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The privatisation of services as a business for a select few

Alejandro Inurrieta. Professor and Director of the School of Finance Madrid

The privatisation of public services is a phenomenon that is Europe-wide after decades of monopoly in the major socio-sanitary supply areas, and also in transport and culture. Neoclassical British influence in university teaching and the excuse of public deficit are facilitating the transfer of public monopolies to new private monopolies, with succulent business for these companies.

The economic foundation for this is weak and mainly ideological. Europe is the last redoubt where universal public services survive in the world. In most geographic areas, health, education, pensions or dependency care is a booming business in which users are customers and non-citizens, and in which, through a health insurance system, very costly administratively, society is stratified according to their income. Thus, as happens in the US, higher income people have access to more expensive diagnostic tests or treatments and therefore their life expectancy is higher.

This management model is now being installed in Spain, with the invaluable help of political lobbies, and is being introduced in the most profitable sectors, such as health, or municipal water, waste collection or culture.

Some time ago, ago I had occasion to debate the situation of privatisation with Germa Bel, Catalan and utilities expert Professor, from the theoretical point of view, as empirical. Particularly, we discussed privatisation at local level, together with health, the hot potato that politicians in Spain have to face in the forthcoming elections. The debate also could not have been more timely, since many local administrations, including that of Madrid, have before them a non-trivial decision, that is, to consider remunicipalising some of the basic services, refuse collection being one of them, or renew some contracts with companies whose economic performance has been very negative for the municipal coffers.

Local institutions fail in transparency

I presented the results of my research on the privatisation of some services, such as home care, cultural centres, sports or the City of Madrid's degree of concentration of subcontracting, whose findings are blunt. The latest study on refuse collection companies shows that the degree of collusion in price and reducing service quality contradicts the supposed improvements in efficiency that those who promote them defend.

These investigations show that some points in common are worth highlighting. First, and this is a very serious aspect, the larger local institutions failed in transparency and reliable of provision of recent quality data to carry out such investigations. This contrasts with other countries, such as the Netherlands and the US, where not only the municipalities, but also the successful bidders for public services, are required to publish all data, unless specifically protected, and that enhances both the quality of democracy, and also allows the study, thinking and research on all political and economic decisions that affect municipalities, something unthinkable for some local political groups.

The second relevant point, the issue of whether privatisation has an ideological bias, the result of international research, conducted by Germà Bel or myself, shows no evidence of ideological bias, as the two major parties, both here and in other economies we analyzed, when carrying out privatisation of local public services. Interestingly this process, what might seem counter-intuitive, is widespread in the Nordic economies, but with an important caveat. In these economies, the privatisation process has a real target, increase competition in services, preserve the quality of them and redistribute income through taxation.

The degree of concentration has increased

However, in other economies, especially in Spanish, particularly in the processes carried out in Madrid, I have shown that the degree of concentration has increased and there is not more competition. Furthermore, the quality has declined in many of them, and they have become private monopolies where there were public monopolies before. The only advantage was the reduction in wage costs and the acquired rights of workers, which contradicts economic logic in these processes.

The third important element that manifested itself was that privatisation has not only led to higher revenues, as the sale of monopolistic public companies supposed, but rather in many cases have incurred higher costs to the public purse. Specifically, in Madrid, home care accounts for 15% more than it would have with a municipalised service, and cultural centres 6% more. At the moment, I am working on rubbish collection services.

This, in part, may be explained because many of these companies, of a very large size and with multiple services, would have funded public administrations during the current crisis in exchange for inflating the auction price, even after a write-down by the public administration of more than 50% of the alleged cost of service delivery.

These conclusions are beginning to stir up all the clichés that still exist between some political leaders of the two ideological spectrum, and has started a debate on the redistricting of services, especially in sensitive areas.

#Alejandro Inurrieta has a PhD in Economics from the Complutense University. He is a national and international consultan, and is a former advisor of the Ministry of Economy, Ministry of Economy.

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