Governments Running Businesses Is a Bad Idea

by Peter Rose 9 months ago in opinion

Problems of business run by governments

Governments Running Businesses Is a Bad Idea

Governments running businesses is a bad idea.

Problems with governments running supply enterprises.

In the UK in year 2019—Press reports about the “crossrail project” saying it is going to have further delays and increased costs. Seems it is going to cost an additional £650 MILLION over and above the previously increased estimate (Originally the project estimate was reported to be £15.9 billion, now it is estimated to be going to cost £18 billion). This is a project to build a 73 mile long railway line across London.

It is reported that the latest increase is due to the cost of developing signalling technology and getting safety approval for the tracks.

Surely these should have been included in the original estimating procedures? How can it be possible to get a project such as this, so far down its path and THEN realise you need signals and need track approval?? Not believable. Something has to be wrong in all this.

This example shows there is a flaw in the principle of “public ownership.” It is intuitive to think that certain basic requirements should be the responsibility of a democratic government. That is certain basic needs should be available as a service to all the citizens of a nation and the costs met from taxation. Health, education, water, national security, emergency services and police, transport infrastructure and law courts; are the obvious ones. Many will have others that they include in this basic list.

The problem seems to start with the fact that the supply of such things is measured against commercial concepts of value. That is, the customer is the one who judges if the cost is worth paying. The difference is that in these nationalised enterprises, the customer cannot refuse to buy. The people running the government supply enterprises, are not commercial minded, they are bureaucrats. They tend to attempt to apply government employee mindsets to what are basically commercial enterprises. For those profit making companies, who become subcontractors to government agencies, the temptation is to use this lack of commercial understanding to maximise their profits. One old trick was to tender a very low price but in the specification of supply, they would leave out some essential parts of the project. They get the contract and start work and then say these additional essential parts are going to cost a sum, which gives them a very generous profit over the whole project. When tendering to another commercial company, they know they would never get away with this since the contract issued would have its own very detailed specification as an immutable part of the contract. They also know that any sensible commercial concern does its own estimates of what a project is going to cost them, before they put it out to tender.

The NHS, which has the laudable basis of being free at point of delivery, is another situation where expenditure control has failed. There are now far too many managers and administrators. Considering they have no need for such departments as; marketing, publicity or R&D Considering the “customers” they need to invoice or recover payments from, are only a tiny percentage of the total, they do not need vast accountancy departments. They do not need the same number of staff as a private commercial, profit making company, of equivalent size. Yet they have an abundance of non medical managers and bureaucrats.

It used to be a rule of thumb in business studies, that state enterprises spend one third of their—(Tax payers)—money, accounting for what they do with the remaining two thirds. If this is true in today's situation of computers and automated systems, then it is disgrace and tax money is being wasted to an appalling extent.

There are very professional government employees who know what the problems are and how to deal with them, but governments are controlled by politicians. The most senior bosses of government departments are skilled in politics (politics in its pure form, not party dogma), they are not trained or experienced in commerce. They know how to manipulate politicians to further the aims and desires of their department. They do not appear to know how to control costs. Bureaucrats want bureaucracy unlimited. Politicians want popularity, they want to retain power, win the next election. They tend to take relatively short term views of any problem or project. If an appealing election promise can be made, then the cost in 20 years time is not the concern of the politician. They will not be around to explain why tax payers have had so much money wasted. The bureaucrats are not concerned either, they can blame the politicians.

To overcome these problems the structure of management needs to be changed. Whilst owned by the government—(the tax papers and people of the nation)—they should have a board of directors who can be fired if the enterprise does not stay within budgets agreed or if they fail to deliver value for money to the tax payers. Boards should appoint mangers, for each part of the enterprise, on the same basis; succeed or go. As things stand it does not matter how big the over spend, it does not matter what level of incompetence has caused the problems, no one is accountable. The bureaucrats blame the politicians, the politicians blame the previous administration and money is taken from the tax payer and wasted. Money that could provide more doctors or fire fighters, is spent on legal wrangles about who is going to do what in ten years time. Things have to change.

Socialism is not the answer since it wants more public ownership on the existing management basis, this will only result in ever greater amounts of money thrown away Throwing open all government services, to private commercial firms, is also not a good idea. The Government will still have to be responsible for the supply of services but with even less control over them. Since politicians come and go there will still need to be a state paid bureaucracy between the politicians and the private commercial firms. The existing problems will carry on but over even more areas of supply. There will also be a less obvious result, the voters will start to consider there is no point in voting, since everything is commercially owned and run and the government only talks about things. What is the point of voting a new lot in? Democracy has too many problems at the moment to cope with voter disengagement on this scale.

Peter Rose
Peter Rose
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