How the Met Office lost millions of pounds trying to compete with the private sector
One of the arguments of this campaign is that it’s a mistake for the public sector to get into fields where it is handicapped by the nature of its structure – that is, in selling data commercially. (The public sector is ideally placed to collect and collate data: it has laws and tax-raising powers, for example. And lots of time, often.)
This week, an example of how the Met Office came unstuck in 2001 – and lost £4.5 million of our money doing it – in this week’s Technology Guardian, over the failure of WeatherXchange, a joint venture with private organisations.
Extract:
[The present Met Office chief executive Mark] Hutchinson told the Commons defence select committee on May 23 that his organisation was dominated by public-service civil servants, and will need to bring in relevant expertise in order to build its commercial activities. “We don’t have an awful lot of hard, private-sector commercial experience,” he said.
The day before, Peter Ewins, the chief executive of the Met Office from 1997 to 2004, told the committee he did not believe other participants in WeatherXchange made initial investments but had instead provided credibility and expertise. “That sounds incredibly naive and amateurish,” said Kevan Jones, a Labour MP. “If you had done that in local government, you’d have been shot.”
Ewins, who remained chairman of WeatherXchange after leaving the Met Office, says the joint-venture was hit by poor European growth in weather derivatives. But he added: “After I left the Met Office, there was in my view not the champion of that relationship that was so necessary to its success.”
And here’s the kicker:
According to [MP Kevan] Jones, “the reason why the relationship broke down was the fact that the Met Office realised how lucrative this venture was, and was selling information directly to the market, rather than going through WeatherXchange.”
Responding, Ewins said: “You have pre-empted by about 10 seconds what I was going to go on to say.”
Got that? The Met Office undermined the company it had invested in, because it could do better by selling data directly to the market. Sure, it shouldn’t have started the company. But the worrying thing is that if the company had been a success, then the Met Office would have preferred to supply that than other private-sector organisations – which would start to create a private monopoly where none existed. So in some ways, it’s a blessing that WeatherXchange failed. But really, it should never be public money involved in these ventures. Risking money in the private sector is the job of banks. Providing data is the job of the public sector. Perhaps some people will start to listen. Does anyone have Kevan Jones’s email?
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June 1st, 2006 at 3:59 pm
Unbelievable! And totally absurd, bordering on illegal, I should think. I’m wondering about the private companies who joined with the Met Office in this venture, and how they must feel when they found out that they were left ‘holding the bag.’ And ultimately aren’t we, the tax payers, the fools here where government organisations are engaging in Enron-esque deals, in our name, which result in losses of millions of pounds? Exactly when is this going to stop? Is anyone listening?
June 1st, 2006 at 7:38 pm
Call me cycnical…
…but, that Peter Ewins one time chief executive of the Met Office went on to become the chairman of Weather Xchange, makes me rather uncomfortable.
July 28th, 2006 at 8:47 am
Defence Committee on Met Office (July 2006) – PSI commercialisation in a sandbox
http://www.publications.parliament.uk/pa/cm200506/cmselect/cmdfence/823/823.pdf
Conclusion 3 (paragraph 19): “We (House of Commons Defence Committee) found no suggestion that the Met Office’s obligations to generate income and pursue commercial opportunities had an adverse effect on its public service role, or its service to the MoD and Armed Forces.”
Either they haven’t been looking very seriously, or they have a peculiarly narrow understanding of the Met Office’s public service role, excluding such things as the global exchange of weather data, on which the adverse effects of government commercialisation are known since a long time: Weiss, Peter N., “International Information Policy in Conflict: Open and Unrestricted Access versus Government Commercialization,” in “Borders in Cyberspace,” Kahin and Nesson, eds., MIT Press 1997 (http://www7.nationalacademies.org/besr-publicprivate/International_Information_Policy.doc and http://www.ofcm.gov/sai/proceedings/pdf/02_panel1_pt1-5.pdf).
Publishing conclusions that are so obviously WRONG can only be understood as a FAILURE of democratic control.
“True” commercial revenue is around £20,5m per year or 12,5% of total turnover, but they (Met Office) recognise that they “need people who have a very highly developed competence in that area [commercial] and they are not typically to be found within the Civil Service”.
So they transformed themselves into a performance based Trading Fund in 1996, causing all sorts of serious trouble by making data and information artificially scarce because they needed the commercial revenue, and ten years later they’re still not making more than £20,5m per year because they are admittedly not very good at it! And what is the ONLY justification for this, justification they repeat over and over again? A profit of about £4,5m per year “offsetting the cost to the taxpayer”! £4,5m! Because £20,5m is turnover, of which £16m are thus avoidable costs related to those commercial activities. The other £145m of annual turnover are “competed inside government (if you will)”.
So we have an annual £4,5m profit “offsetting the cost to the taxpayer” on the one hand, and an incalculable deadweight loss of user value on the other hand due to monopolistic government commercialisation making data and information artificially scarce; a deadweight loss NOBODY even seems to care about, not the Met Office, nor the Defence Committee. (The trouble caused by government commercialisation within the WMO weather data exchange system may actually cost lives in Bangladesh, Peter Weiss one day explained to me, and I think James Boyle has more on it at http://news.ft.com/cms/s/cd58c216-8663-11d9-8075-00000e2511c8.html.)
Under ‘private sector involvement’ they (the Committee) examine the failure of a commercial joint venture “to provide brokerage, data and services to the global weather derivatives market”, a market that “was considered to be particularly attractive because of its success in the United States”, concluding that “the Met Office must do more to test the business case of commercial ventures, and seek to bring greater business acumen into the organisation”; but they are nowhere interested in understanding how this market actually works, nor why it is so successful in the United States. (Mind you, this is about a very specialised market of FINANCIAL derivatives from weather forecasts, not about the WHOLE market of weather data.)
When I wrote in an earlier message that “the detrimental effects of monopolistic government commercialisation are generally not very well understood”, this appears to be a gross understatement: they are often not even recognised at all (nowhere in 99 pages of evidence)!
The general impression I get from this is that the Met Office Trading Fund is actually more like a SANDBOX, a sandbox for civil servants and members of Parliament alike to toy with the idea of “pursueing commercial opportunities”, while being totally unaware, as they express it themselves, of its “adverse effects on the public service role” (the provision of weather data and information as a public good), nor, as they admit it themselves, very good at it.
As I also wrote in an earlier message, something must be SERIOUSLY WRONG when things can get so far out of line without the Treasury stepping in (supposing the Treasury still has the essential task of guarding economic orthodoxy).
[You may wonder why I'm putting in all this effort to deconstruct bureaucratic fallacies in the UK. The answer is simple: I've been doing this for over 15 years now inside my own Belgian PSB, to no avail. Government commercialisation of PSI in the UK is something like the "Shining Path" to many PSBs in Europe. Whereas I KNOW that it is nothing else than TR, and has never been anything else than TR for all those years. And this may very well be the MAIN OBSTACLE for a campaign such as 'free our data': you can only WIN by exposing very official policies, that have been conducted for many years, as what they are, namely TR, exposing many people in the process, people with influence, pride and €150.000 salaries. In 1999 (I think it was), Geoffrey Robinson resigned as DG of OS after only one year in the job. I never knew why: he never told me, and his friends said he didn't want to make it public. I know how OS people saw it: captain abandoning ship. I tend to think myself that he just came to the conclusion that he had made a mistake when accepting the job, because he could not see himself managing a Crown Copyright monopoly as a 600-pound gorilla dominating the market place, in a sort of permanent and complicated struggle to maintain the balance between all those antagonistic customers, antagonistic struggle that must then be glossed over in an endless repetition of unconvincing public performances by himself, when deep down he knew that it was just plain wrong for government to go beyond the minimalistic approach towards the provision of data and information as a public good.]
PS: It doesn’t look to me as if the story of weatherXchange was particularly ’scandalous’. The other ‘partner’ didn’t invest any cash into the joint venture, they just brought ‘market expertise’, of which one may wonder what it was really worth, when the Met Office could so quickly learn how to do without it. The investment of £1,5m into the joint venture they then decided to write off, may even have been offset by the proceeds they didn’t have to share anymore with the other ‘partner’. What it does show though is that these ‘joint ventures’ or ‘partner relationships’, which play such an important role in the commercial exploitation of a government monopoly on PSI, are INEVITABLY MURKY, because the abuse of a DOMINANT POSITION in the market can never lead to anything else but murky deals.