are several people totally taking the piss with sick leave. (Not directly related to this argument, but there is also always far more bullying in the public sector ... than the private sector, because it attracts both the bullies and the bulliable, just as there is a lot of child abuse in the scouts and the church because if you want to abuse children, that's where they are.)

(Emphasised part) That's really interesting. Is there data on that? (not being snarky, genuinely want to know). I know the evidence that there is a surprising amount of bullying in the NHS.

Anecdata from my experience in the private sector (large multinational) and people I know in the public sector (both council and Welsh Assembly) are that they mention incidents that my private sector HR would be down on very quickly.

[IvanV]

It always bemused me that Thatcher was selling off council houses and telling everyone how much better it was to own their property than to rent it, at the same time that she was selling off government estate and renting it back.

If there are any examples of the latter working well, as opposed to enriching tax avoiders or enriching slum landlords, I would love to hear them.

There has been a large-scale privatisation of housing in some former communist countries, where most housing was publicly owned. Not all of it was sold off, some of it was retained as social housing. This has enabled improvements to those buildings, though the money the occupants could raise, which would have been difficult in the public sector. It was not sensible that the state should continue to own housing at that level.

So a certain degree of privatisation of housing is not necessarily foolish. I think it is well attested that Thatcher's main aim with council house sales was to turn them into Tory voters, on the grounds that house-owners mostly vote Tory. There was no careful thought about, how much should we keep for social housing, which are the ones that would be best to sell off, what should be the price of this house. The best that can be said for it is that it was a redistribution of wealth towards the less well off, at a time when mostly wealth was being redistributed in the other direction through changes to the tax system that were generous to the better off. Though it was a pretty random redistribution towards a particular stratum, who were not necessarily the most deserving, at all.

One of the sensible reasons for a public sector agency to rent, for example, office space, is that the amount they need varies over time, and it is much easier/cheaper/more efficient to adjust the quantity to your needs when you are renting. If the sale and lease back is on the basis that you don't guarantee to occupy it, and it can be effectively used for other customers when you don't need it, then that can be efficient.

But sale-and-leaseback of assets that only you would use is as foolish as PFI and for the same reasons. Private companies sometimes engage in sale and lease back, but mainly because it is a tax dodge; or it does help them repair their balance sheet when they are over-extended, and this is the best way they have located to realise some assets without damaging their business. But when the public sector did a sale-and-leaseback, and they buyer was able to engage in a big tax dodge, the public sector was shooting itself in the foot very badly.

[dyqik]

There are some grains of truth in this. Anyone who has tried to manage people in a public sector job will have to admit that there are a number of staff whose departure would increase productivity even if they were not replaced. In any NHS trust there are several people totally taking the piss with sick leave. (Not directly related to this argument, but there is also always far more bullying in the public sector ... than the private sector, because it attracts both the bullies and the bulliable, just as there is a lot of child abuse in the scouts and the church because if you want to abuse children, that's where they are.)

(Emphasised part) That's really interesting. Is there data on that? (not being snarky, genuinely want to know). I know the evidence that there is a surprising amount of bullying in the NHS.

Anecdata from my experience in the private sector (large multinational) and people I know in the public sector (both council and Welsh Assembly) are that they mention incidents that my private sector HR would be down on very quickly.

I have the opposite experience. Universities will cover up all sorts of crap that would mean HR action and possibly even prosecutions in the government sector.

[Fishnut]

Charities are struggling to fill funding gaps left by local authorities and the NHS.

Donations, will legacies and charity shop profits are being used to prop up thousands of state-funded services in danger of closure, including care homes, homeless shelters, addiction projects and physical rehabilitation support schemes.
...
The refusal of local authorities, the NHS and government departments to fund the real cost of local service contracts – and the built-in assumption that voluntary sector will deliver “on the cheap” – was threatening the existence of vital local services, the National Council for Voluntary Organisations (NCVO) said.
...
Although there is sympathy for councils and NHS bodies which are themselves in dire financial straits there is anger at public sector “double standards” that accept private contractors must make a profit while routinely expecting charities to run services at a loss, with donors picking up the tab.

[Woodchopper]

(Emphasised part) That's really interesting. Is there data on that? (not being snarky, genuinely want to know). I know the evidence that there is a surprising amount of bullying in the NHS.

Anecdata from my experience in the private sector (large multinational) and people I know in the public sector (both council and Welsh Assembly) are that they mention incidents that my private sector HR would be down on very quickly.

I have the opposite experience. Universities will cover up all sorts of crap that would mean HR action and possibly even prosecutions in the government sector.

Sadly, I agree with dyqik.

[discovolante]

Charities are struggling to fill funding gaps left by local authorities and the NHS.

Donations, will legacies and charity shop profits are being used to prop up thousands of state-funded services in danger of closure, including care homes, homeless shelters, addiction projects and physical rehabilitation support schemes.
...
The refusal of local authorities, the NHS and government departments to fund the real cost of local service contracts – and the built-in assumption that voluntary sector will deliver “on the cheap” – was threatening the existence of vital local services, the National Council for Voluntary Organisations (NCVO) said.
...
Although there is sympathy for councils and NHS bodies which are themselves in dire financial straits there is anger at public sector “double standards” that accept private contractors must make a profit while routinely expecting charities to run services at a loss, with donors picking up the tab.

Probably also relevant is that state services have legal obligations - even if they don't meet them - to provide those services. Charities don't. They might well do that, and the people working for them might push beyond their own capacity to help as many people as possible, or may feel under pressure to do so to retain funding, but in the end they don't have to. That said though, the assumption that charities will literally pick up the tab to pay for certain services for people (as well as whatever service the charity provides itself) isn't that uncommon.

[Woodchopper]

Yep, that "Great Idea" the tories imported from Sweden, Free Schools, has been deemed a failure by Sweden's education minister

Hopefully Labour jump on this...

When will folks learn that creating profit motives in essential services for society is not good?

Worth noting that there was a change of government in Sweden last year, and so the 'failure' could just be a case of the current minister trying to criticize their predecessor.