Police deter crime by catching criminals and submitting them for prosecution.

That’s the theory. But it’s not the practice. A report published by His Majesty’s Inspectorate of Constabulary and Fire and Rescue Services last week revealed that only six per cent of crimes in England and Wales result in someone being charged. Whatever the police are keeping themselves busy with, it isn’t catching criminals. They have made crime a low-risk profession.

The government  responded by demanding that police forces investigate every reported crime when they have any evidence to go on. The Labour Party has promised that, when elected, it will recruit more detectives and “put more bobbies on the beat”.

Both responses fail to address the underlying problem

Both responses fail to address the underlying problem. To see what it is, compare the police with my friend JP, whose restaurant causes no such public dissatisfaction. What’s the relevant difference between JP and England’s police forces? What stops JP from merely laughing at his customers when they order the dishes on his menu?

The answer, of course, is that he would go out of business. By contrast, no matter how useless a police force is, it  won’t go out of business. And no matter how brilliantly they deter crime, they will not profit from it. Pride aside, their performance makes little difference to them.

The police don’t need to be told what to do by politicians who wouldn’t have a clue about how to run a police force. Nor do they need to be rewarded with increased budgets when they underperform. They need to be put in the position of private enterprises, whose fortunes depend on how well they provide for  their customers. 

Here’s how that could be achieved. Local governments invite tenders from policing companies for the right to police the area — London, let’s say. These companies bid for the right by suggesting an annual “policing fee”. All else equal, the firm offering the lowest policing fee will win the contract.

Suppose “Acme Policing” wins the contract to police London with a fee of £5 billion. This is the company’s revenue, funded by local taxes, from which it must fund its operating costs (e.g. salaries, vehicle leasing, etc) and the penalties or “tariffs” it pays the Greater London Authority for the crimes that happen on its watch. These tariffs vary with the seriousness of the crime or, to be more precise, with the cost the crime imposes on society (which economists can work out with a fair degree of accuracy).

For simplicity, suppose there are only three crimes (with the following tariffs): murder (£5 million), assault causing actual harm (£20,000), and burglary (£10,000). And suppose that in its first year of Acme’s contract there are 100 murders in London, 10,000 assaults and 50,000 burglaries. Then Acme Policing repays London £500 million for murders, £200 million for assaults, and £500 million for burglary: a total deduction of £1,200 million. If their operating cost is £3.5 billion, then they make a profit of £300 million.

Policing companies’ profits would be dependent on deterring crime and managing their operating costs. And it makes them allocate their resources in proportion to the seriousness of the crime: prevent a murder, and that adds £5 million to profit; prevent a burglary and it adds only £10,000.

The scheme also allows ACME to know if they should hire more police officers or fire some. If a police officer costs £100,000 a year to employ, he increases ACME’s profits only if he reduces the crime tariffs ACME pays by more than £100,000. Since the crime tariffs equal the social cost of the crimes, this means that ACME will employ police officers only when they are worth more to society than they cost. Under the current approach, without prices or profits, the government has no way of knowing if it has too many or too few police.

Most importantly, if ACME cannot deter crime well enough, the tariffs it pays London will be so high that it will make a loss and, ultimately, go out of business. Good. The London contract can be awarded to a more proficient policing company, which might hire Acme’s police officers and put them to better use.

Competition between profit-seeking policing companies would lead to continual improvements in their methods. We could expect both crime rates and policing fees to fall, reducing the cost of crime to society.

Many will object to police forces operating for profit. They shouldn’t. Crime fighting is too important to be left to the spirit of public service.