Public-sector commercialization

by Chris Bertram on June 24, 2005

Over at “Urbandriftuk”: , Mizmillie has been pondering the recent explosion in commercial operations by the British public sector, so, for example, the “North Wales police have been running a massive driving school for profit”: . She writes that “insidious blurring of the public and private is likely to be one of the current [British] government’s enduring legacies” .

She asks:

bq. Are there any principled moral reasons against public bodies carrying out private business?

bq. Or are they mainly consequential concerns, e.g. leads to two-tierism?

bq. If they trade should they be treated as private businesses and have their profits taxed in the same way? Or should they be exempt from tax since the monies get ploughed back into public coffers?

Part of my reaction to this is to look at things in historical perspective. After all, there have been many commercial operations, such as docks and airports, that have, up until recently, been run by local authorities in Britain. But on the matter of tax, I guess there has to be an question of equity. After all if the police are allowed to open an driving school next door to mine but can do so on more favourable terms, I’m going to go out of business pretty quick.

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Rage on Omnipotent » Blog Archive » Public-sector commercialization?
06.30.05 at 9:08 am



Kenny Easwaran 06.24.05 at 3:18 am

Isn’t something like this basically what allows Alaska, Alberta, and the Middle Eastern nations to live virtually tax-free? (Apart from those pesky federal taxes in the first two cases.) The fact that they can basically exercise some sort of monopoly power over oil?

Now it’s probably much more justifiable for a government to make a profit off of natural resources than it is to make a profit off a service, but some services might be acceptable. For instance, a government tax preparation service that let you avoid a lot of hassle by paying a slightly larger fee than a private company might make sense. A driving school certainly sounds a little bit fishier though.


Jim Beam 06.24.05 at 3:51 am

I’d quite seriously like to see the investigation of crime given to the private sector. I admit there are potential practical risks, but if these could be overcome, I’m absolutely certain competition would lead to a significant rise in clearup rates.

So I’m wondering if there’s a history of this anywhere (apart from the obvious one – the private detective business), or even academic literature?


John 06.24.05 at 5:51 am

What worries me is the risk that one ends up with a situation like Indonsia or Thailand where the army controls significant sectors of the economy. There is a huge potential for conflict of interest. Let’s say that the RN decides to run a fishing fleet. Who the heck is going to check that their nets are legal?


sharon 06.24.05 at 7:13 am

Until the 19th century pretty much all criminal investigation in Britain was in the private sector. The investigation of theft was carried out either by the victims of crime themselves or (less often) by ‘thief-takers’ operating for a profit. You might want to read the extensive literature on Jonathan Wild and similar scandals before deciding if it’s such a good idea to try to revive that. (Try the bibliography at the Old Bailey Proceedings as a starting point. And there’s a good volume of essays, Policing and prosecution in Britain 1750-1850, ed by F Snyder and D Hay.)


Darren 06.24.05 at 7:39 am

Look at the manner in which Universities are patenting work and compare with private organisations. In private organisations shareholders provide money for research; the shareholders end up with the spoils from the patent. In Universities, taxpayers provide money for research but they don’t seem to reap the benefits of the patents.

Next look at the scientific publishing houses. The taxpayer provides cash for research; private publishers charge the same taxpayers for the privilege of using their own property.


Matt 06.24.05 at 9:25 am

My worry is somewhat similar to that of Chris and John above- in such cases it would seem to suppose a level of virtue that I don’t the we’d be wise to expect to not expect the government agency opperating in the private sector to use their governmental power to crowd out other legitimate actors. We don’t even have to assume that it will happen at once or as part of an explicite plan to expect that this will happen. The natural resources case _might_ be a bit different in tha we might think that the natural resources of a country are a collective good and that this good can best be made to serve all by having it exploited by the government rather than by private actors. I’m not certain that’s the case, but it might be so. It would be hard case to make for a driving school or a textiles plant. (Think of how the Army in China is a huge owner of buisness.)


nikolai 06.24.05 at 9:27 am

I think there are important moral concerns.

Firstly, the public sector has substantial advantages over the private sector. It can borrow money more cheaply that the private sector for example.

Seccondly, there are also risks for the public over the question of liability, is it limited? Or would the taxpayer have to pay for bad business decisions? Some of these decisions are taken by “public” bodies that are at several removes from democratic control.

Thirdly, there’s the suggestion that paying (say to use a shooting range) gives you preferential access to stuff that is already owned by the public. This makes me slightly uneasy.

These – however – are very minor compared to the serious ethical issues involves in private bodies paying money to employing people whose job it is to look out for the public. The article gives a much more worrying example than the stuff already mentioned:

“Even more radical plans are afoot… the force is negotiating with private companies on industrial estates that may be willing to pay for their own community police officers…”

This has the potential to be *deeply* corrupt. If you were arrested in a supermarket by a PC whose pay was funded by the supermarket – would you think this was un-problematic? No – you wouldn’t, because there would be an open question as to whether he was serving the law or his employer. Given that companies can commit crimes, it is very dubious if they are paying large sums of money to employ the police to work for them, and thereby gaining power and influence over the police.


John Quiggin 06.25.05 at 4:06 pm

This kind of thing is an almost inevitable consequence of the blurring of boundaries between the public and private sectors, begun under Thatcher (in particular the policy of compulsory competitive tendering for work previously done inhouse by public authorities) and extended under Blair.

It’s not necessarily undesirable, but it certainly raises a lot of questions about how to mix profit motives and requirements for public accountability. These questions are just as serious when private firms perform public functions.

The tax issue has been addressed fairly comprehensively in Australia. Publicly owned enterprises are required to make tax-equivalent payments to the government that owns them (this is mainly an issue for state and local governments, which are exempt from federal company tax).


Chris Williams 06.25.05 at 6:34 pm

British police forces have been selling off policing services to anyone who will pay throughout the last two centuries. There’s not much academic literature on this practice, though – anyone who wants to know more is advised to atttend the British Criminology Conference next month in Leeds and hear me give a paper on it, which will by definition be the state of the art.

I’ll admit, though, that driving schools were a new one on me.


Tracy 06.26.05 at 10:38 pm

Well the government running carrying out private business is certainly not a new idea for the British Labour party.

“insidious blurring of the public and private is likely to be one of the current [British] government’s enduring legacies”
My grasp of post-WWII UK history is a bit hazy, but I thought that blurring of the public and private was a big part of early Labour governments in this time period. It was called nationalisation. Hardly a Blairite invention. Though I am pretty shaky on British history, I’m pretty confident that most of the current members of government were born after Karl Marx died. In fact, wasn’t Blair the guy who got the nationalisation clause out of the British Labour party’s constitution?

Anyway, they shouldn’t be exempt from tax as it makes comparisons easier if everything is taxed. If you have to separate taxed and non-taxed income you’re going to have to pay for a hell of a lot of accountants to police the border between taxed and non-taxed. Not to mention all the possibilities for game-playing and finding tax loopholes. The transaction costs are horrible, let alone any equity arguments. Just consider the hassle in comparing bids where one bidder is taxpaying and the other isn’t.

The argument for allowing universities to profit by taking out IP on taxpayer-funded research is a different one. The problem there appears to be that the incentives on university researchers is to publish their paper, make a few presentations and then move on to another interesting topic. University researchers’ reward systems are based around their research output and their teaching, not transferring knowledge to the applied area. And transferring technical knowledge is difficult and time-consuming. The idea behind allowing IP is to provide an incentive for universities and university researchers to commercialise their research and to be enthusiastic about doing so. It is hard to measure these things, but natural incentives did not seem to be effective. E.g. NZ and the UK worried about great basic scientific research, but low patenting rates or uptake of ideas. The general public does benefit eventually from being able to purchase whatever is made with the new IP (if the company selling the products tries to claim all the value, they won’t sell anything), and the spill-overs in terms of new ideas that come from the information being widely disseminated.

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