You often hear how when a government turns something over to private enterprise, it goes downhill. This doesn’t always happen. A few years ago, Maine turned the operation of a lot of roadside parks, picnic areas, and boat launches over to Brookfield Hydro. They seem to be maintaining them better than the state did. One of the parks was even going to be permanently closed because of repeated vandalism, but Brookfield agreed to maintain it, and they do it very well. The parks are still freely open to the public, and seem to have better signage now.
A few years of operating something already paid for by the public is not a success. You have to wait until they have to start paying the increasing maintenance costs before they send it down the drain or bribe politicians to buy it back from them for more than it’s worth.
This wasn’t actually privatization, but the deregulation of airlines has been a huge success. The number of passenger miles flown has tripled since deregulation, for example.
Along the same lines, the spinning-off of various previously state-owned “flag carrier” airlines like Lufthansa and British Airways has generally gone pretty well, although some of them have become notably less swanky now that they have to turn a profit.
Ignoring the fact that so very many airlines have gone bankrupt (some more than once) and that they rarely make any money.
The increase in passenger miles could be due to unrelated effects.
When you’re stuffing passengers in more and ever smaller seats, in the overhead bins and the cargo hold, you would expect miles to increase.
Airlines frequently make money. Southwest, Delta, United, JetBlue and many others have been profitable for years.
The increase in passenger miles is directly due to the deregulation of fares, which previously acted as a subsidy for economically nonviable airlines, and limited air travel to wealthy or upper-middle-class passengers.
The fact is it just took American air carriers about 30 years to finally figure out how to behave like actual businesses, rather than utility monopolies.
However, the number of points served has declined; some smaller airports lost passenger service entirely, and even mid-size cities see declining numbers of flights. (Memphis, e.g., lost its status as a Delta hub in 2013, with Delta reducing the daily flights from 200+ to 60.)
Moreover, the rampant consolidation in the industry means many airports are essentially monopolies or duopolies: three-quarters of all seats in the U.S. market belong to the big 4 airlines. In Atlanta, 80% of the seats belong to Delta; for years, Continental controlled 90% of the flights at Houston International. When there’s little competition, there’s little incentive to reduce the prices.
Delta and United have both been in bankruptcy within the past decade or so; United’s pension plan default in 2005 remains one of the largest in American history.
This chart shows inflation-adjusted airfares from 1979 (when deregulation passed) and it sure looks like a win to me.
I honestly can’t think of a single one.
I can name Dozens of failures to the point where when I hear the term “privatization”, I just know someone has a plan to steal from something that works just fine as-is.
“Once, the coast line of America was riddled with pirate-privateers that would steal every thing that wasn’t nailed down.”
“The US built a Navy & chased them off of the seas.”
“Well, where did they go?”
"Well, they had to go Somewhere. Tell me, have you ever heard of the phrase “privatization”…?
Yes, but I was responding to the idea that airlines rarely make money, which is demonstrably false. The air travel market is fickle and fiercely competitive with razor-thin margins, so bankruptcies happen, probably more often than many other industries. But it works and planes keep flying and it keeps getting cheaper and safer.
I can think of a few.
British Petroleum was bloated and vastly underperforming as a state-owned asset. After privatization it divested its non-energy businesses, fired huge swaths of middle managers, vastly improved its processes and procurement, made several successful strategic acquisitions, and became one of the dominant players in the energy sector. (They also blew up that refinery in Texas and were involved in that recent unpleasantness in the Gulf of Mexico, but in spite of the occasional disaster BP remains a highly successful company.)
Another successful example is Telmex, Mexico’s phone company, which was nationalized in 1970 and privatized in 1991. After privatization the company was able to radically improve its efficiency, upgrade its infrastructure (building Mexico’s first nationwide fiber network), enter new markets like Internet and cell service, and reduce its costs substantially. As a monopoly, reasonable and transparent regulation was key to its success.
In general, privatization works very well in sectors where there is a clear profit motive and natural competition, and the privatization process itself is not corrupt. (Privatization projects in Russia and Latin America come to mind.)
Privatization often fails in sectors where there are failed markets or necessary monopolies (utilities for example, although there have been successful privatization schemes based on setting up regulated markets.) It also tends to cause serious problems when the goal is providing a social service where there may be perverse profit motives, such as common infrastructure, parks, policing, jails, etc.
The only one I can think of is airline deregulation. Are deregulation and privatization the same thing, or is that something different? I thought deregulation just meant removing government regulations on the private sector, not turning an industry over to them.
Most ex. Communist states started growing faster after abandoning planned economies, and I don’t think any now subscribe to economic communism, so there is that.
Same here. I have a political bias I’m trying not to bring into the discussion, but it is far easier to think of privatization failures. Prisons, colleges, military, medical care, internet*, transportation, water and utilities, electricity, etc.
*some municipalities want to set up fiber optic Internet, about 1 gbps, but there are laws preventing public companies from competing with private entities. I’d consider that a privatization failure because they prices quoted for 1 gbps speeds are about what I pay for 25mbps speeds, and some people I know pay for 3mbps speeds.
How does the break-up of AT&T fit in? It wasn’t a government program but it had a lot of government protection until it was broken up.
The breakup of AT&T was an anti-trust divestiture. AT&T was always a private company, but was regulated tightly under a series of previous consent decrees and informal agreements with Congress. The breakup in 1982 primarily resulted in the local operating companies (Baby Bells) no longer being beholden to Western Electric, which increased competition for switching equipment as well as consumer-owned devices which could now be installed freely on the network. The other effect was that long-distance became much more competitive, because the upstart long-distance carriers were now free to negotiate with the Baby Bells for their own direct connections to local exchanges.
The real fun began with the Telecommunications Act of 1996, which deregulated the Baby Bells, allowed competition for local service, and resulted in several of the BBs merging until one of the babies grew up and consumed its mother.
Just a case in point. When I was growing up, most hospitals were owned by medical schools, municipalities, or religious organizations. Now most have been privatized. The costs have gone up enormously. When my appendix was excised in 1950, the hospital (the teaching hospital of Jefferson Medical School) charged $8 a night. I don’t know what private hospitals cost, but I don’t think $800 a night would come close. It is insane.
In Quebec, all the electric power companies were nationalized about 50 years ago. This has been phenominally successful. Our power is cheap (well, it is all hydro-electric) and returns quite a profit to the province.
The other side of the coin is the difficulty of keeping corruption out of the system. I don’t know how to arrange that. Except elect honest politicians, something like pink unicorns.
No, not close. When I spent about 36 hours in the ER last December, they billed a bit over $18,000. When I inquired about staying another 24 hours after they wanted to discharge me (because I really didn’t feel like going home yet), they told me it would cost me $6000 a night. I went home.
My total co-payment came to a whopping $65.