A new Prime Minister, a new government, a country in debt up to its ears and the bells of privatization are ringing loud, much to the delight of investors across the world.
As always you have some very fine people who are for and against privatization. I personally oppose the privatization scheme that transfer income producing public asset to private ownership because it places profit motive above service to citizens, ends up costing more, and there is generally zero accountability. Indeed, the argument that the private sector is more efficient at running things because of competition may hold true for the production of many, it is by no means a universal principle. In short, arguments favoring private over public provision are not just theoretically flawed, but typically favor the few at the expense of the many
Having said this, I recognize some individual proposals for privatization have considerable merit.
Privatization is not only a policy; it is also a signal about the competence and desirability of public provision. It reinforces the view that government cannot be expected to perform well.
In his article “The Meaning of Privatization,” Princeton Professor Paul Starr explains:
The meaning of privatization depends in practice on a nation’s position in the world economy. In the wealthier countries it is easy to treat privatization purely as a question of domestic policy. But where the likely buyers are foreign, as in the Third World, privatization of state-owned enterprises often means denationalization–a transfer of control to foreign investors or managers. Since state ownership often originally came about in an act of national self-assertion, privatization appears to be a retreat in the face of international pressure. In that sense, national memory colors the meaning of privatization. However, even in the United States, privatization would be understood rather differently if public assets up for sale or contracts up for bid were likely to be taken over by the Russians or even the Japanese. The more dependent a nation is on foreign investment, the greater the likelihood that privatization will raise the prospect of diminished sovereignty and excite the passions of nationalism. Where privatization raises such issues, it is often blocked, or citizens and domestic firms are reserved exclusive rights to publicly offered assets, shares, or contracts. In many Western countries, state ownership owed more in the first place to nationalist than to socialist sentiment; hence it is scarcely surprising that nationalism is liable to derail or distort privatization plans.
Clearly beyond the usual efficiency-minded discussion of privatization, it’s important to consider the meaning of privatization not only as a theory but also as a political practice.
Throughout the world, the privatization of enterprises with strategic military of economic significance raises especially sensitive questions of sovereignty and security. In Great Britain the prospective sale of a helicopter company to a US company caused a political stir in the mid eighties. Despite its commitments to free markets, the US government pressured Dubai Port to give up its quest to acquire six American ports in 2006. The conflict between privatization and national interests depends on the general power of a given state: economically strong nations, knowing that they can privatize without jeopardizing their sovereignty, lecture the weak on the perils of state enterprises and restrictions on investment.
Privatization also reinforces the view that government cannot be expected to perform well. I fear that as we move public provision into the private sector, we move from the realm of the open and visible into a domain that is more closed to scrutiny and access, and in the process, whether or not intending to change, we are likely to narrow our involvements, interests and vision of a good and united society.
More likely private companies’ first interest is not in the efficient and effective supply of electricity, or telecom, or power. They just want profit. If they can most easily maximize profits by being good providers of a service that’s what they’ll do, if not they will muddle through – performing shoddy work in an effort to boost profits or denying service when costs are unexpectedly high – and still run with the money.
Clearly it is logical that privatization decisions can and should be based primarily on pragmatic analyses of whether agreed-on ends can best be met by public or private providers. One has to ask whether privatization constitutes good economic policy or an easy political scapegoat? What form of privatization is appropriate? To whom will we privatize? What will we privatize? These are some of the questions that must be addressed by policymakers and citizens alike if the country’s social and economic welfare is the ultimate objective of all.
Let’s attempt to contribute to this important debate by taking privatization out of the arena of rhetoric and placing it in its proper social and economic context.