12 Leaders The EconomistJanuary 20th 2018
(^2) a new set of laws to govern the ownership and exchange of
data, with the aim of giving solid rights to individuals.
In essence this means giving people more control over their
information. If a user so desires, key data should be made
available in real time to other firms—as banks in Europe are
now required to do with customers’ account information. Reg-
ulators could oblige platform firms to make anonymised bulk
data available to competitors, in return for a fee, a bit like the
compulsory licensing of a patent. Such data-sharing require-
ments could be calibrated to firms’ size: the bigger platforms
are, the more they have to share. These mechanisms would
turn data from something titans hoard, to suppress competi-
tion, into something usersshare, to fosterinnovation.
None of this will be simple, but it would tame the titans
without wrecking the gains they have brought. Users would
find it easier to switch between services. Upstart competitors
would have access to some of the data that larger firms hold
and thus be better equipped to grow to maturity without be-
ing gobbled up. And shareholders could no longerassume mo-
nopoly profits for decades to come. 7
W
HAT do high-speed rail-
ways, school lunches and
army bases have in common?
Perhaps not much, which may
be one reason for the dramatic
collapse of Carillion, a jack-of-
all-trades contractor that did a
bewildering array of work for
Britain’s public sector. On January 15th the firm wentinto liq-
uidation, casting doubt on the prospects of its 43,000 employ-
ees, 30,000 subcontractors and the fulfilment of government
contracts stretching three decades into the future.
The company’s fall is a story of commercial overreach and
miscalculation (see page 48). But it is also the story of a political
philosophy. Carillion exemplified a way of running the state
that was pioneered under Margaret Thatcherand which went
on to conquer the world. Where once governments provided
publicservices, they now commission them from private com-
panies. The idea isto subjectmoribund state monopolies to
the competition and innovation of the market. Yet a string of
failures in Britain, of which Carillion isthe latest, means that
the country which converted the world to “contracting out”
risks becoming a cautionary tale. Voters are flirting with a La-
bour opposition that has alreadyvowed to renationalise in-
dustriesand now says it would bring many public contracts
back in-house. The Carillion affair could mark the collapse not
just of a company, but of an idea.The bigger they come
In a sense, Carillion is a good example of how a failure of con-
tracting-out is better than a failure in the public sector. Its losses
will be borne chiefly by shareholders and creditors, not tax-
payers. Look closer, however, and the demise highlights how
contracting will not live up to its promises unless it changes.
Even if taxpayers are not bailing Carillion out, they may still
bear hundreds of millions of pounds in costs because of pro-
ject delays, the transfer of contracts and the continuing need to
provide vital services. And Carillion could yet bring down
thousands of subcontractors. The company had become al-
most too big to fail. Its fragility should have disqualified it from
HS2, a decades-long high-speed rail project. Instead, ministers
seemed to see the £1.4bn ($1.9bn) contract as a lifeline.
This moral hazard is aggravated by the market’s unhealthy
concentration. Only three companies operate private prisonsin Britain, for instance. A billion-pound contract to redevelop a
London hospital attracted only two bidders. The government
routinely commissions massive, long-term projects based on
fewer quotes than voters would get for refitting their kitchen.
There is also the taint of private-sector greed. Carillion’s
board ensured that the bonuses of its managers cannot be
clawed back. And this week the National Audit Office reported
that the Private Finance Initiative (PFI), an accounting gimmick
designed to get borrowing off the government’s balance-sheet,
has led to billions in extra costs without clear benefit.
How to fix all this? PFI, though flawed, is only part of the
problem. Its use has been falling. More broadly, the remedy for
bad management and weak competition in the private sector
is not, as Labour says, to revert to bad management and no
competition in the public sector. Britons may have forgotten
the 1970s, but one reason for contracting-out was that public-
sector roads, services and hospital-building were often shod-
dy and wasteful.
Instead, Britain needs to make its private markets more effi-
cient, by improving commissioning and lowering barriers to
entry. More standardised contracts would make the tendering
process less burdensome, encouraging small and foreign firms
to bid, despite lacking big English legal departments. That
would increase the competition faced by firms like Carillion,
part of whose competitive advantage was its knowledge of
how to navigate the complex contracting process.
A couple of decades ago inexperienced civil servants were
routinely diddled by armies of lawyers hired by private firms.
Today’s commissioners are better, but still fall for false econo-
mies. They favour low bids, only for bidders to renegotiate
terms upwardslater. Commissioning teams, and the bodies
that auditthem, have been squeezed by spending cuts, a small
saving next to the size ofthe contracts. Overstretched bureau-
crats are also more likely to award contracts to known outfits,
like Carillion, which offer to roll lots of services into one tempt-
ing bundle—giving the company the whip hand.
Some quarters of government seem to believe that the effi-
ciency and innovation of the private sector happen by magic.
In reality they come about only when contracting-out is sub-
ject to the discipline of a real market. Without competition,
private-sector managers are no more dynamic than the bu-
reaucrats they replaced. If the government cannot create a
market worthy of the name, voters may decide to throw out
the idea altogether. That would be costlyindeed. 7Carillion’s collapseBritain’s hard bargains
The world’s leading privatiser ofpublic services needs to get better at it