Happy May Day – rent controls, socialism and contract management

Happy May Bank Holiday! It’s a public holiday in the UK today, so blogging will be light, and it’s not quite May Day of course, the first of the month. That is a holiday in some countries, and as well as being an ancient British spring festival, maypoles and all, it is of course International Workers’ Day, the festival “chosen as the date for International Workers' Day by the Socialists and Communists of the Second International to commemorate the Haymarket affair in Chicago that occurred on May 4, 1886” (thanks to Wikipedia for that).

So some politics today as well as a procurement link. We’re only a year away from the next election in the UK, and the view is forming about what each party might offer. With the Conservatives, it is likely to be a ‘steady as she goes’ message – we’ve pulled the country out of recession, don’t let the Labour Party mess it up now.

But the Labour proposition is looking more interesting by the day, as Ed Miliband moves away from the New Labour, centrist positioning of the Blair years into something much more – dare we say it – socialist. His latest proposals include possible re-nationalisation of the rail industry, and installing rent controls in the private rental market. Not just controls on price, but aspects such as giving tenants the right to a three year contract as well.

Of course, the critics will point out many issues with these proposals, but Miliband may not be as deluded here as most commentators think. He only needs around 35% of the UK vote to win the election, and many people who aren’t benefitting from the economic recovery will look at the ever -increasing share of national wealth concentrated in the hands of the top few percent, and Russian oligarchs buying up half of London, and think a bit of socialist re-distribution might not be a bad thing. (The hot economics book of the moment, “Capital in the Twenty-First Century’ by Thomas Piketty has given some intellectual weight to this idea too).

But looking at the rent control idea, it struck us that it’s a little like contract management really (there, you knew we would bring this back to procurement, didn’t you?)

It is very tempting to micro-manage a supplier, particularly one who is carrying out critical services. Bill Crothers, the UK Government’s Chief Procurement Officer, has talked about more use of open book contracts for instance, so the public sector buyer can see exactly where the supplier’s money is going, how much profit they make and so on.

But the problem then is this -  where do you stop? If you say the supplier’s costs are too high, they might ask – so where do you want us to reduce them? Are you going to define how much they pay their staff? How much capital investment they’re allowed to make? Before you know it, you are trying to run a supplier’s business for them. This happened to me early in my procurement career, and it is a very fine line between appropriate transparency and interference. And then of course if anything  goes wrong, it is not the supplier’s fault but yours.

And the same thing could happen in the property rental market, and indeed in some of the other areas where Miliband wants government to take a more active role.  There’s little incentive to invest in making the property better if the rent is fixed, for instance. So is the government going to stipulate exactly how much the landlord should spend on repairs, maintenance, decoration and so on?  Will the allowed rental be linked to interest rates? If the current rent is below the allowed level can you increase it? Once you start interfering in the market, all sorts of issues like this start coming into play.

Anyway, it will be interesting at the 2015 election for us in the UK, as it looks like at least we will have a genuinely distinct choice of approaches, including something that looks decidedly left of centre.  So happy May Day!

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