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Abu Dhabi, UAESaturday 15 December 2018

Carillion's collapse shows corporations are not always vested in the public good

Should vital public amenities be provided by those out to make as much cash for themselves as possible?

The Carillion logo on hoarding surrounding the Midland Metropolitan Hospital construction site in Smethwick in the UK / Bloomberg
The Carillion logo on hoarding surrounding the Midland Metropolitan Hospital construction site in Smethwick in the UK / Bloomberg

In the 1980s, Margaret Thatcher, the UK’s then prime minister, along with US president Ronald Reagan, so discredited socialism, one of the main political philosophies of the 20th century, that it seemed almost unbelievable that a man calling himself a democratic socialist – Bernie Sanders – could come so close to becoming a presidential contender in 2016.

Along with socialism went suspicion of the state, because socialists were naturally “statists”. They liked nationalising industries. They thought that government was the solution, or at least key to co-ordinating the solution, perhaps alongside leading corporate figures and the trade unions.

So tainted did these ideas become that Mr Reagan’s statement that “government is not the solution to our problem: government is the problem” became the mantra for a whole generation of politicians and not just on the right. The triangulation practised by Bill Clinton and Tony Blair was premised on the acceptance that the free marketeers had won the battle of ideas; they would just tinker at the edges.

This is the context in which Britain’s Theresa May could say, with a straight face, about the collapse of Carillion, a private firm which had a huge range of government contracts from massive construction projects to catering and cleaning at hospitals, schools and prisons: “We were a customer of Carillion, not the manager of Carillion”.

About 41,000 jobs could be at risk. Up to 30,000 smaller companies are thought to be owed money; insolvencies are anticipated. Carillion leaves a $1.3 billion pension deficit. But according to Mrs May, after handing over contracts worth $2.8bn to the firm so that it could provide “good quality service at the best value to the taxpayer”, the government could wash its hands of any responsibility – because heaven forbid the idea the government might actually do these jobs itself.

Not only is that a shameful passing of the buck; the Carillion disaster surely explodes the myth that the private sector is always to be preferred, will always be more efficient and that if only the dead hand of government is removed, animal spirits will be free to produce economic growth far more stellar than any stodgy old corporatists could manage.

Firstly, it ignores the fact that what all private companies do – unless regulated or helmed by executives with social consciences – is put profits and rewards for senior executives, not the customer, first. And if a private firm is making a profit on a contract, which can largely be assumed, that means that (in theory at least) the government could provide the same service at lower cost to the taxpayer.

Free marketeers will scoff that statist governments can never be efficient, nor can they ever be good stewards of the economy. They should try looking at the growth China continues to enjoy or the past success of Singapore, whose rapid rise in just a few decades was, according to the book Socialism That Works, edited by its third president, Devan Nair, an example of just that. (People tend to forget that the city-state’s ruling People’s Action Party was a member of the Socialist International until 1976.)

Moreover, government-owned or government-linked companies are some of the most prominent in thriving economies such as the UAE and Malaysia. So the idea that state involvement is automatically bad is a misconception that ought to be dispelled, a rigid ideology whose failings ought to have exposed it to ridicule after the global crisis of 2008, brought on by reckless behaviour by a seemingly unaccountable private sector.

But secondly, the automatic preference for the market to take over whatever government functions can be stripped from the state ignores or dismisses pretty much all motivation apart from money. In doing so, it downgrades some notions that we ought to treasure, such as service and duty.

I meet a lot of diplomats and whatever their rank and whether they are from South Korea, Singapore, Laos, the Philippines or the UK, one thing regularly strikes me about them: they are talented and energetic people who have chosen to serve their country. The free marketeer might look at them and say they have made an irrational choice. Most could probably earn higher salaries in business. Why don’t they?

The free marketeer can come up with no satisfactory answer, placing little or no value on concepts of duty, public service or altruism. Now, this is not to take an anti-business stance. Entrepreneurs are vital for growth in any society. But if they are primarily profit-driven, they are not necessarily the answer to every question.

The American author Andrew Ross Sorkin once put it this way: “Do we, as a country, want our most highly qualified employees from the private sector to pursue public service? The answer, I would imagine, should be yes.”

To which I would add: do we want vital public amenities and provisions to be performed by men and women whose motivation is to provide the greatest service to their fellow citizens – or to earn as much cash for themselves and their company? The answer, I would imagine, would be the former.

In that scenario the government is not on the people’s back – it is the true servant of the people and it is by, for and of the people. The tragedy of Carillion’s collapse is that the UK government, along with many others, had stopped believing the best of its people; only the private sector was to be trusted. In the aftermath, it is sincerely to be hoped that they realise that more government is not the problem: it is the answer.

Sholto Byrnes is a senior fellow at the Institute of Strategic and International Studies Malaysia