On January 15, 2018, Carillion, a general contractor for an amazing array of work for the United Kingdom\u2019s government sector, collapsed into compulsory liquidation. \u00a0The collapse calls into question the prospects of its 43,000 employees and 30,000 subcontractors, as well as the fulfillment of government contracts spanning three decades into the future.<\/p>\n
Carillion\u2019s fall also calls into question the entire political philosophy that it and other companies now operate under around the world. \u00a0It exemplified a way of privatizing government functions pioneered by Britain\u2019s former prime minister Margaret Thatcher, and was then copied widely by other nations, especially America beginning under the Reagan administration. \u00a0Where once governments provided public services, they now contract them from private companies. \u00a0The argument is that doing so will subject moribund state monopolies to the competition and innovation of the market.<\/p>\n
Carillion shows just how wrong-headed this argument is. \u00a0Not only are there the moral hazard[1] and rent-seeking[2] behaviors, but it is aggravated by the market\u2019s unhealthy concentration.\u00a0 It’s a similar situation in other privatization industries.\u00a0 Only three companies operate private prisons in American and Britain. \u00a0Governments frequently contract for massive, long-term projects based on fewer bids than the average voter would use to renovate their kitchens.<\/p>\n
The corruption, inefficiencies and lack of innovation blamed on government is even worse within these large companies providing government services. \u00a0There is also greed. \u00a0Carillion\u2019s board ensured that the bonuses of its managers cannot be clawed back, even while the company was losing billions of dollars. \u00a0Carillion \u2018wriggled out\u2019 of payments into its company pension schemes as its troubles grew, while it carried on paying shareholder dividends and bosses’ bonuses.<\/p>\n
Does this sound like a political model that is good for society and its citizens?<\/p>\n
<\/p>\n
<\/p>\n
1. Moral hazard<\/i> is the risk that a party to a transaction has not entered into the contract in good faith, has provided misleading information about its assets, liabilities or credit capacity, or has an incentive to take unusual risks in a desperate attempt to earn a profit before the contract settles.<\/p>\n
2. Rent-seeking<\/i> is the use of the resources of a company, an organization or an individual to obtain economic gain from others without reciprocating any benefits to society through wealth creation. An example of rent-seeking is when a company lobbies the government for loan subsidies, grants or tariff protection.<\/p>\n","protected":false},"excerpt":{"rendered":"
On January 15, 2018, Carillion, a general contractor for an amazing array of work for the United Kingdom\u2019s government sector, collapsed into compulsory liquidation. \u00a0The collapse calls into question the prospects of its 43,000 employees and 30,000 subcontractors, as well as the fulfillment of government contracts spanning three decades into \u2026 Continue reading