My impression is that throughout (at least the Western) world a lot of sectors that used to be firmly under state control have been and are being privatized. To illustrate what I mean, let me give a few examples:
[ul]
[li]Many European nations where certain businesses (mail, telecommunications, rail traffic, energy, water, TV) used to be handled by state-owned monopolists have sold those companies and opened the market for competition, eg the Deutsche Telekom or Britain’s railway system.[/li]
[li]In the US, some states stopped maintaining their own prisons; instead, they pay a fixed amount for every jailbird to private enterprises running the prison.[/li]
[li]The NASA are considering having their vehicles launched into space by private subcontractors instead of own rockets. [/li][/ul]
[Correct me if I’m wrong; it’s all what I recall from news stories throughout the years].
Many Europeans think that, although it might save the public coffers some cash, this development isn’t too good and that the state should reserve at least some control over vital sectors of the infrastructure; and even hardcore capitalists might agree that at least the safety stuff should be done by the state and not by some private company, I guess. What do you think?
Should the business not provide the services expected, the state can fire them and hire another company to do so. So it’s not as if they have to make their pick and stick with it indefinitely.
And I generally approve of the privatization of industries. It makes them more efficient.
While I agree with SenorBeef that, in the name of efficiency and certain other public goods, privatization should be extended as far and as fast as possible, I agree that certain sectors, such as those directly involved with safety and security, should not.
In the case of airport security, I submit that a strong argument may be made in favor of inefficiency. To wit, the market will grade the skill set and qualifications deemed needed to be an airport security employee, and set the market wage rate accordingly. But if the public good is better served by an inefficient (higher) wage, so as to attract employees with a greater skill-set and initiative, then the market is not equipped to handle the task.
Schnitte, at issue with privatization of monopoly services such as telecoms, mail, water, etc., isn’t simply saving the public coffers some cash; it’s also about saving the consumer cash. Public monopolies suffer from the same failing of private monopolies; without competition, monopolies can afford to be inefficient and pass on the extra costs to the consumer. Even public regulation of rates public monopolies charge cannot stop this - the public monopoly can appeal to the rate-setting organization that its wage costs are X, and its capital and input costs are Y, so it must charge Z in order to break even. But without competition, there is no true incentive to cut X or Y, and therefore charge less than Z to the public.
Just a thought: isn’t monopolization, to some extent, inherent in the types of services we’re talking about? For example, if city or county were to solicit bids for and eventually decide on an outside company to run its various water services (this exact situation is a political hot topic where I live), there is a significant element of commitment involved there. Even if they don’t enter into a contract for a specific length of time, if a city or county were to turn over a service, there would be a significant lag time in getting it back if service quality were to fall–if for no other reason that in might take a while for them to decide that quality has fallen. They can’t just switch companies overnight, and the longer and more difficult it would be to oust them, the more power they have.
Private companies are private companies: they’re doing what they do for profit, not out of a societal responsibility. What many of the opponents of this particular privatization are worried about is that a private company might come in, operate the services for a while, do a lousy job, take the money and, if the government finally decides that situation can’t go on any longer, leave–coming away with a profit and leaving the city with the cost of building service back up to acceptable levels and, in some cases, making repairs. (After all, private companies operating water utilities don’t OWN the utilities; what’s it to them if they get trashed?) Opponents are concerned with having international companies (which the parents of many if not most of the solicitiors in this particular situation are) coming in, letting the place go to heck as they make their money, and bailing once they’ve done so. Of course, many of the opponents are also concerned about their own jobs.
Admittedly, this argument is heavily biased. Personally, I’m a lot more comfortable with having the government maintain things like utility services, etc. While it’s true that they would be holding a monopoly, I think there’s better oversight when it’s the government being held responsible, rather than it’s contractor. Do you think this position has merit, or are those concerns pretty easily dealt with?
Philote, take telecoms. Classic example of an inherent monopoly - you only want one set of telephone lines, both due to the captial cost of putting them up and because you want to ensure that any customer can talk to any other customer.
In the U.S., the monopoly has been broken up. The issue of the one set of lines was dealt with by regulation to ensure access by competing companies to those phone lines. And the result is that the cost of telephony has dropped ridiculously in the U.S.
Admittedly, AT&T was a private concern, but the principle should apply equally to public utility monopolies. Equally admittedly, some countries have utterly screwed up privatisation of former monopolies, but that is an issue of proper policy, not concept.
The assumption usually made on this side of the Atlantic is that privatization is always a good thing. But that’s an assumption that ignores the facts and the point of privatizing.
Public sector endeavors are not allowed to fail and become extinct. Sometimes they become truly bad at what they do, and sometimes they are expensive when compared to private services. But sometimes not. Consider the U.S. Postal service. As I’ve mentioned in other threads, despite complaints from others, it is much cheaper than UPS and FedEx and Airborne, etc, probably by a factor of 10. And while it has run a deficit the past few years, the deficit is remarkably small considering the trillions of pieces of mail moved, and can be made up by future rate increases. It is run a lot more efficiently than a private business. Road building is another example. we have high quality roads and don’t have to stop each time we move onto someone else’s road business and pay a new toll. That would suck. Defense of the nation. Can’t give that out to the low bidder, or they’ll sell us out to the high bidder. Telecoms are a great example of something that shouldn’t be public.
Private sector is well suited for telecoms. If your service provider goes under, you can switch in a day. And they compete for price and features. The cost of telephone calls has dropped (at least for long distance) very dramatically over the years. But keep in mind that the private investors of many of these businesses have lost money. Good for the public, good for the ones that make profit, bad for the investors that lose. Only 1 out of 8 businesses make it past 10 years. (This is year 10 for my law office.) This provides the public with a high rate of competition. If they know the quality of the product or service well, they can compare. But law services, for example, are next to impossible to compare for the novice, and can be very uncompetitive in price without the novice ever knowing. Are private prisons a good example? I’d have to look into it. How about privatizing VA hospital services by the government, paying on an as you go basis? Would that be good? A semi-fixed obligation (spread over millions of vets) the government could bid out. Private sector also removes the need for accountability for efficiency (not environmental laws, etc.) to the public appropriately in many instances. Although by the time the business gets big enough to be publicly listed on stock exchanges, the duty to run it right returns.
As much as pundits and armchair political philosphers want purity, the world doesn’t really allow for both purity and practicality. I happen to prefer practicality, as I find purists love to ignore the facts on the ground and don’t care about the inconvenience to others so long as their idea of justice is carried out.
Why are you comparing express delivery services to the USPS? They provide a service that the USPS does not provide (indeed, it tried it and failed) - guaranteed on-time delivery. The cost of that service is of course different than the USPS’.
If you feel a comparison of the costs of the services is needed, a better one would be comparing the rates of increase in the cost of the service provided - and here the USPS loses hands down. (and, of course, future rate increases are no guarantor of future profitability. Each rate increase over the past 20+ years has been justified as a means of eliminating deficits.)
Why is the amount of mail the USPS delivers relevant to the size of its deficit? I really don’t think the stockholders in Verizon would accept such an excuse if Verizon started posting similar losses - “But it’s only $.0000000001 for every phone call we handle!”
Why not compare the deficit to the USPS’ budget? Losses of $2-3 billion in a budget of $65 billion is, um, significant.
In any event, the USPS’s productivity has improved only 12% since its creation in 1970. That is scandalously lower than productivity increases in the economy at large. The USPS’ failure to become more productive (i.e. more efficient), even in an era of massive improvements in technology highly relevant to its operations, kinda proves the point that monopolies breed inefficiency and, therefore, higher cost to the consumer.
Philote is onto something here. Competition only maximizes efficiency under free market conditions. A good example of a true free market is a commodity trading pit, where there are:
1. many many buyers
2. many many sellers, offering a known product
3. absolute freedom for 1.'s to choose 2,'s, and vice versa.
A good example of what happens when you privatize an industry in an unfair market is the CA energy crisis. Consumers had no choice, and the power co. had very limited choices of wholesalers of electrons, so the market naturally rose to the highest level it could bear.
Even Adam Smith, the inventor of conservative capitalism (well, he wrote the manual, anyway) believed that many services in the public good should never be made private businesses (although he did invent the school voucher). He also warned against “master’s combinations,” which is the real result of many privatization schemes.
While I’m carping, let me add that the USPS has responsibilities (like checking your box for mail even when they have no deliveries for you, or delivering to ultra-rural peoples like myself) that any self-respecting MBA would jettison pronto, since they are PUBLIC SERVICES that have no profit motive. Also the best way for hospitals to make money would be to streal your fillings and incinerate you if you were underinsured, but they don’t for some crazy reason.
Go read “Wealth of Nations.” Better yet, go read Swift’s “Modest Proposal.”
If I may hijack there: Apparently, this is not always the case - efficiency doesn’t increase automatically if you privatize them. From what I’ve heard, Britain’s railway system deteriorated a lot after privatization, in terms of safety and quality.
The state of the UK’s rail network is a good example of the kind of things that can go wrong.
RailTrack diverted spending that should have been ploughed back into maintenance of the tracks and instead dished it out as dividends for the shareholders (vastly oversimplified view, I’m sure that what actually happened is more like that shareholders experienced an upturn in dividend payouts as a result of streamlined spending and budgetary reduction or something), the result was railway tracks in such poor condition that they broke and trains derailed causing extensive loss of life.
Sure, we can sack them and get somebody else to do the job, or can we? - who is going to want to take on such a huge problem.
Now somebody will shortly be along to refute all of this and point at examples of countries where a privatised rail network functions very nicely thank you, but the fact that it can be workable doesn’t mean it will work.
The problem with rail privatisation in Britain wasn’t due to privatisation per se, but due to the way in which it was privatised.
To start with, selling the parts of British Rail so cheaply was hardly a good way of eliminating bidders after short-term gains. But more importantly, having one company to own the tracks, and numerous others to run trains on them, was a recipe for buck-passing.
To blame the shambles on privatisation is unfair. Remember that the appalling state of the track and rolling stock is the result of decades of neglect whilst nationalised, not purely because of just a few years of profit grabbing since then. Bear in mind also that the rail services were run much better before they were originally nationalised, which again demonstrates that a well thought-out re-privatisation process needn’t have resulted in the shambles we have seen.
sirjamesp: I think you’re right; it was the specific implementation that was flawed rather than the fundamental concept, but way back then, there was a prevailing attitude of 'hey, just privatise it; all will be well and we will all make a fat pile of cash" - this approach is still not entirely absent today. The rail network is a bit of a special case too, I’m not at all sure how it could have been done better, but that’s probably just because IANAExpert. It’s true that pre-privatisation, British Rail was bloated and inefficient.
The pursuit of profit (compared, say, to the pursuit of standards of service in a non-profit organisation) will very often naturally end up creating better service through pressure of competition etc, but I’m not yet convinced that this need always be the natural outcome.
I think that so long as true competition exists, then service must improve / prices must decrease according to what the consumer wants - this is the natural outcome, as the natural desire of the consumer is to improve what they are getting.
The problems we are seeing with things like the railways is that the way they have been privatised does not allow for true competition: it isn’t as if you can decide to hop on a GNER train for a trip from Torquay to Cornwall. It seems that the only incentive for a company to improve is the knowledge that they may not be able to renew their franchise, but this is too indirect.
And as for idea of privatising air traffic control… well please. That’s a classic case of ideology trumping common sense (although I do recall a certain pre-election Anthony Blair saying that “our air is not for sale” - wonder what happened to that way of thinking?).
This one I really like. Think they should go one step further. Why not give prisoners an option to be incarcerated by corporate manufacturing firms who will pay them market wages <minus the cost of housing food and security> to be held in escrow until release/parole date.
As pointed out in other posts, privatization works best when legislation / regulations are carefully crafted (can anyone say California energy shortage?). Pardon my libertarian leanings, but I’d love to see even more “radical” privatization experiments.
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[li]Schools, obviously: Universities are for the most part private and seem to do an adequate job. Perhaps they could churn out even better graduates if freshmen came in more prepared as opposed to the current state of the publicly taught HS grad.[/li]Fire Departments: Every property owner in the country carries fire insurance. Why not have the cost of extinguishing fires paid by insurers (via fire risk assessment premiums).[/ul]