State owned industries VS Private owned industries

Which is better? State owned industries vs private owned industries and why? Could state owned industries ever work to the efficiency of private industries? Why does it take alot of time and effort to motivate people working under government owned business?

Among the innumerable disadvantages of state-owned enterprises (the fact that they are almost ideally designed for corruption being one - type in “Credit Lyonnais” or "‘Descent from Heaven’ “Japanese bureacrats’” into Google for an idea), there are two biggies.

Inherent inefficiency - this is not an issue of motivation, though that may play a role. Instead, a government does not want a state-owned enterprise to fail. Thus, it will warp the rules of the market, by, for example, giving the state-owned business a monopoly or subsidies, in order to allow it to survive. With survival assured, there is no incentive to discover efficiencies - the only reason private companies discover effeciencies is so they can better compete in the market - that is, survive.

Immunity to market signals. A private company making buggy whips will quickly go under or start making a different product. A government-owned buggy whip company is more likely to continue to make a useless product - so that they won’t have to lay off voters.


Regarding Sua’s post, I can think of one particular exception.

Kuwait has a state-run petroleum industry. The prosperity, nay, the entire survival of a country the size of New Jersey is inherently defined by the productivity of its oil fields. They take that industry so seriously, that you are not even allowed to photograph the oil wells and refineries while driving by them at 60 MPH.

I personally am particularly fond of ‘Natural Law’. However, in some cases, I do think that the situation of some nations demand certain practices. I think that in some cases, nationalized industry is a good thing, but private industry is much better. IT all depends on the industry and political environment of the governing body.

But I believe a nationalized industry should be heavily regulated and monitored.

I think there are many industries which are not suitable for private ownership. There are some idustries (health is one of them, but less controversial examples are police and fire protection) in which working for profits would make them less useful for the public as a whole.

sven has a point: generally speaking, “service-provider” industries are more amenable to state ownership (or protected monopoly) than are goods-production industries. But YMMV depending on the service, the goods, and the circumstances. As Tripler said, sometimes you may want direct control of a strategic resource, whether or not it maximizes profit.

Ambulance companies are often times privately run, and they seem to work just fine. I would think police and fire departements could be privatised as well.

The question there is how would the police/fire department make money? If you simply mean that a local government would pay a private corporation to provide fire service, then that already happens in a few areas.

Any system where the department was paid only for the fires they put out would be disastrous. What about people with no fire insurance or who could not afford to pay for fire suppression? It would be a lose-lose situation for the fire department. They couldn’t let the fire burn, but they wouldn’t make any money for their work.

I really can’t think of any workable situation to reimburse a privately-run police department aside from a flat-rate to provide police service.

Ambulance companies can bill health insurance, medicare, and medicaid, so they’re usually guaranteed at least some money. Also, while there are privately run ambulance services, the trend seems to be away from that.

Yes, of course I mean that fire departments would continue to operate as they do now. They could just be privately owned more often. And the different fire companies could compete for town contracts. This is the way ambulance companies work, at least in my area. (My SO works for one).

I didn’t mean to suggest that they get paid piecemeal. Imagine cops getting paid by the arrest? LOL.

For some reason, the military seems to be the only government run business that runs efficiently. Maybe NASA too.
You can have privately owned companies contracted by the government to perform fire or police duties. The advantage is that it allows competition to help drive out efficiencies as governments tend to favor the lowest bidder. The down side is that you often get what you pay for.

As for other industries, IMHO, the role of government is to smooth the bumps in the economic cycle, not be a permenant crutch.

I guess thats about all I got.

In Canada, municipalities too small to support their own police force contract the RCMP or the provincial police to station a detachment there and enforce the law. The RCMP are national, but only Quebec and Ontario have provincial police forces, so there is some notional competition between the two–towns have switched from one to the other on the basis of cost.

I can’t see how privatizing either entity, or allowing more in, would improve the quality or cost of policing. In fact, I think it would tend to degrade–to paraphrase what they say in the military, “your policing was provided by the lowest bidder”. That’s a recipe for cutting corners in dangerous ways.

I think that many places in the U.S. already have a more effective control over the quality of their policing–elections. A sheriff elected by the community every two years is far more responsive to the community than market forces embodied in a town council voting for a policing budget.

I’ll give everyone a personal example as to the inefficiencies of the government.

As some people know, I work for the DOD, or Department of Defence, as a mechanic. One time, our shop received in an order of 36" push brooms. Well, when our supervisor saw that we had got the wide 36" push brooms instead of the more narrow 24" brooms which he had requested, he instructed the parts room person to saw 6’’ off both sides of each broom.

When asked why he wanted this, he said that if people were to use the wider brooms, then they would be able to sweep up faster, and then they would stand around with nothing to do. The narrow brooms, on the other hand, would keep the workers busy sweeping.

The biggest “problem” with state ownership is obvious. State ownership is inherently less economically efficient than private ownership because state-owned entities are more sensitive to political forces than market forces.

I have put “problem” in quotes because, in some cases, political considerations can be more important than economic efficiency. It may not make economic sense to have a fire station in a remote portion of a large rural county. The cost of maintaining the station may be much higher than the value of property saved. Nonetheless, everyone in the county may agree that fairness requires everone in the county be provided protection by the fire department. There is nothing wrong with this. In fact, it’s a good thing, so long as everyone recognizes the trade-offs being made.

In most cases, however, putting political considerations ahead of economic considerations can be disastrous. For example, a state owned car manufacturer may find it impossible to cut production or lay off workers in bad times. Rather, it will become a huge drain on the public fisc, sucking up tax dollars that could better be used elsewhere. This usually occurs during an economic downturn when governmental finances may already be in trouble for other reasons. Of course, the idea of a merger between a state-owned company and a private company would be completely out of the question, regardless of how much sense it might make.

An inherent problem with state owned business could be accountability. If it is accepted that the state has a role as regulator and overseer and that this is a need of society, it becomes a conflict of interest when the state has to monitor itself. Although not state owned per se the Enron collapse shows pretty well what can happen when the state is too involved at the helm of industry. I cannot recall how many members of congress and the senate who had to opt out at the early stages of the Enron inquiry due to conflict of interest, but I do remember that it was staggering percentages.

The ailing health care and welfare system in Europe is a more problematic example of this. Obviously there has been, and still are many benefits from the state’s involvement here along the lines proposed in earlier posts. However the dynamics of inefficiency mentioned by Sua and Barking Spider became such overwhelming burdens that the system nearly collapsed in the early nineties, when an ageing population and the third generation baby boomers consumed increasingly large portions of healthcare resources. At this point many European states were a) very slow to react and change and b) due to political considerations were hard pressed to make uncomfortable compromises as employers while re-organizing a labor intense public interest industry. As it ended up many states; like Sweden, Germany and France choose to partly privatize health care and adopt a regulatory role, delegating financial accountability and employer responsibility to the private sector. And yet, due to the sluggishness in the first stages of this process the system has yet to recover.

All in all MHO is to doubt the state’s capacity as captain of industry.

Barking Spider’s anecode is not uncommon, as crazy as it sounds. I always dread when I potentially have to go to a public sector (aka government) client. There is nothing worse then trying to reeingineer processes in an environment where performance is based on how many chairs you have occupied.

In all fairness, I often see the same thing in heavily unionized companies or companies where there are a lack of adequate performance controls. The reality is that most workers don’t really like their jobs and without some kind of pressure to perform, a significant number would simply do the bare minimum or less.

I never heard of such an evolution taking place in France. Actually, the health care system isn’t even exactly under state control. It’s funded by contributison based on salaries and run by an organization whose board is composed of half representant of unions and half representants of employers.

Most hospital are public, if it was you were refering to this, but there has been no move to privatize them in any way I’m aware of.

I did not say nor did I intend to imply that health care finance has been privatized. I am only talking about the health care industry, but I was sloppy in my wording when using ‘privatize’.

In as much as that France, nor Germany has gone as far as Sweden in actually separating care management and financial performance from the state, there is a strong movement towards greater autonomy for care units, against popular protest by the health worker’s unions, especially in France. Many critics have called this ‘creeping privatization’ while others, like myself feel that it just isn’t going fast enough.

You say that French hospitals are public, I think you mean ‘the largest’ hospitals. The relation hospital beds in public to private hospitals is 2/3 to 1/3, with the private sector growing and the public sector in decline. There are also 1000 municipal health clinics. While the strong unions in France have indeed vehemently resisted flat out privatization, a hybrid solution were Hospitals are administered as business units while they remain in State ownership was achieved by the increased autonomy of hospital management dictated by ‘The Hospital Law of 1991’. Meanwhile the vast majority of practitioners are independent private businesses, leading to a situation were both out-patient and in-patient care has become a very much mixed public/private endeavor. Further, in an attempt to grow the private sector the state has been trying to close thousands of beds in public hospitals since 1993, but popular resistance has slowed this process.

For an overview of European health care I recommend the EU Parliament’s study ‘Health Care Systems In The EU - A Comparative Study’ which you can find here by entering its publication number SACO 101 EN.

My opinion is that state-operated businesses or services operate best when they are simply involved in the protection of the public welfare. For example, Police depts do a good job in the USA, in part because there is a great measure of public pride in their work. The post office has been going on for so long that they really know how to run it, and remain a viable and useful government institution even in the modern era.

Where government does poorly is more in the realm of production of goods and specialized services.

The private vs. public dichotomy is misleading. The thing that makes a private corporation more efficient is competition, not the fact that it’s private. If you compare a private monopoly with a government-owned monopoly you’ll notice that neither is terribly efficient. In fact, the government monopoly is probably more efficient because it doesn’t need to profit, whereas the private monopoly is under great pressure to cut corners so it can increase the amount of money flowing into investor pockets. In fields like health care this can be disastrous.

And why is efficiency the only metric? If an organization is ultra-efficient but provides crappy, low-paying jobs with no benefits, why is it better than that lumbering government behemoth that saws its brooms in half but pays its workers good salaries and lets them retire in 20 years with a fat pension?