I’ve never really ever bought into the argument that the Western world has been under the spell of neoliberalism for the last few decades. First off, I have no idea what neoliberalism stands for!
It strikes me that it has become a broad brush term of abuse by many on the left which manage to include everyone from sensible social democrats through to free-market libertarians. Next up, I think that neoliberalism imposes an ideology on a set of policies which have largely been driven by money and practical constraints – more for less, with the less being expensive public-sector workers with expensive pensions. I also think that a great many very different public policies have been thrown into the one bucket of neoliberalism ranging from lower taxes, through deregulation to privatisation. In sum, I think the term almost useless. For most people, my suspicion is that neoliberalism simply means too much capitalism and not enough public-sector service provision and ownership.
What I do think is relevant to the debate is that public opinion in the UK is increasingly buying into the idea that there is something wrong with markets and capitalism and that the state needs to do more. The common refrain I hear is that we’ve gone too far down the road of ‘marketisation’ (whatever that means), that public services are inadequate and that fat cats have been ripping off consumers. Whether this amounts to a criticism of neoliberalism or just a collective shudder against capitalism is all a bit pedestrian – most voters aren’t really motivated by ideology, more a common-sense view of what works and what’s right.
All this a preamble to what I think is the next big story – a more specific set of policy reversals involving three main targets. These are the private equity firms, the consultants and the outsourcers. We already know from a recent, excellent Legatum Institute report that many voters are amenable to the idea of renationalising the utilities (and banks) – you can see the full report at https://www.li.com/activities/publications/public-opinion-in-the-post-brexit-era-economic-attitudes-in-modern-britain.
I have to say that I think that public opinion is wrong about renationalising the utilities (and the banks) and I think that a nuanced and effective campaign is needed to sway public opinion. But I also think that this fight back could be helped if we in the “liberal media and financial elite” accepted that there was a problem with the aforementioned PE firms, consultants and outsourcers. Let’s take each in turn.
First the PE firms. The current rows around offshore tax havens already involve a large dose of private equity magic. Many of the largest firms have deliberately set up complex structures, laden with debt, with ultimate ownership based on a small island somewhere in the sunny tropics. The industry has built its whole edifice of financial engineering on the twin pillars of tax efficiency and leverage, helped along by those generous fees which are in turn regarded as carry and taxed as much. I think that public opinion will begin to turn against this evident financial engineering. I also think that once the public realises how much (or should we say little) personal tax is being evaded by senior industry figures they’ll also be incensed. Investment bankers have rightly been at the receiving end of much abuse over the last decade, partly because of their ability to pass the buck for their failures to the central banks and partly because of excessive pay. PE firms rarely get away with passing the buck to the BoE or the Treasury but they are inordinately well paid. And too much of that money is lightly taxed. If I were Corbyn and McDonnell I’d have the PE sector as Target Number 1.
The management consulting firms will also I think be in the firing line. For too long we’ve collectively watched as the big five consulting firms land endless contracts to review and manage processes involving the public sector. Slowly but surely the penny is beginning to drop: it’s all one big procurement gravy train, with bureaucrats using the cover of consultants to justify their actions – and create internal organisational mayhem.
Regulators have also connived in this exercise, encouraging ever more detailed rules which in turn require consultants to approve every single element of any restructuring. The game has to stop. The big consulting firms have turned into vast business profit centres, with hugely well-paid partners taking home hundreds of thousands of pounds a year plus gold-plated pension plans. What’s needed now is much better internal public service scrutiny. Let’s have well paid public sector professionals checking and controlling these internal processes – which also implies closing the revolving doors between public officials and private consulting firms.
We finish with the outsourcing firms such as G4S, Capita and Serco. These are all successful, profitable listed businesses worth countless billions of pounds. I also think that they are hugely vulnerable to a profound shift in public thinking. My son came home last week and said he’d watched (at his sixth form) a video in the economics class looking at the dangers of outsourcing essential public services. It involved a local council in the west country putting out to private tender a contract which ended up costing local taxpayers more money. As a smart kid (with a ‘neo-liberal Dad) he’d managed to see past the simple messages and understand that there was more complexity to the story than the video made out. But what really surprised me is my normally fairly pragmatic (and moderately conservative) other half then immediately cited dozens of examples from her own work (in the NHS) involving outsourcing that had gone terribly wrong. I assumed that their negative opinions were in a minority. How wrong I was. Since then I’ve talked to dozens of perfectly sensible, middle of the road, people who have to a man and a woman said that they think outsourcing has gone too far.
“It’s depleted public services. It’s cost taxpayers more money. It hasn’t worked for consumers. It leaves ordinary low paid workers with even lower wages.”
I have no idea if these comments represent a generic, collective truth but they are incredibly common.
My guess is that if Legatum ran its poll again and looked at outsourcing, it would find a massive consensus against this “practice”. Crucially I think they’d also find that many people conflate outsourcing with privatisation, when in fact they are very different things. My own experience with outsourcing isn’t actually that positive – as opposed to privatisation where I think the progress has been enormous, contrary to public opinion. As a magistrate, I’ve seen extensive out sourcing of key contracts to the private sector and I have to say that the general view of most magistrates (a fairly conservative bunch) is that it’s all been an utter disaster bar the contracts to “van in” prisoners which seems to be moderately effective. In particular, every magistrate I talk thinks that outsourcing probation is a complete disaster and will be reversed within the next few years, after huge societal damage.
I also think that in reality the smart outsourcing firms know they are on fragile ground, which is why they have been busily diversifying internationally and into new product areas. My sense is that I think they know what is coming: a reversal of contracts. This won’t happen overnight, but I think it will make a huge difference to their bottom lines. It will comprise three strands:
1) Labour practices will be tightened up, with increased minimum wage levels (probably towards a living wage) and a drastic scaling back of zero hours contracts
2) A drastic reappraisal of what constitutes a sensible profit margin for the outsourcing bidders to such a level where many will back off tendering (as is already happening in the rail sector)
3) In the event of a Labour government, a requirement to also offer tenders to cooperatives, mutual and trade union-backed bodes which will be given favourable status.
The net effect will be a deep structural decline here in the Uk with collapsing profit margins and greater regulatory oversight for the whole sector. But I also think that this dismal state of affairs won’t just happen as a result of a Corbyn government. Again, my sense is that many moderate Conservatives, Liberals and Blairites can read the writing on the wall – and think that we need to change direction. If that is the case, then investors need to run a mile from the outsourcers, because winter is coming.