Is the private business really more efficient?

DaSilva · 19-10-2010 07:01PM #1

A argument that I hear often is that private business should be put in charge of some projects as they are more efficient. Private business will run the same service for a lower cost and/or provide a better service.

I'm challenging this idea because I have never seen any strong evidence support of this claim, not because I am a socialist or communist (I'm neither), and just as a disclaimer, I work in the private sector.

I figure the basis' of this conclusion are:

1) Incentive: Private business has an interest in the success of the service as they will receive more money.
Does paying someone more really make them work better? Don't people face a similar ladder to climb in the public sector and don't public sector workers have a similar interest in the success of the project?

2) Business acumen: Private business will run the project more efficiently because it is populated with people with business skills.
Well I have yet to discover non vague answers as to what really are the skills the make a great business person, so that makes this difficult to analyse. Isn't politics filled with business people? My field of work is filled with people who have little interest, skill or will to improve their craft.

I really am trying to understand this argument, yet I can't find anything other than anecdotal evidence in it's support.

dunsandin · 19-10-2010 07:23PM

Mcdonalds. Ryanair. Primark. Beacon Clinic. Need any more proof? I could go on.

Atlantic Dawn · 19-10-2010 07:24PM

Well in my dealings with the public service the only service I have ever dealt with that I received what I could call any level of efficiency was online motor tax, this is all automatically generated and required little or no human interaction on the public service employees end. I'd imagine this system in the private sector would have reduced staff in the motor taxation office by 30 or 40%.

DaSilva · 19-10-2010 07:39PM

dunsandin wrote: »

Mcdonalds. Ryanair. Primark. Beacon Clinic. Need any more proof? I could go on.

Yes, some proof would be nice, you haven't provided any. Here's a list of companies gone into liquidation. http://www.odce.ie/GetAttachment.aspx?id=a441b73f-46a1-4bc4-b9e9-bac8f357ddc7

amacachi · 19-10-2010 07:41PM

Even if private industry isn't always particularly efficient the benefit is that it doesn't (or at least, shouldn't, but look at how that work) cost people money unless they choose for it to.

tommyboy2222 · 19-10-2010 07:48PM

If a private company delivered a project a couple of million overbudget they could go out of business.

If a branch of the public sector delivered a project a couple of million overbudget the taxpayer would bear the cost.

Who do you think would be under most pressure to deliver the project for a lower cost and a better service ?

dunsandin · 19-10-2010 08:00PM

DaSilva wrote: »

Yes, some proof would be nice, you haven't provided any. Here's a list of companies gone into liquidation. http://www.odce.ie/GetAttachment.aspx?id=a441b73f-46a1-4bc4-b9e9-bac8f357ddc7

The whole PS should be in liquidation at the mo to be frank, cos its beyond bust.
If you want proof, head into Miccy D's and order a burger, bet you dont fill out one form, wait even one hour, or have to consult your local TD to get served. Companies going into liquidation shows the efficency of the Private sector - become innefficent, and you're gone. PS, become innefficent, and you are just fitting in.

DaSilva · 19-10-2010 08:01PM

amacachi wrote: »

Even if private industry isn't always particularly efficient the benefit is that it doesn't (or at least, shouldn't, but look at how that work) cost people money unless they choose for it to.

That's a good argument for a private company running a particular service, but it doesn't really suggest that private companies are therefore more efficient.

tommyboy2222 wrote: »

If a private company delivered a project a couple of million overbudget they could go out of business.

If a branch of the public sector delivered a project a couple of million overbudget the taxpayer would bear the cost.

Who do you think would be under most pressure to deliver the project for a lower cost and a better service ?

I can see your point of view on this one, and it feels like it has some weight. I still wonder though, does this pressure really result in less chance of going over budget?

smellslikeshoes · 19-10-2010 08:03PM

The tendering process used when a state procures a private company to run something should also be taken into account. The competition of a few companies bidding on the one contract can drive prices down.

A private business also doesn't have as much hurdles to when it wants to reduce wages, make staff redundant etc.

DublinWriter · 19-10-2010 08:04PM

DaSilva wrote: »

I really am trying to understand this argument, yet I can't find anything other than anecdotal evidence in it's support.

Yes, it really worked a treat in the coal industry in the UK in the early 80's.

I find that the Ryanairs are the exception to the rule. Having worked in both sectors waste and cronyism is a lot more rife in the big multinational private sector companies than most would admit to.

dunsandin · 19-10-2010 08:40PM

DublinWriter wrote: »

Yes, it really worked a treat in the coal industry in the UK in the early 80's.

I find that the Ryanairs are the exception to the rule. Having worked in both sectors waste and cronyism is a lot more rife in the big multinational private sector companies than most would admit to.

The cronyism bit is accurate enough, but the coal example is not. The coal industry was rampantly innefficent, where private companies took over productive pits, output soared and costs fell dramatically. The unproductive pits simply remained closed. As the demand for fuel rises, this may well be reversed.

cyclopath2001 · 19-10-2010 08:43PM

amacachi wrote: »

Even if private industry isn't always particularly efficient the benefit is that it doesn't (or at least, shouldn't, but look at how that work) cost people money unless they choose for it to.

Most of us were not Anglo-Irish customers and it's costing us all money.

amacachi · 19-10-2010 08:51PM

cyclopath2001 wrote: »

Most of us were not Anglo-Irish customers and it's costing us all money.

Seems those brackets I used worked really well because you completely ignored what was in them.

ressem · 19-10-2010 09:06PM

The OPs starting argument is too general...
http://www.don-lindsay-archive.org/skeptic/arguments.html#generalize

There are private companies that seem to exist just to milk money from grants or VCs rather than producing a product/service.

There's a bit of selective observation involved but the view would be that competently run private businesses are more efficient. Best in class can in some areas deliver half a million dollars in turnover or added company value per employee.
Less well run companies should eventually go out of business, unless propped up for other reasons.

I wouldn't agree that the OPs two arguments are the bases for this belief.

I'd suggest the arguments...
1) competent private sector companies might be better at measuring and removing bottlenecks that have built up over decades. The Six Sigma quality measurement etc (which I think a number of public sector areas do partake in).

2) Private sector companies typically have employment contracts for their staff which make it clear during induction that failure to follow work procedure can result in senior staff discussing whether they should be laid off.

3) Following 2. Changes in procedure can be demanded from staff. Interminable discussion by representitives shouldn't be useable as a permanent block on change.

4) The politicians would not be incentivised to increase the private sector management's pay, as it would not directly result in an increase to their own pay.

But that ignores the question of who the customer would be. If a private sector management was dumped on top of the public sector, the customer would still likely remain the politicians rather than the public.

Since the ministers seem content to act as PR departments / fallguys for the failings of the departments, I don't think anything would change.

(rant follows... instead of what they should be i.e. the citizens chosen opposition to the department heads, calling them in for regular compulsary public hearings, without the " cannot comment on individual cases" mantra )

amacachi · 19-10-2010 09:15PM

ressem wrote: »

The OPs starting argument is too general...
http://www.don-lindsay-archive.org/skeptic/arguments.html#generalize

There are private companies that seem to exist just to milk money from grants or VCs rather than producing a product/service.

True, though I don't think a lot of them should be called private companies. For example in my college, though supposedly "private", the fees are paid by the government and in various departments we've been told of people not being replaced when they're retiring because of the government cutbacks. In a supposedly independent institution I don't see why that's relevant, though I have a feeling they may be embellishing the truth somewhat to help students lean a particular way politically, but I'd like to be wrong about that.

Scofflaw · 19-10-2010 09:24PM

My experience as a small business is that large organisations are inefficient in more or less exactly the same way. The public sector is more likely to spend money on doing something completely pointless just for the sake of ticking the boxes - and know that that's what they're doing - whereas in the large private sector the same completely pointless activity will be dressed up with some notional ROI that nobody ever checks. In both cases it will happen because it's fashionable and someone higher up the chain heard about it and liked the idea.

Small businesses are efficient only because the people who work for them tend to put more effort into any given piece of work - there's no room, or very little, for people who just clock in and clock out - and a company that contains more than a couple of them will die the death. In a five person company, you can't afford to support 1 employee who doesn't do their job, because that's 20% of the workforce, and everybody knows who's not pulling their weight.

Unfortunately, that willingness to put in the effort only comes about because you're a member of a small and close team, and your effort has a nearly immediate impact on the bottom line that stands between you (and your colleagues) and the dole queue. The 'rules' are informal, and can be rewritten very quickly or ditched when necessary - something that's both a strength and a weakness. Attempts to institutionalise that in larger organisations are almost invariably successful, so larger organisations have to accept a greater proportion of jobsworths and less flexible adherence to the rules.

In general, the civil service has money to throw at a project, but lacks skilled people resources, whereas the private sector has the skilled people, but usually under-budgets. Both of those cause overruns, but the civil service overruns on the cash, whereas private companies tend to overrun on the people commitment and either under-deliver or overrun on time.

Public-private partnerships can be a match made in heaven, where the right amount of cash meets the right commitment of skilled people, or a match made in hell, where the overspend from the civil service meets over-commitment of personnel in the large private partner, resulting in the project taking longer and costing more and under-delivering.

Unfortunately, the public need for accountability from the civil service has resulted in procurement and oversight demands that most small businesses simply can't meet. If real accountability is required, you need a company that can afford to spend a decent amount of its money on internal documentation and formal processes, whereas small companies are like black boxes - we do the work, and you get the result, but we don't have the time or resources to annotate every step of that process, which is in any case highly informal - so if the result is bad, there's no accountability trail, and no point of blame bar the decision to hire the small company in the first place. The lesson most civil servants and large company employees learn, then, is "nobody ever got fired for hiring IBM" - or PWC these days - and small companies only get projects involving small amounts of money, because nobody's ass is on the line. Unfortunately, that means we often miss out on public contracts that we could perform alone, because the civil service has overbudgeted, and on contracts where we could perform as a consortium because we still don't have the resources to do the paper trail, even though we would be more efficient.

And so it goes. Small businesses are efficient, but we're unreliable and unaccountable - big companies and the public sector are the opposite. It seems to be an inherent tradeoff.

cordially,
Scofflaw

twowheelsonly · 19-10-2010 09:26PM

DaSilva wrote: »

Yes, some proof would be nice, you haven't provided any. Here's a list of companies gone into liquidation. http://www.odce.ie/GetAttachment.aspx?id=a441b73f-46a1-4bc4-b9e9-bac8f357ddc7

That list is from 2002 - that just makes it worse as it was at the height of the mythical tiger years. I'd imagine that the lists for the past couple of years are horrific.
Having said that , a large number of companies do tend to fail in their first two years. It's not as easy as everyone thinks!! Add that to the fact that everybody that ever picked up a hammer fancied themselves as a developer and the problems are multiplied. We would have been better off if we had 6 big developers in the country instead of 2006. 6 would have dictated what way the market went and would have been cute enough not to overexpand IMO

Amhran Nua · 19-10-2010 10:23PM

Depends on the business culture. China is basically one gargantuan public sector, and nobody could call them inefficient.

Sleepy · 19-10-2010 10:27PM

That's an excellent summation Scofflaw. Documentation and strict adherence to procedure do seem to go out the window on many successful projects.

The biggest difference between the two sectors that's noticeable to me is average working hours. I'm pretty strictly a family person and make a huge effort to be leave the office at half five but I still end up doing a lot of unpaid overtime, both in terms of travelling to and from client sites and just staying late to get things done. This is something I see far less of in the public sector, the notion of spending 6 hours of your day driving to and from somewhere to do a full day's work there without being paid for it is something that couldn't be allowed to happen in the PS. The unions would go crazy and arguably, rightly so.

It's the reality those of us in small firms live with though and the type of thing that meant benchmarking was always a farce. Yes, there are plenty of people in the public sector who are qualified to do my job (in terms of paper qualifications, real life experience and the "intelligence" required) to do my job, we may even have the same job title. However, if I'm spending 20 hours a week or so more on the job than they are, my salary should be higher than theirs. Especially when other factors such as pension entitlements, job security and other working conditions (availability of flexi-time, job-sharing opportunities, etc.) are taken into consideration.

The end result is that, at my salary, I'm a profitable hire for my company to employ as I contribute more to the bottom line than they pay me. Should I cease to be so, they'll reduce my salary or my position will be made redundant. My Public Sector counterpart, who can't be measured in such terms, doesn't have a similar metric to perform to and, so, in *general* won't perform as if they did and management (i.e. the Government) not having this metric find it harder to justify lay-offs or salary cuts.

Lu Tze · 20-10-2010 12:35AM

Sleepy wrote: »

The biggest difference between the two sectors that's noticeable to me is average working hours. I'm pretty strictly a family person and make a huge effort to be leave the office at half five but I still end up doing a lot of unpaid overtime, both in terms of travelling to and from client sites and just staying late to get things done. This is something I see far less of in the public sector, the notion of spending 6 hours of your day driving to and from somewhere to do a full day's work there without being paid for it is something that couldn't be allowed to happen in the PS. The unions would go crazy and arguably, rightly so.

As a generalisation i would agree with this - having worked as part of a client/consultant team in the PS for about 8 months. Our day was half an hour longer than the PS, but would often be there much later in the evening.

The exception being there were two salaried professionals in the PS on the same floor as me (i.e. non flexitime) who were consistently in as late or later than me, and doing so for no extra benefit in pay or time in lieu etc.

To be honest if i was in that work environment i would have found it hard to keep that level of commmitment, at least with my company it may help down the line with regards to promotion etc. in years to come.

padrepio · 20-10-2010 02:57AM

As anyone who has ever worked in any private sector company will tell you - poor customer service, downright laziness, double jobbing, corruption and cover ups are not necessarily the sole domain of the public sector. Have people already forgotten wonderfully efficient companies like AIB, Anglo, RBS, Enron - etc etc

Cant believe people are swallowing the line pushed by right wing media types like the Sindo whose advertising revenues are hugely down that the public sector is at fault for our mess. People point to the HSE and saying scrap it but recent EU reports that compare public health systems has it climbing the ladder each year and ahead of the NHS in 2009. That report pointed to the establishment of the HSE being crucial and that the Irish health systems suffered from an internal marketing problem. Bertie Ahern gave a blanket guarantee when the HSE was formed that noone could lose their job - Brendan Drumm pointed to this as a huge issue to progress when leaving the HSE.

Sure the public sector can be reformed, we need a state wide public sector ICT policy for a start seeking huge consolidation of admin and management across the board. But that wont happen without investment. Without investment, there will be no increase in national growth either.

ei.sdraob · 20-10-2010 08:01AM

Amhran Nua wrote: »

Depends on the business culture. China is basically one gargantuan public sector, and nobody could call them inefficient.

Oh really :rolleyes:

ei.sdraob wrote: »

http://www.time.com/time/photogallery/0,29307,1975397_2094492,00.html

if you thought ghost estates in Leitrim are bad, how about ghost cities in Inner Mongolia :eek:

Just because you fantasize and admire the iron grip authoritarianism (and the resultant lack of rights to citizens) doesn't mean there is waste, especially in a culture where "saving face" is the norm alongside with bureaucracy and corruption which go back in time a long time.

Permabear · 20-10-2010 09:41AM

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20Cent · 20-10-2010 09:50AM

donegalfella wrote: »

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Really?
Anglo,
AIB
BOI etc
Goldman Sachs.
Farming industry
Ryanair
etc etc ................

The car industry in the US.
Oil industry is subsidised.
The whole military industrial complex in the US.
The Financial sector.
Steel

Amhran Nua · 20-10-2010 09:53AM

ei.sdraob wrote: »

Oh really :rolleyes:

Yes, that's one of the reasons the manufacturing is all being sent there.

ei.sdraob wrote: »

Just because you fantasize and admire the iron grip authoritarianism (and the resultant lack of rights to citizens)

I'm trying to come up with a way that you could fail any more with your strawman/ad hominem combo, but its just not happening. Its particularly ironic coming from the far right wing.

Permabear · 20-10-2010 10:12AM

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20Cent · 20-10-2010 10:17AM

donegalfella wrote: »

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And that definition covers just about all the private sector.

My point being that this idea of private sector companies operating in a self sufficient vacuum does not exist and never has existed. We are all tied in together one can't operate without the other.

Permabear · 20-10-2010 10:31AM

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20Cent · 20-10-2010 11:44AM

donegalfella wrote: »

This post has been deleted.

Name a company which the state does not directly or indirectly intervene to subsidize them, nationalize them, bail them out, or otherwise prop them up?

Scofflaw · 20-10-2010 04:44PM

20Cent wrote: »

Name a company which the state does not directly or indirectly intervene to subsidize them, nationalize them, bail them out, or otherwise prop them up?

Mine, for a start.

cordially,
Scofflaw

limklad · 20-10-2010 04:51PM

Atlantic Dawn wrote: »

Well in my dealings with the public service the only service I have ever dealt with that I received what I could call any level of efficiency was online motor tax, this is all automatically generated and required little or no human interaction on the public service employees end. I'd imagine this system in the private sector would have reduced staff in the motor taxation office by 30 or 40%.

Do not forget the Revenue, They are always efficient taking Taxes from you.
No seriously, the online Tax forms are handy too There is no one to wait to find the paper work since it all computerised.

Is the private business really more efficient?

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