Private sector is more efficient than the public sector

[Angilion]

Explain and you might get more useful replies

Private does tend to be more efficient as they don't have the financial backing like public services they're in it to make money they don't make money they go bankrupt. Efficient in the way of cost to service ratio maybe not actual quality of service. If public services run out of money they have many more options than a private entity.

There's a counter-argument, namely that private has inherently higher de facto costs for providing a service because, as you rightly point out, "they're in it to make money". Their profit is therefore added to the cost of actually providing the service (but not counted as a cost, despite the fact that it obviously is). So in order to be more efficient in terms of cost alone, even disregarding quality entirely, they must reduce costs (in comparison with public sector) by more than the profit they take.

Then there's hiding costs by moving them back to the public sector. Privatisation of public services provides one way - private businesses using only the parts they can profit from, leaving the public to pay the cost of the rest of it. The benefits system provides another - the business can cut its costs by reducing wages, leaving the public to pay for benefits to bring the employees' incomes up to the cost of living.

I think the correct answer to the OP's question is "it depends". On various things - what area of service/business you're looking at, how the organisation is run, whether it's selling a product or providing a service, whether you count all costs or just the ones which support one side or the other, etc.

 

[Mynight]

There's a counter-argument, namely that private has inherently higher de facto costs for providing a service because, as you rightly point out, "they're in it to make money". Their profit is therefore added to the cost of actually providing the service (but not counted as a cost, despite the fact that it obviously is). So in order to be more efficient in terms of cost alone, even disregarding quality entirely, they must reduce costs (in comparison with public sector) by more than the profit they take.

Then there's hiding costs by moving them back to the public sector. Privatisation of public services provides one way - private businesses using only the parts they can profit from, leaving the public to pay the cost of the rest of it. The benefits system provides another - the business can cut its costs by reducing wages, leaving the public to pay for benefits to bring the employees' incomes up to the cost of living.

I think the correct answer to the OP's question is "it depends". On various things - what area of service/business you're looking at, how the organisation is run, whether it's selling a product or providing a service, whether you count all costs or just the ones which support one side or the other, etc.

Great counter argument! Agreed completely on that basis .

I have noticed though that the vast majority of privatised companies bid low to get the contract then once signed exponentially increase charges to the public sector. I would assume that opening bid is based on say 1% profit then all the added extras are there to increase profit margins while service staying relatively the same quality. I wonder if there are tax benefits to working for the public sector as a private company.

 

[Caged]

If the organisation putting the work out to tender had a well-defined scope of work and didn't change their mind constantly then the price increases wouldn't be able to happen. You have to assume that because these increases are paid that they are less than confident in their ability to win in a court of law if they refuse to pay.

 

[rodenal]

Great counter argument! Agreed completely on that basis .

I have noticed though that the vast majority of privatised companies bid low to get the contract then once signed exponentially increase charges to the public sector. I would assume that opening bid is based on say 1% profit then all the added extras are there to increase profit margins while service staying relatively the same quality. I wonder if there are tax benefits to working for the public sector as a private company.

You can only blame poor specification for this. Give your contractors no change, keep an eye on the tendered small quantity but expensive items at bid stage and they have no ammo with which to fire excessive profit onto.

Public sector are exceptionally poor at this - though as mentioned further up the thread this partly comes down to the flow down of ever changing requirements

 

[Mynight]

It does seem like an absolute dream to contract work for the public sector.

I must admit I would be intrigued to see how much (if any) money is saved by privatisation. I suspect not.

 

[rodenal]

It depends on the contracting arrangement. It can be absolutely infuriating on the other side of the fence, when what you'd really like to do is get the job done, but your customer has no idea what they want or what they think that it should cost, but expend several man months of middle management effort figuring that out before starting the loop again

 

[Judgeneo]

You can only blame poor specification for this. Give your contractors no change, keep an eye on the tendered small quantity but expensive items at bid stage and they have no ammo with which to fire excessive profit onto.

Public sector are exceptionally poor at this - though as mentioned further up the thread this partly comes down to the flow down of ever changing requirements

Indeed, hence the big SIAM contracts that this government is awarding, lets see if they work...

 

[Caged]

I do have to chuckle at the myth that privatisation increases choice and competition - tell that to commuters.

 

[rodenal]

The difficulty is in actually measuring it as there is no longer a continued public equivalent with which to benchmark. Old cost data plus some predictions can't really match real world comparisons

Plus....the people measuring are those we say are either incredibly inneficient or simply out to skim away as much for themselves as possible!

 

[Meridian]

We've known this for centuries.

No, it's been dogma for about a century. Before that it was assumed that government was better.


The problem is, there's very little reliable research into this. What little research which has been done was funded by either:

a) a government which was privatising stuff, and/or
b) a company which was picking up stuff which had been privatised.

Surprise - both cherry-pick data like crazy to make sure that any report gives the result that they want. Another part of the problem is: define "efficient". For most governments (and the right-wingers here) is means "cheaper". By and large, governments want to spend the minimum amount of money which will win them the next election. The commonest ways companies become more efficient are:

1) Stop doing as much. Government organisation A is privatised and sold to Serco. Sorry, sold to the company which can make the best job of work. Obviously there's no corrupt relationship between the government and Serco. Or G4S. Anyway, when it was public, organisation provided 100 services for £200 million a year. Serco, sorry, the highest bidder, abandons 20% of the services, and provides the remaining 80% for £180 million. Is this more efficient? Answer: nobody cares because it's cheaper. Except the people who relied on the 20% which got dumped, but they don't vote for the current government so **** 'em.

2) Reduce the wages of the staff. Sure, they come across on TUPE, but that's worth nothing because it only applies at the point of transfer. The new company is perfectly entitled to wait a day then make the whole lot redundant. It then hires them back at minimum wage. Except now the government is having to pay tax credits and benefits to those staff who used to pay taxes in, because the wages are so low. Serco, sorry, the highest bidder, saves £25 million in wages, which is now effectively paid by the tax payer. Is this more efficient? Answer: nobody cares because the data only shows the direct costs, not the indirect ones.

 

[[FnG]magnolia]

Thoughts?

I don't want my reply to taint or derail the question. Which is does nearly all the time.

You never fail to not rise. Strong content posting once again.

 

[elmarko]

The problem arises when people forgot the government can't ignore those externalities in the same way a private corporation can (which is effectively an externalising machine). They are two completely different entities with differing objectives.

A public sector organisations purpose is to provide a service - including aspects which may never be cost effective but required for a functional society.

 

[semi-pro waster]

If the organisation putting the work out to tender had a well-defined scope of work and didn't change their mind constantly then the price increases wouldn't be able to happen. You have to assume that because these increases are paid that they are less than confident in their ability to win in a court of law if they refuse to pay.

Possibly but I wouldn't necessarily assume that. In some cases the service being provided simply can't be left to fail while the argument is being sorted out - contractual penalties would be small recompense (and probably no use to the end-user of the service) if a vital service stopped being supplied.

 

[Tunney]

All large organisations are inefficient.

 

[pitchfork]

I've worked for a number of years in both as well as doing some work with third sector charities.

I can say this, public sector generally has massively overqualified people working for them or at least in terms of the civil service. I've earned nearly double my current salary in private sector - I work in public sector because I respect the cause and don't need the money.

People in the public sector always had bad wages compared to private, and that was always made up with through better pension and job security. Until now when public sector workers are 20% worse off than they were 5 years ago and looking at redundancies and fear of privatization. Knowing this people are no longer loyal to the service and you very quickly lose experience and expertise to the private sector making the service less efficient.

The simple fact is however it is cheaper to get a public sector company to perform a public service than it is to privatize it. Public sector will stretch the budget as far as they can to provide the british public with what they need and no profit need be made.

Private sector firms will cut every conceivable cost at the expense of service quality and feed the savings directly back to the shareholders, then they'll jack up the prices, cut staff and expect the staff to work extra hours unpaid to pick up the slack. All the while the British public lose out on service and jobs and end up paying more.

It's like getting rid of nurses to hire them back via an agency at an increased cost - the nurses are no longer loyal to the NHS and they're on less money while some dickbag agency is collecting a healthy commission. It only makes sense to the old boys club looking to get a bit of government money in their arse pocket.

 

[Theophany]

The problem arises when people forgot the government can't ignore those externalities in the same way a private corporation can (which is effectively an externalising machine). They are two completely different entities with differing objectives.

A public sector organisations purpose is to provide a service - including aspects which may never be cost effective but required for a functional society.

Goddammit, I'm agreeing with elmarxo again.

Private and public sector entities are different models with different purposes. Attempting to compare them is, in my view, a waste of time.

 

[[FnG]magnolia]

All large organisations are inefficient.

I think you dropped your blanket.

 

[FTM]

most of the time..until a company gets really big and the same sort of ineffiencies appear..mainly due to plain old human errors

I work in the public sector...but we do a lot of business with the Private sector, such as with Capita or BT..and they seem no better than us at organising stuff!

same with my Wife who works for Lloyds...and they seem to suffer the same problems as the public sector..poor middle management with people promoted above their ability and then not willing to take the responsibility of their roles, backheeling decisions to front line staff etc.

 

[Tunney]

I think you dropped your blanket.

The extent to which large organisations are inefficient varies but they're still all inefficient by nature.

Communication costs, duplication of effort, inertia. It's basic economics.

 

[elmarko]

Goddammit, I'm agreeing with elmarxo again.

Private and public sector entities are different models with different purposes. Attempting to compare them is, in my view, a waste of time.

Commie!.