Great Britain’s Carillion Privatizes Its Way to Bankruptcy

Feb 19, 2018

The following article is from the Jan. 26, 2018 edition of Lutte Ouvrière (Workers Struggle), the paper of the revolutionary workers group of that name active in France. It speaks about public services being privatized in England and the catastrophe that resulted. The situation is similar to what state and local governments have tried to do in the U.S.

On January 15^th, the British facilities management and construction services company Carillion filed for bankruptcy. Not only did this kick to the curb the 46,000 workers around the world (about 20,000 of them in Great Britain) whom Carillion directly employed, but it also left the much larger group of workers who were employed by one of its countless subcontractors stranded high and dry.

Obviously it will take some months to be able to measure the true cost of this bankruptcy for the working class. Especially since it is possible that the shockwaves it sent through the financial sector, both in the banking system and the stock markets, will affect similar big companies or even cause them to go bankrupt themselves.

Chronicle of a Bankruptcy Foretold

Carillion was founded in 1999 in order to profit from the giant wave of privatization that hit whole branches of public services.

The company threw itself into a mad scramble after government subcontracting bids. On the eve of bankruptcy, one third of its business was in the public health sector: dining, cleaning and maintenance, parking, and information services. Another third was related to similar tasks for other public agencies like large local governments, the army, prisons, and rail infrastructure. And the company’s other projects included major ones at two hospitals and a proposed trans-London high-speed rail express line.

As long as there was not much competition, profits came easy. Carillion kept buying up other companies, in Great Britain but also in Canada and the Middle East. However, since the company’s stockholders pocketed about 60% of its profits, it had to borrow from banks to finance its acquisitions—loans which the banks granted happily in light of the apparently endless flood of government money that was filling up Carillion’s coffers.

But then came the first shocks of the financial crisis in 2007. With the budget cuts that successive governments imposed on public administration, subcontracting bids became rarer and rarer. The competition to win them got stronger, and their conditions became more restrictive.

And so, the actions of those running Carillion began to resemble a Ponzi scheme: in order to guarantee new loans or restructure existing loans, it had to be able to win a part of new revenue streams from a new contract. In order to get new contracts, it had to bid lower than its competitors, often at cost price, or even at a loss. But since there was no way that Carillion could cut back on its dividends to shareholders or on its debt payments, it had to borrow even more from the banks, etc. This continued up until the very day in 2017 when the pyramid began to crumble, when it became clear that the profits from the old contracts were not high enough to cover the losses of the newer contracts. First there was one warning of a coming drop in profits, then a second. In one year, the price of Carillion stock fell by more than 80%. Finally, on January 15^th, the banks decided that they couldn’t get anything more out of Carillion and they pulled the plug.

Hidden Privatization

In fact, the decrepitude and parasitism of a whole section of the British economy is revealed behind Carillion’s bankruptcy. This decay took place over the past three decades through subcontracting out countless activities that had previously been part of the public sector, sometimes by tiny increments. This is a hidden form of privatization, even when it does not go by that name.

Among the companies that make up this industry, many groups are following in Carillion’s footsteps. The largest of these—Interserve, Capita, Mitie, Kier, and Serco—directly employ about 300,000 workers in Great Britain. This company has practically copied the path taken by Carillion, almost to the letter, with one or two months delay at the most. The main difference is that Interserve directly employs 80,000 workers—more than twice as many as Carillion!

Tens of thousands of workers in this subcontracting industry can therefore be directly affected by the bankruptcies that have already happened and by those to come, but they are not the only ones. In this way, in December 2017, the bankruptcy of another company in this industry, Four Seasons Health Care (FSHC), very nearly caused 17,000 retirees who are in poor health and are living in medical retirement homes to lose their homes. If this was not what happened in the end, it is only because the local governments managed to cut their budgets enough to run the retirement homes with the workforce that FSHC had abandoned.

In any case, this is a whole portion of the economy whose bosses and shareholders live as parasites off the resources of the state, which could very well collapse under the combined effect of their greed and the crisis.