Private Companies and FOI

George Monbiot has made what he calls a “Monstrous Proposal” on his blog, suggesting the private sector should be subject to freedom of information laws:

The very idea of a corporation is made possible only by a blurring of the distinction between private and public. Limited liability socialises the risks which would otherwise be carried by a company’s owners and directors, exempting them from the costs of the debts they incur or the disasters they cause. The bail-outs introduced us to an extreme form of this exemption: men like Fred Goodwin and Matt Ridley are left in peace to count their money while everyone else must pay for their mistakes.

So I am asking only for the exercise of that long-standing Conservative maxim: no rights without responsibilities. If you benefit from limited liability, the public should be permitted to scrutinise your business.

I think this is a great idea but has a massive flaw: limited liability doesn’t mean socialisation of risks. Socialisation of risks implies that society as a whole, via government intervention, picks up the liabilities of a failed company. That doesn’t happen with limited companies unless there are special circumstances, e.g. the “too big to fail” doctrine. The vast majority of failed limited companies just disappear, paying off their creditors and shareholders with whatever assets remain. If the assets don’t cover the liabilities then it’s tough luck – there’s no help from the government. There’s no socialization here because the creditors bear all the risk. If you’re running a limited company, are the sole shareholder and are operating within the law then what you do with your business is entirely a private matter and there’s certainly no public interest served in responding to FOI requests for how much you pay yourself or how much you spend on your premises.

Where I think George Monbiot is onto something is with the application of the Freedom of Information Act to organisations that are backed by government guarantee, or are funded by public money. That means the banks, the nuclear industry, PFI participants as well as government funded charities. These types of organisation all transfer some or all of their risks of operation onto the public and so should be subject to public scrutiny. The last few years have shown us that the banks needed more oversight and investigation into practices that cost the public dearly. The nuclear industry wouldn’t exist at all without the explicit government guarantee of compensation and cleanup of waste or fallout from a disaster, so we should be able to use FOI to ensure they are doing all they can to avoid this situation. While PFI partners and publicly funded charities aren’t carrying the extreme risks of the nuclear and financial industries, they are receiving and spending public money, often to political agendas. We’re already seeing areas where public bodies are outsourcing functions to private companies, putting their operations outside of FOI. In 2008 UK government outsourced £80 billion of services to private and third-sector organisations, so there’s a strong case for those organisations to be subject to FOI requests by the public.

Permalink: http://blog.iandavis.com/2012/05/private-companies-and-foi/


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