What an intensely weird argument

This, take note, is also no minor business model. Like Carillion, Capita is on the frontline of outsourcing, in particular. And what is being said is firstly that this creates a situation too complex for a business to manage with, secondly, margins that are clearly not sufficient to sustain the company in business as it is.

Capita’s not charging enough for what it does for government.

This means three things. Firstly what the state does, and does not do, itself needs to be reappraised and much more needs to move in house.

Therefore government should do more of it – presumably charging itself full price.

Whut?

14 comments on “What an intensely weird argument

  1. It’s called REDISTRIBUTION. The government throws money at the problem, to the primary benefit of government employees, while taxpayers enjoy the warm glow that accompanies the realisation they are contributing to the public good.

  2. I cannot imagine “a situation too complex for a business to manage,” given that a typical business manages situations through delegation and sub-organization as recursively as necessary. Of course, outsourcing (with Incoming Inspection of the product) is a great way to delegate.

    Warren Buffett manages a huge number of businesses, including a century-old insurance company that is moving to the Internet business model while most of its competitors merely skulk at the state legislature and work on their backslapping. And yesterday he announces (with Bezos and Dimon) a new initiative toward developing entirely new health care products, while the rest of the US thought the solution was just to turn up the screws to force us to buy existing products.

    There is certainly something going on here other than some inherent complexity of a problem.

  3. margins that are clearly not sufficient to sustain the company in business as it is.

    This was also the business which was “ripping off the taxpayer” and making a mint from it.

    Being an engineering type, my brain automatically flags up believing two contradictory things simultaneously as an issue to be resolved. The Left does not possess this advanced skill, it seems.

  4. Capita has been experiencing cash flow problems for at least the past 9 months and has been laying of staff, closing offices, selling assets & For Sale on subsidiaries

    I expect today’s ~50% share price reduction is mostly related to the rights issue dilution..

  5. Rob – Yarp. Yarp indeed.

    Margins are usually shit-to-nonexistent when you’re selling anything to the public sector (which has a knock-on effect on the quality of service suppliers can afford to deliver to the sector, which in turn creates problems for people who rely on public services, but that’s another matter.) Revenues tend to be good, but profits are so wafer thin they could be in a Monty Python sketch.

    So I, too, would like to meet all those proverbial cigar-chomping fatcats in stovepipe hats and learn their secrets of fleecing the taxpayer. But I suspect they all work for the state.

  6. Rob – the way to reconcile this is that Murphy has never been near a public sector contract and hasn’t got a clue even what the problem is.

  7. A fascinating comment, probably going to be taken down by Snippa in the morning:

    The hedge funds read the accounts. It was clear from Carillion’s accounts – the huge receivables and the growing debt pile – that problems were growing, so the hedge funds began shorting. Then came the profit warning and still the usual commentators were not troubled. The data was in the market but only the hedge funds realised what it was saying. The data was there. The market was fairly efficient. However, to turn to this point from the professor:

    “What is more, the whole logic of outsourcing that works only if those working to supply services are squeezed on pay and conditions to the point where their working conditions are intolerable is also no longer viable.

    This means three things. Firstly what the state does, and does not do, itself needs to be reappraised and much more needs to move in house.”

    This seems to suggest that you want the state to pay people less than Capita to do the same work.

  8. @Diogenes,

    After messing with his mind and telling him I screenshot everything I post before he deletes it, he’s started posting from me again. Some he’s leaving awaiting approval rather than posting, but he’s not deleting.

  9. OT

    I see occasional commenter here and one time colleague of Tim, Gawain Towler has had itbwith UKIP.. from whatnImknow of him quite a good guy and definitely not a case of a rat leaving a sinking ship, more like the last grown up.

    Let’s hope we do Brexit because it’s going to be hard to put a credible UKIP back together if we don’t.

  10. Revenues tend to be good, but profits are so wafer thin they could be in a Monty Python sketch.

    That’s because their expenses increase to match the revenues. Such companies are largely job-creation programs, employing people with little skill other than sucking up to governments. They all get their cut from the revenues, and care little that the shareholder doesn’t get to see any profits.

  11. TN, not quite true of Capita because it has been paying way too much in the way of dividends. Its dividend has been growing at 8% over the last five years while earnings have been falling 32%. The last dividend was 2000% of net income.

    Year on year, growth in dividends per share remained flat while earnings per share excluding extraordinary items fell by -29.37%. Additionally when measured on a five year annualized basis, dividend per share growth is in-line with the industry average relative to its peers, while earnings per share growth is below the industry average.

    Re Carillion it was basically paying all its operational cash flow as dividends and yes, the head honchos paid themselves handsomely too

  12. TN, not quite true of Capita because it has been paying way too much in the way of dividends. Its dividend has been growing at 8% over the last five years while earnings have been falling 32%. The last dividend was 2000% of net income.

    Fair enough, I stand corrected.

  13. I liked this exchange below in the comments. My, how prescient the noble and learned professor is, foreseeing problems decades in advance of them appearing. One wonders why he does not use this remarkable ability in, oh say, stock market picking?

    Richard Murphy tweets: “Guess who audits Capita? It’s KPMG, again”

    Ken M says:

    January 31 2018 at 10:37 pm

    Do you remember your post on 19/12 noted the reduction in KPMG’s earnings and you estimated they set aside £96,000 per partner last year for legal fees etc?

    Perhaps we are starting to see why?

    Also I noticed in a tweet today of a table showing contracts received from the public sector (in the past 24 months) that pointed out that Capita were top in their category well ahead of Carillion. However the really interesting thing was in the Consulting category the big 4 accountancy firms were all in the top 6 with, you guessed it, KPMG at the top…

    Reply

    Richard Murphy says:

    February 1 2018 at 4:10 am

    It’s not a good time to be at KPMG

    I smelt the coffee and moved on in 1983

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