Do nationalized industries have a tendency to fail?

Hi. I’m a part-time student in college, and I haven’t yet taken world hist. or gov’t classes. As a result, I haven’t had a real incentive to pick up certain genres of books & read them.

I debate (haha maybe try to debate) politics on a gaming forum (another haha), but I was hoping some of you could help me out.

Basically, I’m a liberal, and I look at Canada’s socialized healthcare system & I think it wouldn’t be that dramatic if we made similar changes here. Keep in mind I know next to nothing about gov’t & world hist (at least at present).

I’ve heard ppl say that nationalized industries tend to fail. They cite problems such as difficulty in decreasing funding when demand is reduced and poor management among other things. Someone in the UK mentioned that the TELCO industry in the UK was nationalized & that it had problems, in addition to…

Hospitals, airports, car manufacturers, and the defense industry.

My question is… Are market forces really ESSENTIAL to keep these industries running efficiently? Were problems seen after nationalizing these industries in the UK due to mismanagement, or to the change in the role of the UK over the past 150 yrs (reduced colonialism I presume)?

Here is my hippie suggestion… Considering the prospect of increased prescription drug benefits for the elderly, would it be possible to nationalize the pharmaceutical industry? Would the U.S. gov’t see any real profit? Would shareholders get screwed? Could shareholders effectively become US bond holders? Should the U.S. gov’t get raped by pharmaceutical manufacturers after increasing the amount of drugs they by for the elderly? Would they get a reduced rate?

Thanks for any input.

You should go to the library and read “The Commanding Heights” by Yurgin and someone. Nationalized industries do tend to fail more than non-, because the profit motive does not keep them as efficient. The book is a pretty stunning tour throughout the last 50 years of world history, seen from exactly the perspective of your question: How do things happen when a given industry is owned by private, public, or some combination.

How you view all this depends on your politics; I this is really IMHO territory. By their nature, nationalised industries are less profitable (or unprofitable) to run, since the deal generally is that a government feeds in money in to provide a particular level of service even in unprofitable sectors and activities.

If you believe in a ‘social contract’, supporting loss-making businesses for the general good is a fair return for your taxes, and privatisation in the UK was mismanagement by definition. All operators are in it for profit and now we’re seeing the effects: not efficiency, but poor support in unprofitable sectors (for instance, diminished rural bus services) and in unsexy activities where there’s no quick return (for instance, railway track maintenance).

The actual process of privatisation in the UK was widely viewed as somewhat corrupt; the then government was in a massive hurry to privatise, and sold many industries at artificially low prices. The real beneficiaries were the money-twiddlers who bought shares in, say, gas and instantly resold them for 100% profit.

Very generically, some of the problems the typical nationalized industry has are (a) such things as hiring, porpotions, purchasing, salaries, what to produce, when and where to produce it, what to research, how to research it, pricing, distribution, become political, rather than economic or technical, decisions; (b) very often that political decision is then further insulated from real-world feedback by such measures as protected monopoly.

A state-owned industry of the subject-to-competition goods/services production type – e.g. banks, transportation, factories, mines, armaments – MAY succeed, IF it is allowed to function AS AN INDUSTRY and not as a public-works project, IF it provides what is wanted and needed.

Unless of course it IS primarily a public-works or utility type outfit where its mere existence is a matter of state interest, so you just pour money into it and accept it as a societal cost, whether or not the enterprise ever takes off. For example Amtrak (the US’s quasi-public passenger railroad) loses a fortune every year and gives mediocre service to an ever-dwindling fraction of the nation, but when it was created the private passenger railroads were failing altogether, so it was either this or no trains at all.

Consider this quote from the OP: “*Considering the prospect of increased prescription drug benefits for the elderly, would it be possible to nationalize the pharmaceutical industry? Would the U.S. gov’t see any real profit? *” ; Well, if the whole point is to control the prices and distribution, so much for the profit, no? In any case, the US pharmaceutical industry’s market valuation is such that the US government would be hard pressed to pay fair value for it (and constitutionally, we can’t just take it).

Quick Answer: No. And that’s the problem.

First, I will confess that I am a Libertarian, and thus any governmental intrusion scares the wizz out of me. But I must say, Clu, that your suggestion to privatize the pharmaceutical industry goes the extra mile. I almost passed out.

The primary reason we don’t want the government to take control of the Pharmaceutical Industry is that such action would take away the only real incentive for drug research: Profit. Drug companies research new treatments because they hope to make money off them. Take away the motive, and you end up with no new treatments unless they are funded by the government. You can imagine how many breakthroughs would end up on the pharmacy shelves in that system.

There is a reason people travel to the U.S. from all over the world to receive health care. We simply have the best quality of care. We also attract people from all over the world to train in America to be doctors. Most of those people stay in America because they know they can make a better living in the U.S. than in most of their home nations. All of this is due in great part to the private nature of our health care system.

Many advocates of a social healthcare system look to Canada as the model, but everything I have read leads me to believe that the sacrifice you must make to provide everyone with equal care is just too great to make. I certainly don’t have any personal experience, so I will leave it to a Canadian Doper to throw a wrench in my argument, but there are several large drawbacks to a system such as Canada’s. Specialized care is often absent or difficult to come by; Many people demand treatment when they don’t really need it since, Hey! It’s Free!; Investment in new equipment or state-of-the-art equipment is low, and it can be difficult to get routine procedures like CT scans or MRIs. In fact, many doctors in Canada are now sending their patients across the border to America when they need immediate treatment, or tests they can’t have done in Canada.

Admittedly, the market system isn’t perfect, but I still believe it is better than the alternative.

I do have to wonder–if the health care systems of all other countries are so vastly superior to the USA, why is it that people from Canada go to the USA for expert specialized care? Why doesn’t the all-knowing, all-seeing, all-caring Canadian government give it to them spit-spot and perfectly, since their system is as close to heaven on earth as could ever exist?

I’m going to have to come down on the side of Reckless Humor.

The German telephone system was government operated until sometime in the late eighties/early nineties. Until it was privatized, it was common for there to be a wait of several months to get telephone service. Prices were high, and service was shitty. Your monthly phone bill consisted (basically) of “You owe us this amount, pay up or else.” There was damned near no accounting for the final sum - no itemized bill unless you paid an outrageous sum to request it, and another outrageous sum for every month that you got the itemized bill.

The phone system has been free enterprise now for a good ten years, and things are damned good. You’ve got competition, so the prices have come down and the phone companies hustle it to get you connected so that you don’t go to the competion. Itemized bills are standard now. There is competition amongst the long distance carriers to the point that I can pay 6.5 eurocents per minute to call anywhere in the US.

The health insurance system is strongly regulated by the Government. All of the bad things Reckless Humor says about such things are correct.
It is inefficiently run, and there are constant rate hikes to keep the system paid for. People abuse the system so that they can get OTC medicines paid for by the insurance.
Sick leave is part of the health system, and it gets abused by people getting the doctors to sign them out sick so that they can go on a short vacation - even though they’ve got mostly 20 to 30 days of paid vacation per year.
Hospitals suck. In most of them, you pay extra just to have a bottle of water in your room to drink - food and tea for meals is part of the care you receive, but drinking water isn’t even though it is as important to your health. You are expected to wear your own pajamas and robe in the hospital - never mind blood stains you might get or the bacteria your clothing may carry to other patients.
Heart patient treatment is so poor, that when my folks were here for six months last year we made plans to get him the hell home if his started having problems. He had bypass surgery the first time around 1985. He’s doing pretty well, but sometimes something will start to get blocked again and he has to go in for an angioplasty or something else. He usually has a few days warning before there si a real problem. He’ll start feeling shitty, and if he goes to his cardiologist they can take care of things and keep him from having a heart attack - so that plan was to ship him home at the first sign something was causing problems. It takes at most 24 hours to get home, so that would have been OK - and a damned sight better than letting him stay here.

My wife’s uncle was having pains, so he went to the hospital. A good one, by German standards. They sent him home, and told him to take a couple of aspirin for the pain. If it still hurt in the morning he should go to his regular doctor. He went home all right, and the pains got worse. He’s a hard headed SOB, so he went back to the hospital and pitched a fit. They admitted him, and it turned out he was having a serious heart attack and that if he had followed the first instructions they’d given him he would have died.

If you go to the doctor, you’ve got to convince him that you are really sick and not just goldbricking before he’ll actually start to consider treating you. The doctors are that used to people trying for sick leave days that they just reach for the sick slips and ask how many days you think you’ll need to feel better.

Medicine prices are outrageous. Since the insurance covers all but about a 5 to 10 Euro deductible for each prescription, most people don’t even know what their medicines cost - or how much the pharmaceutical companies are fleecing the insurance companies. I had occasion to find out a while back when I was having som trouble with depression. You must go back to the doctor every time you need a prescription refilled. The doctors write small prescriptions - not more than a thirty day supply - because they get paid for every visit you make to them. Even if it is just a quick call in and pick up the presciption later. I had trouble getting in every month to get a new prescription - too much work, and not enough time - so I asked the doctor to fill out an extra prescription for a ten day pack just in case I didn’t get in on time the next month. He did, all right. A private prescription that didn’t go through the insurance. I asked the pharmacist what it would cost when I picked up the regular prescription and it worked out to about $70 for those ten tablets of an anti-depressant that is no where near being new on the market - I checked at the time, and those $70 would have gotten me a month’s supply in the US.

Having been to the doctors here, and having seen the hospitals, I will do my damnedest to get me or any one in my family to the US in case one of us should have a serious medical problem.

You would think that a seafood processing plant in Alaska would be a sure-fire winner. Think again. The state has sunk millions into this failed enterprise. The reason for failure? The unexpected rise in farmed salmon and the fact that most people don’t know there is a HUGE difference in taste and texture. The salmon industry here has been decimated by the farming industry.

I want to go back on raygirvan’s remark about a “Social Contract.”

Now, I am by no means a libertarian, but I will argue that the only time a nationalized insustry makes sense is when it’s important that all the people in the society have exactly the same market access, without regard to price.

Early on, the United States decided that all persons should have access to postal service. Even today the U.S. Postal Service, while set up as a corporation is still mandated to provide service everywhere. Overnight delivery services contract with the USPS to provide service in the most remote, rural areas, because they can’t profitably serve those areas. One of the reasons public utilities are granted monopoly rights in some areas is to ensure that they will be forced to serve everyone in that area, rather than “cherry picking” the most profitable customers.

But you’ll note that the social contract only provides access. It does not guarantee research, innovation, pricing or other factors. In a capitalist society, we rely on competition to force business to do those things, as they search for reasons to have customers choose one over the other.

So the question is, where does the “social contract” come down between access and quality?

I feel obliged to reitirate: Go get a copy of The Commanding Heights. Amazing book, has much to say about all these issues, guaranteed to illuminate.

For those who haven’t read the book suggested by muttrox, here is a link to’s customer reviews.

Sigh… this is where I’m ignorant. hehehe this is funny. It could simply be taken, ala nationalization of land in guatamala or iraq circa 1950. Who would suffer? Upper management might, and the money used to pay their salaries, in addition to shareholder dividends would be used to fund research. It seems a real anaylsis of this would need to take into account the amount devoted to research & other expenses from stock purchases, and the amount devoted to those areas from sales. IMO, gov’t mgmt. of a given industry doesn’t need to be paid as much as management for a private industry. Please keep in mind I know NOTHING about economics & gov’t, so this is why I suggest this crazy stuff.

My proposal would aim to keep everything the same at a given pharmaceutical company (research, distribution, middle mgmt). The only difference is that the board of directors becomes comprised of gov’t employees as opposed to private citizens. My lack of knowledge of economics & business prevents me from understanding easily why this simply wouldn’t work.

I’m very curious as to WHY nationalized telco. operations in Germany failed. It honestly can’t be solely because it wasn’t privatized along w/ associated lack of competition. The gov’t couldn’t simply raise rates because they wanted more $$$, I presume costs were high due to mismanagement. I really don’t understand how a free-market model fixes that by it’s nature. It seems that proper oversight could ensure that a nationalized telco. network works efficiently.

Is it possible that Germany’s gov’t-owned telco network failed due to financial problems after WW1 & WW2? If Germany started out at that point as rich as the U.S. is now, would it have had a better chance to succeed? I have a feeling some of these questions will be answered in the book suggested by muttrox. I think I’ll get that book within the next few weeks.

If my lack of knowledge of economics is a problem for understanding this, just say so. I’m looking to fill up my credit hrs. for the fall semester, so economics might be one of the courses I take. Thanks a lot for the replies.

Is it possible to separate out the concepts of “government-run vs private” and “competitive vs monopoly”? The general consensus here seems to be “nationalisation is bad because you have no competition”

But…that doesn’t have to be the case, does it? It is possible to have government-run services coexisting with private companies (I can think of a lot of cases in Oz where this was done … schools, hospitals and formerly banks and airlines)

Do government-run entities do better when they have some competition? Conversely, can anyone think of an example where a private company had a monopoly - I would think that would be a nightmare!

Our schools here in the US are an example of co-existing public/private enterprise. What successes each enjoy as a result of competition, I will leave to others to opine on.

As to private companies having a monopoly, they are frequently contracted by municipalities (e.g., garbage pickup, cable television, electric power and utilities in general). This can be a good thing, in that it prevents duplication of effort/resource utilization.

Nationalized industries not only have the tendency to fail, their failure is preordained. Any enterprise must converge around the only element powerful enough to make it work: someone’s well-being and their determination to keep the business in good shape. The said business can be a one-man venture or a multinational conglomerate, it doesn’t really matter. The important thing is the owner’s (be that single or multiple) will to make profit and be competitive in order to keep making profit. Occasional examples of successful state-owned enterprises are due to the fact that they still must obey the “rules of the game” i.e., keep prices low/quality high to stay afloat. In that case, it’s the competition driving them, and the rival companies are privately owned. Monopolies (see Mort Furd’s example of the German telephone system) always end up offering bad services/products. So yes, the “natural” market forces are essential to make the system work.
Every individual working in a company must have a strong motivation to keep going day after day after day at 100% (well, at least over 90%). That motivation can be positive (think CEO and six figure income) or negative (I must meet the deadline or else). But once the motivation is removed from the picture, everything is bound to go downhill. No social ideal can substitute this motivation. I once read about some scenario based on the assumption that the communists gained power in the UK not long after the First World War (which apparently wasn’t very far from happening). The prognosis depicted a half-starved population wearing poor quality clothing, spending countless hours in line to for anything they needed, and so on. I was struck by the resemblance between that reading and what actually happened in Eastern Europe. Those countries are real life illustrations of the unavoidable failure of any industry trying to rely on idealist (hippie, communist - whatever) principles.

I’m not sure “failed” is the right word here. The service sucked, and was way too expensive, but it was still operating - and I don’t think it was was being subsidized. The government simply recognized that, for one thing, the basic infrastructure was there and for another that the existing operation was putting an undue burden on the users - and then did something about it.

The Deutsche Telekom still exists as a private comapany that sells stocks - and is just one of many players in the telco market. The Telekom itself is leaner and more efficient, and provides better service at lower prices than ever before. Competition forced a slow-assed bureaucracy to eliminate the fat and become productive.

Then again, maybe “failed” is right.

The bureaucracy failed to innovate. It failed to maintain efficiency. It failed to modernize. It failed to expand its service palette. It failed to provide services that should have been there.

It did not, however, fail in the sense of a private company going belly up because it didn’t stay on top of the market. It WAS the market, and the users had no choice but to accept what was there - and that enforced use of the system allowed it to keep running.

The thing about all of this is that a monopoly is bad for the customers, and that goverment bureaucracies are ineffecient. The two coupled together provide doubly inefficient service. The governmental protection then makes it impossible for a private company to start up competition against the bureaucracy.

It was literally illegal for anyone but the Telekom to provide public telephony service within Germany. Within the confines of your own property, you could runs all the phone lines you wanted. If you needed to connect the systems from two properties, you rented a line from the Telekom - at some horrid price. If you wanted to let another company connect to your system and make calls on it, you were breaking the law by providing a public phone service - in illegal competition with the goverment operated monopoly.

This question has come up on the SDMB before. Without trying to go into GD territory, without the US of A, a very large portion of the world’s medical advances would not exist. Even if socializing healthcare in total as suggested could temporarily provide better care on average, it is me belief that the long-term consequences would be horrifically bad for scientific improvment in the field.

Some government run-services are more or less aceeptable without competition - such as banks, police, and such. These things are not likely to turn a profit, and require considerable power to be invested in the employees. Therefore, it makes sense for the government to keep these things close.

However, in each fo these cases, private organizations exist to support and compliment the government services. For example, there are many, many banks in America, even though none of them can do what the Fed does. Likewise, there are private security services, because the police are not sufficient in an of themselves.

Here in Australia we have had and continue to have both privatised and public companies. I’ll give you a run down, IMHO, of how well (or not) they are going.

Telstra (formerly Telecom Australia). This is the national telco, for many years they were the only telco. Under 100% government ownership there were large waits for getting a phone line installed, customer service was bad and call costs were high. The cost of line rental though, was very low. The government has now sold off 49% of Telstra and pretty much told it to become an autonomous company. This was also combined with the deregulation of the telco industry, so now other telco’s could start up. There is now a shorter wait to get a phone line installed, and call costs are lower. Customer service is still shitty and now the costs of line rental are many times higher than before. In order to get a phone line, one must get one through Telstra as they still own 90%+ of the national telco infrastructure, from there you can choose to go with another telco provider. Internet access was never the total domain of Telstra though, however their position of market dominance has led to Australia having some of the most expensive broadband in the western world. In the last 3 years Telstra’s broadband services went from being unlimited downloads per month to a 3gig/month transfer limit, which is actually a few large leaps backwards. Telstra also have a commanding interest in most of the data backbones and foreign connections to the US/Asia, and charge other telco’s a lot of money (which they have no choice but to pay or have access to almost nothing on the internet).

Now for health care. We have several different schemes that provide the different parts of health cover.

Medicare is run by the federal government. It is basically a payment to doctors for treating patients, ie you go to your doctor and it costs $25 for a consultation and the government will pay the doctor for you. The doctor can charge more and you pay the difference. The payment rates vary depending on what kind of doctor it is.

Public hospitals are run by the state governments. If you have a Medicare card (see above), which all Australian resident’s are elligible to apply for, treatment in these hospitals is free. Times to get into the operating theatre differ depending on demand and cost, though you are never turned away. If you go to the emergency ward and have a life threatening problem you will almost invariably be seen immediately, however non-life threatening problems can take anywhere from instant to many hours wait.

The pharmaceutical benefits scheme is run by the federal government. If you have a medicare card, most medications will only cost you $AU27 or so per prescription, whether they cost $30 or $1000 to buy. If you are a holder of a health care card, which is a card that only low income people are elligible to recieve, the cost of those prescriptions go down to $AU3.70 per script. Not all medications are on this scheme, but most are, so there will almost always be medication available to treat your various illnesses that are subsidised.

It is worth noting that if you feel the public health care system is not your thing, there are many private hospitals available. We also have private health insurance companies that you can go to to cover most of the costs of those private hospitals. To get private health care, one only has to walk into a branch and apply for it and hope they accept you. AFAIK they are not required to accept you.

We also have public housing, which is funded by the states. The quality varies between the states depending on how much they fund theirs. The way it works in my state is as follows - Everyone who’s income is lower than $AU530 or so per week is elligible to put their name down on the list. You can specify which suburb/s you would like to live, with corresponding waiting lists based on supply and demand. Waiting lists usually aren’t more than 4 years, with a lot of suburbs around 1-2 years. Once you are offered a place, you don’t have to accept it, though you do go to the back of the list if you refuse. Once you are living in public housing it is essentially yours for life barring you doing something very stupid. If your income is lower than the previously mentioned threshold, you pay $25% of your income as rent. If it over that amount, you pay the “market rate”, however those rates are actually far lower than the real market rate. The quality of housing varies between each house or block of apartments, though I’ve found quality to be rather high most of the time. Public housing is designed to fit into a suburb, so it’s actually very hard to find out which places are private and which are public a lot of the time. There is currently a move towards building “designer” apartments and houses, rather than boring brick shaped buildings, further blurring the line. There are a number of public housing buildings near to where I live and I didn’t know they were public housing until I was told by people who knew people who lived in them.

We also have a number of companies that were 100% state owned but are now 100% sold off, these include one of the major banks, the postal service. I’m not really old enough to say how good the service was when they were publicly owned. I am satisfied with the service and prices of Australia Post, but banks are another ball game. No banks are now state run, however there are 4 major banks which have most of the market, and who have a very bad reputation within Australian society, mainly for large amounts of fees, bad customer service, constant branch closures for cost cutting (leaving entire towns without any banks) and so forth.

Hmm I’ve gone a bit off-topic, but that’s how I see some of our public institutions performances. Our private sector is very similar to what you will find in most western countries, so draw comparisons there if you wish.

Overall my opinion is that for some things the private sector is far better, however other things are better served by the public sector