The collapse of Southern Cross and the new white paper spell disaster for public services – and expose the flaws in a marketised welfare state.

It would have been a good week to bury bad news, if it wasn’t for the fact that the Murdoch scandal is clearly such poison for the government.

But the scandal has rather kept out of the headlines a pair of events that goverment spin doctors would normally beg, bully and cajole to prevent from hiting the headlines together.

The first event was the government white paper, ‘Open Public Services’, which projects the privatisation of virtually all public services.

The other was the news that Southern Cross, the largest private provider of nursing homes in the country, has gone bust; proof  positive of the unwiseness of privatising public services.

First, the white paper.

This was the much awaited “Big Society” paper meant to put some legislative flesh on the bones of Cameron’s “big idea”. In reality it contained nothing particularly new in terms of public policy; it was, for the most part, simply a collection of previous announcements. But as such it was one of the clearest expositions so far of the Government’s intentions for the welfare state and public services.

It proposes that care services, hospitals, schools, and most other public services be put out to tender – and that this should happen regardless of whether the bidders are public, private or voluntary sector.

“Choice”,” diversity of providers”, “value for money” are the watchwords. This is the same empty mantra the previous government used to disguise the shovelling of vast sums of money to “for profit” organisations.

In practice, this means privatisation on a scale unseen since Thatcher. But this time there will be no possibility of buying shares, no “popular capitalism.” This is just about big business. For the whole thrust of policy has one underlying belief: private good, public bad.

Voluntary sector organisations know that often they are just “bid candy”, there just as decoration and make it look like there might be a genuine competitive process. The only bids  “voluntary sector” organisations can win are relatively small scale ones. Even then the the only winners are those “charities” that have rebranded themselves as “social businesses”, and are indistinguishable from big business in the way they cut costs and squeeze staff.

In sectors like social care, which have long since been part of the contract culture, wages and conditions have been steadily eroded over the last twenty years.

Services previously provided by council workers are now provided by a mass of people earning on or near the minimum wage. The work is considered to be low skilled and low status.

Just as shocking is the revelation that – in the language of the policy wonk – the problem of “market failure” should be addressed by “provider exit”. Hospitals and schools which which can’t compete in the market or turn a profit should be allowed to go bust.

Of course this has always been the contradiction of the market in public services.

The market is effectively fixed so that no one can actually really go bust. Profit margins are effectively built into contracts. And when a profit can’t be squeezed out of a contract, as happened with the National Express rail franchise, they simply handed it back. It’s zero risk business. This supposed “discipline of the market” has means that the railways now receive three  times more in subsidies than when they were state owned.

But if you  you let the market actually rule unimpeded chaos ensures. Firms go bust, services breakdown. The failed firms get gobbled up by bigger firms, until you have massive corporations that seem to be more powerful than governments, and that no one dares regulate.

Southern Cross

A dreadful example of what happens when private business is allowed to take over a whole sector of the welfare state has been the Southern Cross debacle.

Southern Cross is, or rather the was, the largest provider of nursing homes with more 30,000 people in their care.

The ever-growing numbers needing care in old age and the closure of council care homes has made this a growth market. So the private equity firm Blackstone moved in with a series of convoluted management buyouts.

They then pulled what is an increasingly common trick. They sold off the actual homes to a property to  separate company, NHP. Southern cross continued as a business providing care in homes rented off the new landlords.

It was a move that provided quick profit for Blackstone and the new landlords. Howeverm, it made Southern Cross a very large business with virtually no assets – at the mercy of the firm’s customers (mainly local authorities) and its landlords.

When hard times came, then, it was left completely exposed.

A combination of rising rents and falling income from councils making cuts pulled the carpet out from under the company.

At the start of the year it emerged that the company was in trouble and couldn’t keep up with the £250 million annual rent bill. The companies market value dropped from £1.1 billion to £12 m. It had become worth practically nothing.

It tried to negotitate with its landlords and it also tried to pass the burden onto its staff, imposing “slave-like conditions” on them. Care workers, already amongst the most oppressed and exploited section of the working class, were told that the very minimum standards they currently enjoyed would be taken away from them.

But all to no avail. On July 11 the firm announced that it was going out of business. The homes it owned were simply to moved over to the landlords to run. What these landlords know about the running of care homes can only be guessed.

The residents of the homes now face an uncertain future not knowing who is going to happen next or whether the homes would even stay open.

The staff also face further attcks on their wages and conditions.

And the people that squeezed millions in profit out of the business over the last 15 years? Surprise, suprise; they will walk away with them.

A starker warning of the inherent flaws of the market model cannot be imagined.