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It's even simpler than that. All of these privatized entities are incredibly efficient... at extracting profits from the public. Of course their goal is to extr
by juujian 3y ago
It's even simpler than that. All of these privatized entities are incredibly efficient... at extracting profits from the public. Of course their goal is to extract profits. And you don't extract profits from a rail line by offering the best service. Bonus points if you can convince the government to bail you out and provide some extra cash.
- mrfumier 3y ago"And you don't extract profits from a rail line by offering the best service." So how do you extract profits then?
- aloisdg 3y agoYou don't.
- notahacker 3y agoBy raising the prices of your local monopoly to the yield-maximizing level whilst cutting overheads as much as possible.
- waldothedog 3y agoMinimizing costs and competition?
- giaour 3y agoOffering shitty, expensive service. It's not like customers can use a competing rail line, so every dollar you invest in customer service is a dollar out of your pocket.
- dffdsa432 3y agoThe USA's rail lines are privatized and they're anything but "shitty" and "expensive" considering they're lower cost than trucking.
- lostlogin 3y agoUS rail has been in the news lately, with apocalyptic skies and chemical rain. Safety issues abound. What are you seeing that I don’t?
- dffdsa432 3y agoThere are 3 million rail cars moved per day that haven't produced apocalyptic skies and chemical rain. You misrepresent the overall safety of private rail lines.
- katbyte 3y agoUs rail lines are horribly mismanaged https://m.youtube.com/watch?v=jNkYNjADoZg https://m.youtube.com/watch?v=jNkYNjADoZg
- ben_w 3y agoMy experience of American railways as a tourist is having to show my passport to book a ticket from Davis to Sacramento (I assume I also did that on other trips like to SFO but don't remember), and it being expensive. My experience in the UK and Germany is show up, pay, go, and it being cheaper.
- dffdsa432 3y agoUS consumer rail way is a quasi public corporation (Amtrak) that has lost money for decades and is still funded to the tune of over $1 billion per year. You are confusing that with private US rails.
- ben_w 3y agoIf you're going to insist on focusing on that, I think you'd already missed the point of what you were replying to in your comment that I replied to.
- 3y ago
- edf13 3y agoBy cost-cutting and offering the bare minimal of service... Especially when the service is a necessity for many (Train to work, water to drink, electricity to keep warm and cook, etc).
- mnd999 3y agoMinimise investment to maximise profits, which you take, whilst running the minimum service required to avoid contract penalties or publicity so adverse you lose your contract. Then threaten to go bust and get bailed out by the government when the infrastructure starts to break a few years later. At least that’s they playbook they’re all using.
- veltas 3y agoThe infrastructure isn't privatised though, it's maintained by Network Rail.
- bluescrn 3y ago"Privatise the profits, Nationalise the losses!"
- dffdsa432 3y agoWhat about losses from federally funded corporations like USPS and Amtrak that are bailed out every year? Amtrak loses over $1 billion/yr and they are still "nationalized." USPS loses multi billions per year.
- ehnto 3y agoUSPS costs billions, public services don't need to be profitable they just need to be paid for. Taxpayers pay for it with their taxes. When we sell our public investments for a quick buck we complain when the real cost of the service gets priced in. The trouble is, we pay the same taxes still, they just no longer go to the service we privatised, so we feel it in the pocketbook individually. Presumably those taxes are going elsewhere now, but I was very happy with them going to core public services.
- cycomanic 3y agoThe USPS is "loosing" money because it was told to prefund it's Healthcare having to set aside $100 billion in 10 years (unlike any other company) . Moreover, it's much more a service than a business, e.g. it can not really set its own prices. https://www.barrons.com/articles/usps-louis-dejoy-post-office-pelosi-mail-in-ballots-51597687253 https://www.barrons.com/articles/usps-louis-dejoy-post-offic...
- jleask 3y agoCutting corners and costs e.g. shutting ticket offices, doing just enough to barely offer the service. It's not like your passengers have any sensible alternative. If that doesn't do it then you can also load the company up with debt and pay yourself a nice dividend until rates rise.
- danuker 3y ago> load the company up with debt and pay yourself a nice dividend I am new to this. Doesn't a dividend come from profits? What profits are there if you need debt? And who will loan to you if your business plan is to exit scam?
- lmm 3y ago> Doesn't a dividend come from profits? A dividend can be paid with money from any source, it's all money. > And who will loan to you if your business plan is to exit scam? Ambitious junior bankers. Or you get the government to guarantee your debt.
- scott_w 3y ago> What profits are there if you need debt? And who will loan to you if your business plan is to exit scam? If you’re a water company, after government bailed out the banks, chances were good you’re not going bust. What are they going to do? Let the entire population of London die of dehydration?
- toyg 3y agoAnd since a lot of investors in large utility companies are international, should the government somehow not make them whole (or worse, just expropriate), there would typically be repercussions - with international arbitration courts adjudicating reparation with processes that are typically stacked in favour of businesses. It's a sham market.
- scott_w 3y agoI just explained the thought process, I never said it was guaranteed to hold true.
- jahnu 3y agoBy competing to make the best rolling stock, online booking systems, catering, cleaning services, etc. These contracts should be put out to tender and should the promised level of service not be delivered then contracts should be lost and/penalties applied where necessary. Most important is that the target service coverage, quality, etc should be decided by government (who should be seeking to please voters), not corporations who are seeking to please shareholders.
- hsjqllzlfkf 3y agoCut costs. And if youre in a monopoly position, you can in addition prices. I mean, do you really not understand how earnings are calculated, or are you trolling?
- mrfumier 3y agoI don't understand. If it's a monopoly, it's not a free market, by definition. Seems like you are the one trolling here.
- lmm 3y agoTrains are a natural monopoly, that's why lassiez-faire policies don't work.
- hsjqllzlfkf 3y agoYou asked how profits are extracted, and I answered your question. Now you're bringing up monopoly vs free market, which has nothing to do with the question.
- cjrp 3y agoThe award of the contract to run that particular collection of routes is ostensibly free-market. Once it's awarded, they hold a monopoly for the duration of the contract though.
- HWR_14 3y agoNothing about a free market precludes a monopoly from existing. I have no idea why you would think that was the case.
- ClumsyPilot 3y ago> it's a monopoly, it's not a free market, by definition It is a free market, you are free to open your own water company and build your own water pipes or deliver water in bottles. No one is stopping you
- lifeonlars 3y ago
- juujian 3y agoBy running your lines on a shoestring budget, how else would you? The contacts have a fixed life time, keep your expenditures low and you can extract the highest profits. Long-term maintenance in particular suffers after privatization, because why would you, that doesn't align with your goals. And the risk is nill, because the government needs to provide the services so if things go awry you have little too worry about. They will have to bail the line out. Just find a way to move money from the entity to shareholders while you can and you're good, they are not clawing that back.
- oaw-bct-ar-bamf 3y ago1.) Force other competitors to go belly-up or buy them to create a Monopoy or if the authorities don‘t let you do that, try to end up in a duopoly situation where you and your competitor come to some silent agreement to not overly compete. 2.) Raise the regulatory bar to prevent startups from entering your field. Milk whatever half dead infrastructure you have and people depend on. Oh and raise prices every odd year while still not investing in the rotten infrastructure. Somehow investors need to see growth and dividend payments. Due to 1.) there is no competitor left that could offer a better service. People cannot simply switch. Die to 2.) you are not in danger of ever having to face situation 1.) again. Job of the government is to not let 1. and 2. happen.
- deleted 3y ago[deleted]
- timmb 3y agoBy stripping and selling off as many assets as you can and borrowing as much as possible leveraged on the income from future fares. There is no incentive to spend this on long term investment or contingency planning. The railways are an essential service so the government will always have to step in when the private company reaches breaking point, so no money is saved by the state in the end. It’s just disguised debt with terrible interest rates.
- dffdsa432 3y agoAmtrak, a public rail company gets over a $1 billion in public funding. Private rail lines do not. Amtrak has operated at a loss for decades unlike private rails.
- DFHippie 3y agoYou are comparing completely different services, though, right? Private freight lines versus passenger? Amtrak runs on lines owned by the freight companies. I've been on an Amtrak train that had to sit on a siding while a freight train passed. The passenger service has to have a published, predictable schedule. The freight moves when it is needed and breaks the Amtrak schedule, leaving a crap passenger service. I think the extent to which freight shoves aside passengers varies from region to region. My worst experience was going to West Virginia from DC. I find the Vermonter keeps its schedule pretty well.
- ClumsyPilot 3y agoSo? In 2014, a total of $416 billion was spent on highway and water infrastructure
- lifeonlars 3y agoA "loss" here is just a politicized framing of the fact that government pays Amtrak to do something of use to society. You might as well say that the US military makes a $1 trillion loss per year. No, they supply something which is required by the govt and which has a cost.
- deleted 3y ago[deleted]
- iamacyborg 3y agoExtracting short term profit isn’t hard, and that’s all these investment funds that operate on short time scales are looking to do. There was an excellent book on the subject published this year called Our Lives in their Portfolios[^1]. [^1]: https://www.ft.com/content/7da72f9c-978b-41e7-8e4b-478818f7456f https://www.ft.com/content/7da72f9c-978b-41e7-8e4b-478818f74...
- BiteCode_dev 3y agoYou milk the captive market.
- lostlogin 3y agoSell off assets, get subsidies, understaff, rundown and don’t maintain equipment. Provide a shit service. When bankruptcy comes up you’ll be bailed out.
- jacknews 3y agoJust like all PE; take on huge debts ostensibly to fund expansion, efficiency, etc, and then ... give the loaned cash to shareholders.
- wodenokoto 3y agoRail lines have inherent competition in form of trucks and boats (for transport of goods) and cars, busses and planes (for transport of people) and rail is often outcompeted by these as they don’t require large station in expensive real estate. So the example of rail doesn’t really apply to this branch of the discussion. However, once you’ve bought a house, it is very difficult to to but in new pipes from a different water works.
- katbyte 3y agoDeferring maintenance, focusing on how to make the most per dollar spent, making your workers lives terrible, ignoring safety. Here is how that works in American railways: https://m.youtube.com/watch?v=jNkYNjADoZg https://m.youtube.com/watch?v=jNkYNjADoZg And why they are on a road in implosion.
- ModernMech 3y agoBy making sure there’s no water fountains on the train platforms, yet plenty of kiosks and vending machines that sell water. I was just at EWR last night waiting for an arrival and there was an old man looking for water. He asks an employee where to find some and she looks at him like he has two heads. “You have to buy some. Or you can drink out of the faucet in the restroom” Can you imagine that? Telling an old man at 1am he has to drink out of a bathroom fixture to quench his thirst. In my mind, I was hoping he was flying to a more civilized country. Because that’s the system we’ve built for ourselves. In a better present, the man would have access to a drink for free. But because a profit needs to be made, the entire airport is organized around little nickel and dime scams.
- drsnow 3y agoThis is the way the world works now and anyone who disputes the justification of it just gets neatly added to the pile of "complaints" burned by elites for warmth.
- dffdsa432 3y agoDo government unions not try to maximize their profits from the public or am I missing something?
- figmert 3y agoThose in the unions are the public.
- Findeton 3y agoThere are way more customers outside the unions that inside.
- dffdsa432 3y agoUsing your faulty logic, the owners of the privatized corporations are public citizens too.
- JumpCrisscross 3y ago> Those in the unions are the public This is a nonsense delineation in systems thinking. That railroad shareholders are also the public doesn't justify ripping them off. Unions are beholden to the same impulses towards monopoly and rent-seeking as corporations. Swap members (i.e. sellers of labour) for shareholders (i.e. sellers of capital) and employers (i.e. buyers of labour) for customers (i.e. buyers of goods and services) and union management starts looking remarkably like its corporate analog, churning undifferentiated workers into a differentiated and thus premium block of labour as truly as a mill grinds forests into houses.
- arethuza 3y ago"That railroad shareholders are also the public" They are the public, just not the UK public!
- ClumsyPilot 3y ago> railroad shareholders are also the public Lets see the shareholders: * French government * Chinese government * Australian banks
- Kiro 3y agoIsn't that the whole point of privatisation? By introducing a profit maximisation goal you (supposedly) create a more efficient operation. I've worked in both the public and the private sector and can definitely understand the argument. In my government job it was way easier to slack off and no-one really cared about the results. There was no actual pressure from above to hit targets. You had your budget and it didn't really matter what you produced. Not hitting deadlines was no big deal. Compared to my normal jobs where there is a constant stress from management to be lean, efficient and hit goals. I hate it but the team spirit is much higher and I probably produce 10x in comparison.
- jraph 3y agoI've also seen many public places where people are efficient, and also stressed because of the amount of work to do. I feel like your experience is not very applicable to all situations. What's more, a private company which has monopoly does not really have special incentive to respect deadlines and everything: it is the only choice, so customers won't deal with any competitor and are stuck with this private company.
- Kiro 3y agoAbsolutely. My experience is completely anecdotal, and even if it's true that you get less bang for the buck in the public sector I still think it's ideologically sound and worth it. My country has a huge public sector but I think it's good. What's normally the driving motivator in public companies to be efficient?
- m-i-l 3y ago> "It's even simpler than that ... their goal is to extract profits" According to the article, profit has not been the primary goal for the utilities though, because there is limited scope for extracting profits from uncompetitive essential utility services - the focus instead has been on maximising shareholder returns. So in the case of the water utilities, they "borrowed £53bn in debt while distributing £72bn to shareholders", which of course is what the issue is now interest rates have risen significantly. The article describes this as "the tension between generating strong returns for investors in uncompetitive monopoly conditions and providing high-quality, affordable infrastructure to the public". The end result is still the same though - transfer of wealth in a socially destructive direction.
- lotsofpulp 3y agoHow are shareholder returns and profit different?
- WithinReason 3y ago"borrowed £53bn in debt while distributing £72bn to shareholders" There is the difference
- lotsofpulp 3y agoNo lender is going to lend a business money just so it can pay the owners. They must have used the debt to finance operations, as opposed to cutting the dividend or even putting more money in. This allowed them to continue to have profits in the short term, at the expense of higher interest costs in the long term (which probably cause higher prices for customers in the long term).
- WithinReason 3y agoDidn't InstantPot just go bust for the same reason? Somebody decided to lend them too.
- nip 3y agoYour reply is a cynical take on GP’s comment that was providing a clear, concrete and simple solution to the problem at hand that most countries, especially in EU, are facing. Your comment on the incentives of private companies missed his point about the competition aspect.
- hnbad 3y agoThis is a pet peeve when market maximalists talk about how public services are "inefficient". Efficiency in economics refers to profitability. If a public service isn't profitable, that actually makes it efficient in a practical sense because a public service being profitable would mean it is overfunded (i.e. it's receiving more funding than it needs to operate). In practice this often means politicians will squawk about how a given public service that is inherently a cost center is "inefficient" (which is true in the economic sense because it is designed to use its entire budget and thus doesn't extract a profit), impose austerity by cutting its "bloated" budget (which is justified by also cutting the workforce and other cost factors) and then repeating this process until the public service is inoperable and its failure is seen as a demonstration why it must deseperately be privatised and sold to the highest bidder (who can now get the monopoly position at a fraction of its potential value). Potential extra steps along the way involve creating a (government-owned) corporation to make it easier to complain about its bad business performance. On a related note, there is an independent "tax payers' association" in my country that makes a big deal about "tax waste" by highlighting (usually fairly small) public works that most often have legitimate uses/explanations but may seem absurd/wasteful at first glance but largely prefers to stay silent when it comes to business subsidies and such. They have a clear ideological bias and while the media seems to be somewhat aware of this, it's always interesting to see journalist report on inadequate welfare programs in the same breath as mentioning (and using b-roll of) the public "national debt clock"[1] installed by this association. [1] The most recent example was a segment on youth debt stemming from welfare overpayments their parents received (which under the legal system at the time was partially imposed on underage children in the same household even if they didn't have any money - the law was recently changed so they could only be held liable for the amount of money they owned at their birthday when reaching the age of maturity). Ironically this debt was the direct result of the kind of legislation to cut "tax waste" (in this case: welfare overpayments) the association generally advocates for. The hook was something like "the government can be billions in debt but for a young person a much smaller amount can be life-ruining" but the lack of reflection was astonishing.
- red-iron-pine 3y ago> This is a pet peeve when market maximalists talk about how public services are "inefficient". Efficiency in economics refers to profitability. If a public service isn't profitable, that actually makes it efficient in a practical sense because a public service being profitable would mean it is overfunded (i.e. it's receiving more funding than it needs to operate). Ehhhh... nah. There is still a cost vs. return. Postal Services, for example. $10 ships 1.1 packages on average, or they get efficient and $10 ships 1.9 packages, etc. You absolutely see this in things like Medicare where $100 worth of spending doesn't get you 90-100 generic aspirin, but more like 20 pills, and the rest of it goes to pay middle men.
- captainbland 3y agoYeah exactly. In fact anyone who believes in markets should laugh in the face of private natural monopolies as an obviously terrible idea. The UK structures water provision as regional monopolies. This should be a hilarious joke but it's the reality. You can't change water company without living in a different region. There is no effective market competition for water provision in the UK. We already rely on price caps to keep this state of affairs in check. Pretty much the only argument that almost stands up for them is that they're quite good at contributing to private pensions as a byproduct of being good stocks because people need water to not die. We gloss over where the rest of the money goes, possibly into PR management around frequent sewage dumping.
- TremendousJudge 3y agoDoesn't it go into dividends for the owners?
- captainbland 3y agoYeah to an extent, I admit that last statement was a little bit of a barb although I felt the topic of dividends was implied by the part about stocks etc.
- makomk 3y agoNo, that's not it. They make sense as investments for things like pension funds because what those pension funds need is basically the other side of what's needed to have infrastructure like water and sewage treatment: the pension funds have a bunch of up-front money that they need to turn into a reliable income stream, whereas providing water and treating sewage has a bunch of up-front cost to buy/build/upgrade the infrastructure but only receives money slowly over time from people using that infrastructure. The British media has been obfuscating this because for partisan political reasons they want to convince people that having to pay for things that they directly use and benefit from is somehow stealing from them, and that the fair solution is for Canadian teachers' retirement money to be used to deal with their literal shit for nothing in return. So far it's been working astoundingly well.
- 3y ago
- dTal 3y agoThis is one of those times where the math is so simple that it's baffling that anyone misses it. When a private company must 1) do the same job as a public service while also 2) coming up with surplus bags of cash to hand over to investors and shareholders, how can it possibly be more efficient?