Back in the day when I played a part in the financial industry in the City of London many years ago, I took some time to research how education in economics received the so called 'free markets' economy. The reason being was that I knew there were major flaws in the workings of the stock markets. I wanted to know if these flaws were recognized by the world's economists.
I was also playing with idea of giving up the finance industry in order to focus primarily in economics and I wanted to know what I was letting my self in for!
What was really strange was that the economics text books of the time appeared to barely recognize the stock markets at all. Okay, this was back in the eighties. But if you take a look at economics text books today, mysteriously little has changed!
This post is primarily to show where economics education appears to over look major issues, which I have to say certainly influence economics in a fundemental way, if not totally create a complete new picture, where our current education system appears to be seeing the free markets system through 'rose tinted glasses' to be saying the very least.
So there is no confusion, every thing you see in purple are quoted from economics text books. So let's start with a few examples of the type of thing that is written in these books.
-The following quotes refer to privatisation. At the moment this is a highly topical subject to those who understand how it really works. Currently the government is blatantly hiding the privatisation of the NHS. Also the TTIP or Trans Atlantic Trade & Investment Partnerhip which is currently being negotiated involves the accessability by private companies, stock markets and private equity companies to buy up public services across the U.S. and Europe. Therefore if privatisation is a bad thing, then now is the time for the world's people to know!
Privatisation, Regulation and Deregulation
Governments often try to increase efficiency or competition in markets. They can use methods of intervention in markets to achieve this, e.g. regulation, or they can reduce their involvement in a market through methods such as privatisation and deregulation.
-The truth is whilst a government may claim privatisation improves efficiency, it doesn't. It has benefits to members of governments as much of the spoils from a £ multi billion sell off will return to the government members in various ways.-
-When a service is broken up and sold off in pieces or contracted out it contradicts the 'economies of scale'. ie One big centrally run business can get things done cheaper than lots of small ones....Less offices etc-
-The claims made here that the government may "reduce it's involvement" in a service by privatising is misleading. The government are very much in control of the process of privatising the NHS and many of the government members are gaining financially from it.
Privatisation Aims to Increase Efficiency
Again we are reminded of the claim that the governments use to justify privatisation....But it seems the economics educators and authors of the text books are not able to question human factors of economics like greed and corruption!
1) A publicly owned firm/industry is owned by the government. The firm industry will usually act in the best interests of consumers-so prices tend to be low and output tends to be high. This is possible as they don't have to make profits.
No problems with this statement. It is the truth. But most of the text here seams to be hell bent on under mining it!
2) However,publicly owned firms/industries tend to be inefficient because they lack competition. Governments may decide to increase competition through privatisation.
This seems to make sense, but there are to many other negative influences such as masses of debt and the focus of profits at cost of service. It also goes against the 'economies of scale' as all ready mentioned.
3) Privatisation is the transfer of ownership of a firm/industry from the public sector to the private sector.
Think about what that actually means. If a share holder can by a part of a public service, it means any idiot can own part of a service you rely on to survive! Keeping control of Public Services is a governments job......If not, then what are we paying our taxes for?!
3) Some economists believe this will lead to a more efficient firm/industry, because it'll be open to free market competition. Private firms have share holders, so they'll usually need to maximise their profits to keep the share holders happy.
The first statement here I find disapointing from the point of view of a student learning economics. This vague statement about some economists believing that privatisation will lead to more efficiency. Do students want to really know what 'some' economists think, or just the truth. After all this text book is supposed to be educating our future economists! Incidentally you can not trust many of the people given the title of 'economist' because they work for businesses which benefit from privatisation. Therefore you can bet your bottom dollar that people who claim to be economists at banks, asset managers, hedge funds etc will be heavily biased towards favouring privatisation.....Therefore "what many economists think.." needs to be disregarded in favour of your own research, calculations and judgements.
Privatisation covers a number of different things, for example:
* The sale of public (nationalised) firms-e.g. the Royal Mail was owned by the government, but it was privatised through the sale of shares.
This is where privatisation can become a bit of a blur. As this statement says, a business can be privatised simply by selling off shares to the public. But it contradicts the private company myth that putting a public service into private hands will improve it's efficiency. Share holders become part of the costs. Needless adding of costs to a business or service surely makes it more ineficient. If share holders aren't getting what they see as a good return on their investment they may influence decisions which will damage the service provided, by cutting costs.- The major problem with this as I see it is, that to have a major influence on a company it is generally accepted that you should have relevant qualifications and experience to be in a situation where you can change the way the company operates. Yet, you can be share holder with no qualifications and do exactly that. As an economics student you are not told this.....But then you can see why. It may play with their mind....They may ask questions as to why they are wasting time being educated when clearly education is not necessary to have a major influence in business if you have the contacts available to buy lots of shares. The kind of people you will find at Private Equity firms, Hedge funds and Investment banks.
* Contracting out services - a government pays a private firm to carry out work on it's behalf, e.g. cleaning government owned buildings, such as hospitals or schools.
This is how privatisation in the NHS was introduced. It's difficult to see how paying private profit making companies for cleaning services could be cheaper than staff employed by the NHS to do the same job. I remember years ago at this early stage people in the NHS were saying, "They're going to privatise the NHS!"
*Competetive Tendering - private firms bid (or compete) to gain a contract to provide a service for the government. Firms will compete on price and the quality of service offered.
A bid will also involve a £multimillion payment from the service provider to the govenment on acceptance of the deal. Often an inferior business will gain a contract from the government purely because it makes a larger financial offer to the government. If this was not legal, it would of course be referred to as bribery! -Ref Virgin against First for a rail service in 2014.
* Public Private Partnerships (PPPs) - a private firm works with a government to build something or provide a service for the public. An example of a PPP is a Private Finance Initiative (PFI) - a private firm is contracted by the government to run a project. For example, in the U.K., some hospitals or schools are built by a private firm, then the government leases the buildings from the firm (usually for a long period of time).
The economics publication these paragraphs come from was published as recently as 2014!
Yet there is little said about the truth behind PFI.
PFI is a major contributor to the crisis that the NHS is experiencing today!
PFI has been heavily involved with the NHS. In the hands of the Conservative government (This all began before the last Labour government!) , the UKs National Health Service agreed (atleat the Tories did), to enter a finance deal with a number of private companies, to build a number of health service establishments......But the deals involved tax players who were funding the NHS paying massive amounts for these so called improvements to the NHS. Most of which was actually going to finance companies and banks! Many of said establishments have now siesed serving the public due to debts that had accumulated as a result of the original agreement!
As I mentioned above, this economics publication was published in 2014, yet doesn't even recognize the potential problems. (Potential problems obviously is just being polite. Whilst private firms 'lobby' (bribe) governments, this is an inevitability).
The same publication then goes on to list what it thinks are advantages and disadvantages of privatisation....
ADVANTAGES OF PRIVATISATION
*Increased competition improves efficiency and reduces x-inefficiency.
X-Inefficiency is a word that's used where a company wastes money paying out too much because it is not competing with other companies and has no need to make a profit.- I think this term has been invented so that students go away with it implanted on their mind as a major factor. This word is simply to smear publicly run services so that privatisation can be justified.......(I'll expand more on this later).
*Improves resource allocation-private firms have to react to market signals of supply and demand.
I don't see how privatisation improves resource allocation.......But on this subject; Imagine you have a dozen telephone network providers providing networks for the U.K or U.S......They will be in competition with each other to buy any equipment, to hire staff, engineers etc. They will be in competition with the other companies for the resources they need to operate the business......As well as massively duplicating customer services offices and staff, as well all those irritating sales staff. Lots of staff who are putting up the cost of the industry for the customer!
*PFIs enable the building of important facilities that the government might not be able to afford to build.
Totally misleading statement.....PFIs, Private Finance Initiatives may be financed by a combination of private equity firms and banks. But the costs are mortgaged and the debt is paid off by the private company that owns them. The private company receives payments to lease the facility which is paid for by the government with the use of our taxes.....Or where our taxes are not enough, the money is borrowed by the government and it is added to the national debt! So the National debt is being used as a bail out service for previous PFIs......National debt is being used to pay off other debt which tax payers or the government could never afford to do.- I'm not going into the costs of interest payments here and other fees to financial businesses. But they have resulted NHS facilities coting many times the cost they should have cost.
*PFIs means lower taxes in the short run because the government won't pay for the new facility immediately.
*The governmennt gains revenue from selling firms.
The initial sale of a public service is clearly an influence on why many governments favour privatisation. The Billions of dollars the government receives on payment of a public service which has been paid for over decades by it's hard working public. Some of this money will go to MPs and Lords who may be active is some of the businesses who gain the business through a public service's privatisation.- The logic of this is similar to the economics of selling a house you already own to a landlord and renting it back from him. Short term you get a bundle of cash.......But in the long term, you can't justify it because you will be paying 'rent' on it for after.....It is highly likely that some time in the future you won't be able to afford the rent! This is happening to public services which have been privatised. We are paying massively increased costs to what are often called 'rent seekers'. This term is for people who simply use debt to gain control of property or business in order to syphon money from the general public.....So you may see the term 'rent seekers'used in association with private equity firms, investment banks, hedge funds and businesses who use these finance businesses in order to gain control of other businesses and property.
DISADVANTAGES OF PRIVATISATION
*A privatised public monopoly is likely to become a private monopoly - so extra measure, e.g. deregulation, need to be taken to avoid this.
This term is banded around the finance industry mostly, but also by politicians who want the banks and financial sector to remain in control and able to dictate the way our econmy is run even though it may only be fore their benefit at the cost of the vast majority.
In practice this what deregulation actually means (where public services and privatisation are concerned).........
The ability for any one, regardless of relevant qualifications or experience to enter an industry to be able to take over or buy control of a public service or part of it. This is done through backing of financial businesses and banks- They themselves want to also get in on the 'payroll' of the public services. Banks are permantly on the payroll of privately run public services as a result.-It isn't who the investment banks are seen to be lending to- It's all about getting on the payroll of the tax payer!
-Deregulation is mostly about opening the door to any one with the appropriate amount of cash to hand to the government.
*Privatised firms may have less focus on safety and quality because they have more focus on reducing costs and increasing profits.
This is true. But it should also mention that they are likely to be far more irresponsible with debt and paying the top management excessively.
*The new private firm might need regulating to prevent it from being a private monopoly - this adds costs for tax payers.
Presumably a reference to regulators such as OFGEM and OFCOM.
Tax payers pay for regulators to apparently monitor various industries. - Most of their powers only revolve around profits made. -But this may be an incentive for a businesses to pay directors even higher salaries. Then it is removed from the profits! Regardless of what regulators are supposed to do, they have proven that they are as much for protecting the businesses from the public, as they are for protecting the public from being ripped off by high prices and bad service.- Regulators are an additional cost to the public, but of little use to them- They are also paid by the industry-The firms they are supposed to be regulating. This may influence actions they do or do not take.
*A PFI will often cost more in the long run than it' s worth - so it adds to government debt and may not represent value for money.
This is so true. How this has damaged the NHS in a way that it may never recover should really be given a mention. It may well also be a contributory factor to why the U.K. national debt will never be paid.
*PFIs mean higher taxes for future generations to pay for cost of the government leasing the facility. And a growing national debt!......Whilst the tax payers are unable to afford the costs.
I was also playing with idea of giving up the finance industry in order to focus primarily in economics and I wanted to know what I was letting my self in for!
This post is primarily to show where economics education appears to over look major issues, which I have to say certainly influence economics in a fundemental way, if not totally create a complete new picture, where our current education system appears to be seeing the free markets system through 'rose tinted glasses' to be saying the very least.
So there is no confusion, every thing you see in purple are quoted from economics text books. So let's start with a few examples of the type of thing that is written in these books.
-The following quotes refer to privatisation. At the moment this is a highly topical subject to those who understand how it really works. Currently the government is blatantly hiding the privatisation of the NHS. Also the TTIP or Trans Atlantic Trade & Investment Partnerhip which is currently being negotiated involves the accessability by private companies, stock markets and private equity companies to buy up public services across the U.S. and Europe. Therefore if privatisation is a bad thing, then now is the time for the world's people to know!
Privatisation, Regulation and Deregulation
Governments often try to increase efficiency or competition in markets. They can use methods of intervention in markets to achieve this, e.g. regulation, or they can reduce their involvement in a market through methods such as privatisation and deregulation.
-The truth is whilst a government may claim privatisation improves efficiency, it doesn't. It has benefits to members of governments as much of the spoils from a £ multi billion sell off will return to the government members in various ways.- -When a service is broken up and sold off in pieces or contracted out it contradicts the 'economies of scale'. ie One big centrally run business can get things done cheaper than lots of small ones....Less offices etc-
-The claims made here that the government may "reduce it's involvement" in a service by privatising is misleading. The government are very much in control of the process of privatising the NHS and many of the government members are gaining financially from it.
Privatisation Aims to Increase Efficiency
Again we are reminded of the claim that the governments use to justify privatisation....But it seems the economics educators and authors of the text books are not able to question human factors of economics like greed and corruption!
1) A publicly owned firm/industry is owned by the government. The firm industry will usually act in the best interests of consumers-so prices tend to be low and output tends to be high. This is possible as they don't have to make profits.
No problems with this statement. It is the truth. But most of the text here seams to be hell bent on under mining it!
2) However,publicly owned firms/industries tend to be inefficient because they lack competition. Governments may decide to increase competition through privatisation.
This seems to make sense, but there are to many other negative influences such as masses of debt and the focus of profits at cost of service. It also goes against the 'economies of scale' as all ready mentioned.
3) Privatisation is the transfer of ownership of a firm/industry from the public sector to the private sector.
Think about what that actually means. If a share holder can by a part of a public service, it means any idiot can own part of a service you rely on to survive! Keeping control of Public Services is a governments job......If not, then what are we paying our taxes for?!
3) Some economists believe this will lead to a more efficient firm/industry, because it'll be open to free market competition. Private firms have share holders, so they'll usually need to maximise their profits to keep the share holders happy.
The first statement here I find disapointing from the point of view of a student learning economics. This vague statement about some economists believing that privatisation will lead to more efficiency. Do students want to really know what 'some' economists think, or just the truth. After all this text book is supposed to be educating our future economists! Incidentally you can not trust many of the people given the title of 'economist' because they work for businesses which benefit from privatisation. Therefore you can bet your bottom dollar that people who claim to be economists at banks, asset managers, hedge funds etc will be heavily biased towards favouring privatisation.....Therefore "what many economists think.." needs to be disregarded in favour of your own research, calculations and judgements.
Privatisation covers a number of different things, for example:
* The sale of public (nationalised) firms-e.g. the Royal Mail was owned by the government, but it was privatised through the sale of shares.
This is where privatisation can become a bit of a blur. As this statement says, a business can be privatised simply by selling off shares to the public. But it contradicts the private company myth that putting a public service into private hands will improve it's efficiency. Share holders become part of the costs. Needless adding of costs to a business or service surely makes it more ineficient. If share holders aren't getting what they see as a good return on their investment they may influence decisions which will damage the service provided, by cutting costs.- The major problem with this as I see it is, that to have a major influence on a company it is generally accepted that you should have relevant qualifications and experience to be in a situation where you can change the way the company operates. Yet, you can be share holder with no qualifications and do exactly that. As an economics student you are not told this.....But then you can see why. It may play with their mind....They may ask questions as to why they are wasting time being educated when clearly education is not necessary to have a major influence in business if you have the contacts available to buy lots of shares. The kind of people you will find at Private Equity firms, Hedge funds and Investment banks.
* Contracting out services - a government pays a private firm to carry out work on it's behalf, e.g. cleaning government owned buildings, such as hospitals or schools.
This is how privatisation in the NHS was introduced. It's difficult to see how paying private profit making companies for cleaning services could be cheaper than staff employed by the NHS to do the same job. I remember years ago at this early stage people in the NHS were saying, "They're going to privatise the NHS!"
*Competetive Tendering - private firms bid (or compete) to gain a contract to provide a service for the government. Firms will compete on price and the quality of service offered.
A bid will also involve a £multimillion payment from the service provider to the govenment on acceptance of the deal. Often an inferior business will gain a contract from the government purely because it makes a larger financial offer to the government. If this was not legal, it would of course be referred to as bribery! -Ref Virgin against First for a rail service in 2014.
* Public Private Partnerships (PPPs) - a private firm works with a government to build something or provide a service for the public. An example of a PPP is a Private Finance Initiative (PFI) - a private firm is contracted by the government to run a project. For example, in the U.K., some hospitals or schools are built by a private firm, then the government leases the buildings from the firm (usually for a long period of time).
The economics publication these paragraphs come from was published as recently as 2014!
Yet there is little said about the truth behind PFI.
PFI is a major contributor to the crisis that the NHS is experiencing today!
PFI has been heavily involved with the NHS. In the hands of the Conservative government (This all began before the last Labour government!) , the UKs National Health Service agreed (atleat the Tories did), to enter a finance deal with a number of private companies, to build a number of health service establishments......But the deals involved tax players who were funding the NHS paying massive amounts for these so called improvements to the NHS. Most of which was actually going to finance companies and banks! Many of said establishments have now siesed serving the public due to debts that had accumulated as a result of the original agreement!
As I mentioned above, this economics publication was published in 2014, yet doesn't even recognize the potential problems. (Potential problems obviously is just being polite. Whilst private firms 'lobby' (bribe) governments, this is an inevitability).
The same publication then goes on to list what it thinks are advantages and disadvantages of privatisation....
ADVANTAGES OF PRIVATISATION
*Increased competition improves efficiency and reduces x-inefficiency.
X-Inefficiency is a word that's used where a company wastes money paying out too much because it is not competing with other companies and has no need to make a profit.- I think this term has been invented so that students go away with it implanted on their mind as a major factor. This word is simply to smear publicly run services so that privatisation can be justified.......(I'll expand more on this later).
*Improves resource allocation-private firms have to react to market signals of supply and demand.
I don't see how privatisation improves resource allocation.......But on this subject; Imagine you have a dozen telephone network providers providing networks for the U.K or U.S......They will be in competition with each other to buy any equipment, to hire staff, engineers etc. They will be in competition with the other companies for the resources they need to operate the business......As well as massively duplicating customer services offices and staff, as well all those irritating sales staff. Lots of staff who are putting up the cost of the industry for the customer!
*PFIs enable the building of important facilities that the government might not be able to afford to build.
Totally misleading statement.....PFIs, Private Finance Initiatives may be financed by a combination of private equity firms and banks. But the costs are mortgaged and the debt is paid off by the private company that owns them. The private company receives payments to lease the facility which is paid for by the government with the use of our taxes.....Or where our taxes are not enough, the money is borrowed by the government and it is added to the national debt! So the National debt is being used as a bail out service for previous PFIs......National debt is being used to pay off other debt which tax payers or the government could never afford to do.- I'm not going into the costs of interest payments here and other fees to financial businesses. But they have resulted NHS facilities coting many times the cost they should have cost.
*PFIs means lower taxes in the short run because the government won't pay for the new facility immediately.
*The governmennt gains revenue from selling firms.
The initial sale of a public service is clearly an influence on why many governments favour privatisation. The Billions of dollars the government receives on payment of a public service which has been paid for over decades by it's hard working public. Some of this money will go to MPs and Lords who may be active is some of the businesses who gain the business through a public service's privatisation.- The logic of this is similar to the economics of selling a house you already own to a landlord and renting it back from him. Short term you get a bundle of cash.......But in the long term, you can't justify it because you will be paying 'rent' on it for after.....It is highly likely that some time in the future you won't be able to afford the rent! This is happening to public services which have been privatised. We are paying massively increased costs to what are often called 'rent seekers'. This term is for people who simply use debt to gain control of property or business in order to syphon money from the general public.....So you may see the term 'rent seekers'used in association with private equity firms, investment banks, hedge funds and businesses who use these finance businesses in order to gain control of other businesses and property.
DISADVANTAGES OF PRIVATISATION
*A privatised public monopoly is likely to become a private monopoly - so extra measure, e.g. deregulation, need to be taken to avoid this.
This term is banded around the finance industry mostly, but also by politicians who want the banks and financial sector to remain in control and able to dictate the way our econmy is run even though it may only be fore their benefit at the cost of the vast majority.
In practice this what deregulation actually means (where public services and privatisation are concerned).........
The ability for any one, regardless of relevant qualifications or experience to enter an industry to be able to take over or buy control of a public service or part of it. This is done through backing of financial businesses and banks- They themselves want to also get in on the 'payroll' of the public services. Banks are permantly on the payroll of privately run public services as a result.-It isn't who the investment banks are seen to be lending to- It's all about getting on the payroll of the tax payer!
-Deregulation is mostly about opening the door to any one with the appropriate amount of cash to hand to the government.
*Privatised firms may have less focus on safety and quality because they have more focus on reducing costs and increasing profits.
This is true. But it should also mention that they are likely to be far more irresponsible with debt and paying the top management excessively.
*The new private firm might need regulating to prevent it from being a private monopoly - this adds costs for tax payers.
Presumably a reference to regulators such as OFGEM and OFCOM.
Tax payers pay for regulators to apparently monitor various industries. - Most of their powers only revolve around profits made. -But this may be an incentive for a businesses to pay directors even higher salaries. Then it is removed from the profits! Regardless of what regulators are supposed to do, they have proven that they are as much for protecting the businesses from the public, as they are for protecting the public from being ripped off by high prices and bad service.- Regulators are an additional cost to the public, but of little use to them- They are also paid by the industry-The firms they are supposed to be regulating. This may influence actions they do or do not take.
*A PFI will often cost more in the long run than it' s worth - so it adds to government debt and may not represent value for money.
This is so true. How this has damaged the NHS in a way that it may never recover should really be given a mention. It may well also be a contributory factor to why the U.K. national debt will never be paid.
*PFIs mean higher taxes for future generations to pay for cost of the government leasing the facility. And a growing national debt!......Whilst the tax payers are unable to afford the costs.
