State-led Privatisation and the Demise of the Democratic State

Welfare Reform and Localism in an Era of Regulatory Capitalism

Mike Raco

• Publisher: Routledge
• Year: 2016
• ISBN:
  9781317050223
• Edition: 1
• Topic: Politics & International Relations
• Subtopic: City Planning & Urban Development
• Index: Politics & International Relations

For decades now we have been told that we are living through a governance revolution. Gone are the days when government agencies and bureaucrats told us what to do and how to do it. We are no longer clients of the state but empowered citizens who are able to take greater control over our own lives and the activities of those who govern in our name. Across the world the prevailing narrative has become one of Good Governance, devolution, liberation, and freedom of expression. In policy fields as diverse as development planning, healthcare, and public transport a neo-pluralist rhetoric has emerged based on the principles of 'co-production' and partnership working. And yet at the same time a curious paradox is emerging. Whilst the prevailing zeitgeist is one of openness and citizen empowerment, this book will show that in reality new modes of governance are emerging in which state controls have actually been expanded into many spheres of life that were previously left unregulated. For some a new political economy of 'regulatory capitalism' has emerged and this, in turn, has ushered in unprecedented forms of state-led privatisation under which democratically-elected politicians have voluntarily handed over their powers, responsibilities, and resources to new corporate elites who promise to deliver services in more efficient and equitable ways. As the discussion will show, in reality the rhetoric of Good Governance has, therefore, been used to legitimate the wholesale transfer of welfare assets and services beyond the democratic control of state actors and the citizens that they represent. Privatisation has become a new utopianism that involves a revolution in ways of thinking about democracy, governance, and urban management, the implications of which will be felt by current and future generations.

Chapter 1
State-led Privatisation, the Restructuring of the State, and the New Localism

Introduction

For decades we have been told that we are living through a governance revolution. Gone are the days when government agencies and bureaucrats told us what to do and how to do it. We are no longer clients of the state but empowered citizens who are able to take greater control over our own lives and the activities of those who govern in our name. Across the world the prevailing narrative has become one of Good Governance, devolution, liberation, and freedom of expression. In policy fields as diverse as development planning, healthcare, and public transport a neo-pluralist rhetoric has emerged based on the principles of ‘co-production’ and partnership working. All of this has been fuelled by more transparent modes of governance and aided by an information revolution that has given citizens the power to shed light on the practices of elites, in ways that were thought impossible even a few short years ago. This knowledge and scrutiny, it is often claimed, has made it impossible to hide elite practices from public view. They are held to account in new and radical ways that limit opportunities for old-fashioned forms of exploitation and malpractice. The world of governance is almost unrecognisable compared to that of the post-war decades and there has been a liberating and utopian shift from government to governance.

And yet at the same time a curious paradox is emerging. Whilst the prevailing zeitgeist is one of openness and citizen empowerment, new modes of governance are emerging in which state controls have actually been expanded into many spheres of life that were previously left unregulated. Some political scientists now characterise this as an era of ‘regulatory governance’ in which states have not become smaller, as in neo-liberal visions, but larger. Even in an era of so-called austerity, state spending in many countries remains at record post-war levels. The 1990s and 2000s witnessed a mushrooming of ‘independent’ state-funded agencies to enforce these new regulations. The character of democratic politics has also changed markedly. New governance programmes are frequently converted into calls for more regulation, smarter regulation, re-regulation, and independent oversight, free from the ‘political inference’ of elected representatives and citizens. This logic of governance by regulation has ushered in unprecedented forms of state-led privatisation in which governments voluntarily cede their powers, responsibilities, and resources over to global companies under regulatory supervision and contract. As this book will show, the reality of this situation is that the rhetoric of Good Governance has been used to legitimate the wholesale transfer of welfare assets and services beyond the democratic control of state actors and the citizens they represent. Privatisation has become a new utopianism.

The reformation of state structures has also brought about fundamental changes in the private sector. Many private investors have realised that vast returns are to be made from state contracts. The 1990s and 2000s have, therefore, witnessed the emergence of what Claire Cutler (2003) terms ‘private international regimes’ who not only strive to capture welfare spending but also draw up and/or co-produce the regulatory frameworks that are then adopted by states to facilitate further privatisation. Regulatory governance, therefore, represents a new form of elitism in which power is transferred from citizens and governments to regulators and a new breed of powerful global companies and investors. It is these changes that explain how and why the character of privatisation changed markedly during the 1990s and 2000s in countries across the world. Private providers not only took on a wider range of contracted-out services, as they had in the past, but also began to design, finance, build, and operate state assets on a scale beyond the wildest expectations of even the most radical neo-liberal politicians of the 1970s and 1980s. Hospitals, schools, roads, police stations, university buildings, fire engines, and even public street lights were (and continue to be) delivered and managed under private arrangements. In the UK alone Private Finance Initiatives [PFIs] worth £300 billion (or approximately €360 billion) have been made since the early 1990s under which international companies have financed and/or built almost all new state infrastructures. Local communities and policy-makers no longer own these assets. Instead they are provided by the private sector and rented back to the state under inflexible, long-term contracts, which usually range from 20 to 40 years.

The implications of these trends for democratic processes are acute as ‘the state’ has been subject to changes so profound that traditional distinctions between what is public and what is private at the local level have almost disappeared from view. It is a new politics in which the space for direct public control of assets and policy levers has shrunk, rather than expanded. In David Levi-Faur’s (2005) words the consequence of these new modes of regulatory governance is that

we could now be experiencing a transformation from representative democracy to indirect representative democracy. Democratic governance is no longer about the delegation of authority to elected representatives but a form of second-level indirect representative democracy – citizens elect representatives who control and supervise experts who formulate and administer policies in an autonomous fashion from their regulatory bastions (p. 13).

This indirect representative democracy means that control over community infrastructure has, in many cases, become so fragmented and remote that citizens no longer even know who manages and owns key assets. Rather than there being too much govern ment, as claimed by reformers and Good Governance advocates, it could be argued that there is in fact too little. Citizens have not been empowered to co-produce policy interventions. They have, instead, been institutionally excluded from direct oversight of the policy-making processes that affect them in the name of enhanced policy efficiency and modernisation. The very notion of democratic governance is being converted into a series of technical debates over the ‘best way’ to ensure that private operators meet social needs through new regulatory and contractual obligations.

Government therefore becomes a form of client-operator contractualism in which state-funded actors manage and regulate the contractual and governance complexities that state-led privatisation programmes have brought into being. They have become negotiators, rather than providers. Once contracts are written, the process of engagement is complete. Private operators should then be allowed to undertake their state-funded tasks with a minimum of engagement with citizens or electorates. Their activities are only subject to change if this has been agreed under contract. In many cases, as we will see, the scope for such changes is limited as private investors have argued that their activities should be insulated from the ‘risks’ associated with changing democratic demands. There are, therefore, what Levi-Faur (2011) terms significant ‘liberty costs’ associated with regulatory expansion ‘based on the quiet accretion of restriction – an accretion hardly visible because it is hidden behind technical rule-making, mystifying legal doctrine and complex bureaucracies’ (p. 4). New geographies of distance are emerging in which localities and the citizens within them are being converted into investment spaces for private capital. Democratic checks are being removed. And as David Marquand (2004) points out, in such circumstances ‘what is the point of debate if no one listens? If debate is pointless, what is the point of citizenship? And if there is no point in citizenship, how can there be a public domain?’ (p. 131).

This erosion of the public domain is at the heart of the story told in this book. This introductory chapter explores the so-called localism agenda in the UK and elsewhere, and links recent reforms to wider debates over privatisation and the local state. Chapter 2 then sets out in detail the broader politics underpinning reform. It explores what writers such as Giddens (2007) and others have termed a ‘neo-progressivism’; a politics founded on so-called Third Way principles of pragmatism, post-conflict consensus governance, and state reform. Its prescriptions for reform are, the chapter argues, part of a wider post-ideological utopian project that seeks to deconstruct Keynesian welfarism and replace it with a new order founded on the output-centred principles of ‘what matters is what works’. Chapter 3 then explores the broader geopolitics of regulation that is shaping contemporary capitalism. It examines the growth of private or market authority and the emergence of what some political scientists have called regulatory capitalism. It also assesses debates over the so-called ‘new contractualism’ in which contracts have come to play a growing role in the formation of policy programmes and state practices. The net result, the discussion shows, is that political and economic systems are becoming bound up in complex regulatory entanglements. This process is leading to a further empowerment of elite experts, such as lawyers, business services providers, financiers, and accountants at the expense of communities and even politicians, who in many cases have been only too keen to sign away their responsibilities and powers to private operators under contract. The chapter discusses the implications of this for contemporary democratic politics and what it might become.

Chapter 4 then turns to perhaps the most significant manifestation of these wider trends; the growth of new types of contract-based public–private partnerships, known as Private Finance Initiatives. The discussion examines their geographies, why and how they have emerged, and what they tell us about the changing nature of state organisation and democratic processes. It also highlights their role in undermining the ability of policy-makers and planners to think strategically about future changes in cities (and beyond) or to try and use state interventions to manage dynamic economies, societies, and places. Many of the new contracts are long-term and possess expensive early repayment clauses, in order to provide private investors and operators with sufficient financial guarantees. This distancing of democratic policy-making from structures of asset ownership and management, the chapter argues, carries significant dangers for our understandings of politics and planning. If democratic politics is primarily a process of reasoned change then what happens when implementing change becomes too costly and complex to deliver? This theme is picked up in Chapter 5 in which the discussion assesses the politics of global privatism that is emerging to take advantage of the opportunities opened up by state restructuring and interrogates some of Richard Murphy’s (2011) claims that new welfare-dependent private elites now dominate the corporate and financial sectors.

The remainder of the book then draws on some of the author’s own research in London on three policy fields – health, social housing, and transport – to examine the impacts of privatisation, PFIs, and contractualism on the governance and day-to-day management of those services and the extent to which citizens and public authorities still possess the power to effect change to meet emerging demands. The analysis paints a picture of financial crisis, a growing fragmentation and globalisation of asset ownership, and new limitations on contemporary and future planning processes. It shows that much of the utopian rhetoric of devolution, Good Governance, and localism made by politicians in the UK and across the world misses the mark. In many cases devolution is leading to enhanced forms of alienation, de-politicisation, and privatisation. Elected government agencies can protect communities and respond to citizen claims and demands only if they are given the assets and resources to do so. Increasingly what we are witnessing is a growing politics of abandonment in which governments are sacrificing their control over welfare services and handing them over to corporate demands and returns. This book sheds light on how such a situation could have emerged, and what the implications are for the governance of urban policy and the democratic process in cities. It shows that the wider quest to remove democratic accountability from decision-making processes in order to boost policy efficiency represents a powerful utopian myth. The reality instead is the converse; inefficient and inequitable outcomes will always result from the absence of democratic checks and balances.

The New Localism and the De-Legitimisation of the State

In the summer of 2010 the UK Coalition government launched a programme of what it termed radical devolution, in which powers and resources would be transferred from state agencies to active individuals and communities. The latter, it was argued, would take on more responsibility for policy formulation and delivery, particularly in urban areas where social and economic problems are often at their most acute. This ‘new localism’ represented the latest incarnation of a long line of community-led initiatives that have their roots in both liberal and conservative political traditions (see Imrie and Raco, 2003). They are premised on the idea that state organisations have become too powerful and that a leaner state, shorn of its post-war welfare functions, can act as ‘a leading force for progress in social responsibility … by breaking [open] monopolies, allowing charities, social enterprises, and companies to provide public services, devolving power down to neighbourhoods, making government more accountable’ (Cameron, 2010: p. 1). In a similar vein, large sections of the Labour Party called for the end of the Big State as, in the words of advocate David Miliband (2012) ‘a central state without the discipline of decentralisation is likely to become bureaucratic and out of touch … [and] lead to an impoverished notion of the public good’ (p. 22).

Cameron and Miliband are, of course, not alone in advocating this vision of a society overwhelmed by the existence of an over-powerful state system. For decades policy-makers, political activists, global agencies, and NGOs have called for the enhanced devolution of economic and political power as a pre-requisite for the creation of more just, accountable, and efficient cities and societies. Despite the real achievements of many state-led welfare and infrastructure programmes in countries across the world during the nineteenth and twentieth centuries, the overriding discourse of localism and devolution has taken on an anti-‘big government’ tone since at least the 1970s. This has come from both ends of the political spectrum. Those on the left have long been critical of the bureaucratic nature of modernist state projects and the tendency of welfare systems to treat individuals as clients, to be governed over. Devolution offers an institutional mechanism of ‘empowerment’ by taking power away from experts, technocrats, and state actors and handing it over to citizens and responsive local actors. For those on the right, devolution reflects visions of a small state and can be used to prevent the creeping expansion and intrusion of bureaucratic systems into the everyday lives of citizens. It also facilitates entrepreneurial behaviour at the local level and allows policy-makers to tap into latent resources and knowledge that have been concealed by decades of state dependency.

From the 1970s onwards these diverse rationalities for devolution became embedded in wider policy discourses and ways of understanding development. From the publication of Schumacher’s Small is Beautiful in 1973 and the Brundtland Commission’s Our Common Future, the notion of sustainability became increasingly bound up with localism. The local was seen as a more ‘natural’ arena for human activities and affiliations and provided an antidote to the up-scaling associated with modernism and the expansion of nation-state centred welfare systems. In political terms, as Mulgan (1998) amongst others claimed, localities offered new opportunities to create truly sustainable systems of governance, organisation, and management in which individuals could feel connected to those around them and the economic and political structures of which they were a part. Sustainability and devolution thus became interchangeable terms, with devolution seen as a core component of any sustainable programme of action. They became elided with the cosmopolitan and networked ‘realities’ of an increasingly interconnected world.

And yet, at the heart of such rhetoric there is a core presumption that ‘the state’ consists of a network of bounded and quasi-autonomous bureaucratic institutions that provide services for citizens and communities. This, however, underestimates and downplays the complex entanglements that have always existed between (and within) different parts of the state, private sector organisations, and the voluntary and community sector. Thus, under the rhetoric of a new localism and policy devolution, communities and citizens are told that they are ‘being empowered’ at a time when their capacities and those of state actors and policymakers have been systematically fragmented or even undermined by processes of welfare state modernisation and reform. This has become particularly significant in the UK as under the Blair and Brown governments, private corporations not only took over the running of contracted-out services but also began to build and lease-out a growing proportion of the physical infrastructure on which welfare services depend, particularly in urban areas where public sector resources have been most stretched. It is also a discourse that fuels so-called ‘austerity budgets’ across the EU and beyond in which the selling off of state assets and services is seen as a prerequisite for the ‘stabilisation’ of over-indebted economies.

For neo-liberals, the same processes were seen as a core component of state modernisation. Localities and individuals were to be liberated from centralised forms of control and enabled to take more responsibility for themselves and those in the communities of which they were a part. This responsibilisation agenda was to form the backbone of reforms that would encourage entrepreneurial individuals to develop new governmentalities and mindsets of action and act as competitive actors in the pursuit of ‘positive’ lifestyle changes. It was also, of course, a vision of enhanced profitability and competitiveness founded on the ideology that state bureaucracies are simply unable to manage economic activity in an efficient manner. According to Crouch (2011) neo-liberal writers focused on government ‘failures’ that related to three themes: ‘a lack of responsiveness to users, provisions of excessive or unwanted services, and a failure of the public sector to benefit from improvements in efficiency and service delivery being achieved by private firms’ (p. 76). Decisions and choices should be devolved, as much as possible, to individual firms with the role of the state relegated to one of an enforcer of rules and market opportunities.

Paradoxically, within such discourses there is little recognition of the market domination being exerted by increasingly powerful global firms, for whom state devolution and privatisation have effectively meant the opening up of new business opportunities. As we will see in subsequent chapters, such discourses have taken on many forms and had a major influence on contemporary programmes of sustainable development, ecological modernisation, and so-called third-way thinking. The main problem is that rather than seeing state–citizen relations in zero-sum, binary terms, the reality is increasingly one of corporate domination of the state itself under the rolling-out of regulatory capitalism. What we are witnessing is the emergence of hyper-plural local governance arrangements in which the very nature of the state has been, and continues to be, transformed into a series of complex and fragmented contractual relationships, overseen by expert terms of public and private sector regulators. These trends are particularly evident in the UK and it is to contemporary discussions of its governance dynamics that the next section now turns.

The New Localism and the Discourse of Devolution

In the UK, the Coalition government has been one of the strongest advocates of a new localism to be found anywhere in the Global North. Since coming to power in June 2010 it has pursued a fiercely anti-centralist, anti-state rhetoric, that challenges the legitimacy and raison d’être of state bodies and bureaucracies. Its Localism Bill of 2011 and National Public Policy Framework [NPPF] of 2012 embody the rhetoric of localism and draw directly from the global discourses of Good Governance that will re-appear in different times and places throughout the book. The NPPF is explicitly designed to ‘provide a framework within which local people and their accountable councils can produce their own distinctive local and neighbourhood plans, which reflect the needs and priorities of their communities’ (p. 1). It elides localism with sustainability with a ‘presumption in favour of sustainable development’, that is taken here to mean that locally-derived plans should ‘positively seek opportunities to meet the development needs of their area’ (p. 4), that is to encourage new forms of development.

There are four rationalities to these localist discourses: (i) a politics of liberation; (ii) a politics of reward and redistribution; (iii) a politics of aspiration and responsibilisation; and (iv) a politics of abandonment, each of which will now be discussed in turn.

(i) A Politics of Liberation from the State

The central logic for reform is the concept that a latent demand for localism exists within modern societies. There is simply too much government, particularly at the local level, and this it is claimed stifles entrepreneurial dynamism and individual aspiration. Governance reform thus represents a natural extension of broader social trends in which in...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Table of Contents
• List of Figures and Tables
• Acknowledgements
• 1 State-led Privatisation, the Restructuring of the State, and the New Localism
• 2 Privatisation, Welfare Reform, and the Politics of the New Progressivism
• 3 Regulatory Capitalism, Privatisation, and the New Contractualism in the Welfare State
• 4 The Private Finance Initiative and the Privatisation of the British Welfare State
• 5 The Consequences of Privatisation and the Rise of New Private Sector Elites
• 6 The Privatisation of Healthcare and the New Localism
• 7 The Privatisation of Social Housing and the Re-making of Citizenship
• 8 Transport Infrastructure and the Impacts of Privatisation
• 9 What is Left to the State?
• References
• Index