3.5.3.4 Privatised Public-Service Monopolies

(This is a current page, from the Patterns of Power Edition 3 book contents.  An archived copy of this page is held at https://www.patternsofpower.org/edition03/3534.htm)

Consumer choice is not always possible – for example where the service is a natural monopoly, such as the supply of water to a particular geographical area.  Local or national government then has to make choices on behalf of the people; it can retain a competitive element by awarding a fixed-term licence to one contractor, to be re-tendered after a period of several years (sufficient time to allow the contractor’s investments to be paid for).  There are risks in the privatisation of a natural monopoly, so the procurement processes are then of the utmost importance:

  • The procurement specification must ensure that adequate quality is delivered.  There is no reason why a purchased service should be any worse than that provided by a State’s own employees, but a loose specification could allow a private provider to increase profit by delivering a sub-standard service.
  • The selection of supplier must be transparent, to avoid corruption.  Regular quotations should be solicited from different companies, some of whom should not be local.
  • Economic benchmarking exercises should be carried out periodically, to compare quality and cost of similar services in other countries.

The advantage in privatising a monopoly is that private companies can invest without being drawn into political negotiation on the national budget, but the procurement safeguards are essential to ensure that the taxpayers benefit.

Some examples of commercial sector failure to deliver good public services have been the result of poor procurement practice.  For example, as reported by The Independent: Water firms pollute rivers every week.  The procurement contract could have (and should have) specified penalties for pollution, rather than letting the courts impose derisory fines.

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