Yeah, why can’t the department of defense become a self-sustaining entity? Think of all the profits the Air Force would bring in by selling off old nukes. The Army would make a killing by contracting a few units to overseas dictators in need of security forces.
I don’t disagree that there are ways to make government more efficient. But making profit is not the government’s raison d’etrae.
Well I don’t WANT the government making a profit, I want them making enough to do their job. As to the Department of Defense, they’d probably be quite well-funded if we’d just kept all that Iraqi oil (which of course is the reason we went there in the first place, obviously). Then again, looking at FedGov’s profit/loss statements, I don’t think we have to worry about them hitting the black anytime soon…
/snark
My original point/questions was, where is this massive tidal shift towards privatization of government functions? It’s not happening in the U.S., so I assume it’s a European issue.
Why would you assume that? It’s happening all over the place in the US Federal as well as State governments. All sorts of functions are bid out to private contractors.
Look at the incentives:
Government services cost scarce tax dollars, and can fail publicly in many ways, in either case giving the legislator who voted for it a black eye.
Private corporations can fail and the legislator feels no backlash, while successful corporations are a valuable source of campaign funds for said legislator.
So you can see privatization is a win-win situation for those doing the privatizing. Whether or not the taxpayer gets better value for their dollar is orthogonal to privatization, and frankly irrelevant.
Then why isn’t everything privatized?
Or more like, a lot of the stuff that various governments around the world have privatized over the last 4 decades was nongovernmental to begin with in the USA e.g. airlines, railroads(), mineral extraction, energy and telecomms, where what the US did was amend the regulations, rather than privatize. Even in the case of the USPS, it was converted in the late 60s/early 70s from an actual government civil service department at Cabinet level, to its current government-owned * independent (but regulated) enterprise status.
(*With the notable exception of the US’s long-distance passenger rail system, which in the 1960s became economically unviable in private hands but was deemed a national necessity for some of it to still exist, so it was taken over by another “government-owned independent enterprise”, AMTRAK)
Also the multilayered federalist nature of the US public sector structure means that many areas of public services/assets belong to and are run by the state/territory or municipality so rather than have just one big de-nationalization you can have different policies and different methods in different locations. One state/city/regional authority may have a management company get a long-term contract to do Job X or operate Facility Y for a share of the take or savings; another may just hire that management for a set fee for the short term, while another may just sell the operation and assets outright, another turn it into a public-private partnership and yet another figure they can continue to do it in-house or (in the case of a state) devolve it to local responsibility where they’ll go through that decision tree again.
Honestly in the case of the Post Office I think the UK government just saw the writing on the wall and decided to try to cash in whilst they had the chance. More and more billing is being delivered electronically. Parcels are a massive market due to the likes of Amazon, but the Royal Mail faced massive competition there from the likes of Yodel, FedEx and other parcel carriers. The fashion of sending letters has all but disappeared. Amongst people my age the tradition of sending Christmas cards is not as strong as in my parents’ generation, even. The long term prognosis for a letter delivery service doesn’t seem to be especially great, to be honest. If the UK government could raise a few billion pounds from the sale and be free from having to dismantle or massively subsidise the service in the future, why wouldn’t they do it?
Because governments like to keep a strict monopoly on some stuff. Violence, the justice system, money printing would be examples of this.
In other cases consumer coverage can be considered a net social good that trumps profitability to some extent - in the case of roads, mass transit, power distribution or phone lines, for example.
Finally, some stuff is considered public or national (i.e. everyone’s) property and not to be surrendered to any private interest who could misuse them, or at least not without oversight & strings attached - airwaves, Internet trunks, national parks, key natural resources (such as Norway’s oil reserves)…
Some things work better privatized, some don’t, and some are in a gray area.
Leaving aside the “business can just make more money by jacking rates up!” partisan silliness, there is a legitimate economic case to be made for the government doing some things and not others, and historically what the government chose to do was based not on anything logical or founded in good economic practice, but in political stupidity.
Generally speaking, the government is best involved in areas where there is a market failure (that is an actual term of art) which means that there are some areas where the market actually does not work and cannot provide an economy with the things it needs in an efficient manner. I should say here that while a “market failure” technically exists whenever a market is not Pareto efficient, it’s not like you always have a perfect idea of what’s close to Pareto efficient and what isn’t, so there are some arguable cases. However, an obvious example here would be, say, the military. A country isn’t going to have a functioning national defense capability unless it’s funded by the government. It doesn’t make sense for me to go out and buy a tank for the Army, even though we can assume it makes sense for all taxpayers to collectively buy that tank for our mutual protection. So you have to “socialize” that. My country (Canada) needs new missile destroyers, so the government is currently starting a multi-billion dollar program to replace its existing fleet with shiny new ships. If that wasn’t a “socialized” process it just wouldn’t happen; the free market would provide Canadians with no destroyers at all. Who would buy one?
Another example of market failure is, just to jump on a hot button issue, universal health insurance. For a variety of reasons but you can look up the main one by googling “adverse selection,” health insurance works better the more people who are in the pool, and so national health insurance is quite effective, where a purely free market is wasteful and inefficient. That doesn’t mean that the government has to be in the business of health CARE, mind you, which is actually quite well delivered by a free market. Health INSURANCE, however, is best done by government.
On the other hand, there’s no really good reason why the government should, say, be selling you your gasoline, but that’s what we had in Canada for many years; a government-owned gas company, Petro Canada, which (surprise!) did not provide Canadians with gas any better or any more cheaply than Esso or Shell or what have you.
Because government workers make up a large voting block. Also, power needs powerful tools to wield.
I wasn’t implying that every government service presents those incentives. Just that when government services do get privatized, those incentives are likely what influenced the legislators, and not some nobler purpose. Cynical, I know.
In the UK it’s pretty much all ideology, with a side of reduced taxes from the proceeds until the next general election. The kinds of politicians who like to privatize are also the kinds who don’t actually care about the welfare or happiness of the population. The Tories don’t want people to be happy, healthy or secure. They just want the country to look good at the most superficial levels. If the GDP goes up while living standards fall, that’s preferable to the reverse. They look at the US with its ridiculously wealthy people enabled by appalling poverty and poor public services and turn green with envy. I’m far more envious of the Norwegians, who understand the value of public ownership and will be enjoying the rewards for a long time.
There are certain things that almost everyone wants the government to supply, even if it doesn’t save money. Your basic list of Libertarian government functions is a good place to start:
Police
Military
Courts
We really don’t want private armies (not controlled by governments) fighting wars, nor do we want private security guards knocking down our doors to see if we have stolen goods.
And most everyone wants public schools, roads, and some level of social safety net.
Those are all things I can think of very quickly that we think should be done by government, and we’re not going to treat them as profit/loss centers.
It may not be true in general, but it is true for privatized government services. Those transfer a public monopoly to a private monopoly. If the company isn’t making money, they get to raise rates because they have monopoly power, and because it would be embarrassing for those in government to have it fail. There are exceptions if the place is crooked, which seems to have been the case for private prisons.
My somewhat limited understanding of why the Royal Mail was privatized (it was offered as an IPO IIRC, with some percentage of the shares going to the current employees) is that while on paper it was making a profit, it was doing so due to heavy subsidies from the government as well as a few bailouts of their pension fund. Of course, it’s those pension funds that are the killer, and probably what the government was trying to get out from under (that’s pure speculation on my part btw).
Basically, the system was the con trick, with rates kept fairly low and subsidized through general taxes, and with the costs going up the UK government decided to get out from under it and let it sink or swim on it’s own in competition with other, private carriers.
As to whether they become more efficient, they do that or they die as companies. I don’t have a cite, but I seem to recall the key difference between the USPS and, say, FedEx or UPS is in the costs of benefits and salaries.
No, there are some services that the government does best, so there will always be some things that won’t be privatized. Some things aren’t really about profit (such as national defense, say, or police/fire/public safety, etc), they are just things that society needs, and those things will always remain under the control of the government. The postal service is one of those gray areas…obviously, private companies can and do provide this service, and they are better/more efficient at doing it. The down side is that they don’t necessarily provide it to every place that the government service did (i.e. to some mail box in the hinterlands…more an issue in the US than in the UK I’d guess).
I agree with pretty much everything you said here. I found DrCube’s assertion that “Whether or not the taxpayer gets better value for their dollar is orthogonal to privatization, and frankly irrelevant” to be ridiculous.
While I am generally in favor of privatization I largely agree with you. Handing over a state-enforce monopoly to a private company is probably a bad idea.
Well, okay, in the specific case of a govenrment monopoly wholly trasnferred to a private monopoly it is true that the new private monopoly will charge higher prices (which they will, irrespective of whether they’re making money or not.) That is assuming the deal they made to GET the monopoly did not involve a price control of some kind.
But… **how is this different from a government monopoly? ** How is the customer any better off? I’ll answer my own question; they aren’t. The government monopoly is going to behave exactly the same; they’ll jack up prices or reduce services to ensure that the books are balanced. The only difference is that a government monopoly can do it either directly, by charging the user, or indirectly, by simply levying more taxes and subsidizing things, which in a lot of cases is actually much, much worse. Either way, someone’s going to be hopelessly screwed.
Again, you have to have the government run some things because market failures externalities blah blah blah; I don’t want to retype my Econ 101 textbook. However, there absolutely are things that government has gotten its hands into that really should be privatized. I’ve already cited the example of Petro Canada; Air Canada was another one, actually.
We also need to be clear on what we mean by “privatization,” because that word means a few different things. Air Canada, for instance, was a government-owned enterprise that became a privately owned enterprise. A difference type of privatization would be, for instance, that the City of Toronto has contracted out garbage collection in a large part of the city. This is not to say that garbage collection is actually a free market where companies negotiate with homeowners; rather, the City of Toronto stopped using its own employees and made deals with private companies to perform the service. The taxpayer still pays the City to have it done. This arrangement seems to be working extremely well, for what that’s worth, but it’s more comparable to bump’s example of the US Armed Services paying companies to prepare and serve food to soldiers, rather than having soldiers do it themselves. To the taxpayer nothing of substance has changed.
I see it as a continuation of the global trend of conservatism that started in '79 with Thatcher and the Ayatollah.
The obvious one is that a private business makes a profit, a government one is designed to break even. That’s not necessarily bad if the profit comes from real efficiencies. If it comes from reduction of services, though …
Plus, a government business major stakeholder is the people, while a private business’s major stakeholder is the owners. (Theoretically, at least.) It might make sense for a government to do inefficient things, like deliver mail to rural areas, which a business starting from scratch would not do.
I agree that government should not own a business in a competitive marketplace unless there is a very good reason. The US managed to blunder along without government airlines, I think for many countries it was a matter of national pride.
Outsourcing is different from privatization. The problems with government doing it is when it really isn’t cheaper, but is done for political reasons (and due to corruption) and when it winds up hurting the economy by forcing down wages. It is nothing new - almost all defense work has been outsourced since time began, and we know how efficient that is.
It is the ground rules which count. I started working for the Bell System, and while there were some problems (things that would make your cliched motor vehicle bureau look good) there was also a real concern for universal service and the availability of the network, even back in the days of unreliable mechanical switches. We were private, unlike European systems, but we operated under rules which were mostly for the good of the country.
Why would you assume a government monopoly is designed to break even? That is not at all necessarily true; many government monopolies are quite specifically designed to make money. Many state governments have a legal monopoly on gambling, for instance, and make an obscene amount of money off it.
To use yet another local example, the Province of Ontario has an effective monopoly on liquor sales, though the LCBO stores. They make a huge chunk of money off it, very much by design.
[QUOTE=]
Bosda Di’Chi of Tricor Privatization leads to higher rates to the consumer.
Period.
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The IMF-led privatization of electricity and water in Latin America and Africa led to increase costs to consumers, some of these privatization efforts even led to riots. If we’re just focusing domestically, I would point to the privatization of the energy market in California which inevitably led to the manufactured energy crisis. The privatization of the Chicago parking meters and privatization of the Chicago Skyway have led to increase in rates for Chicagoans and tourists. In this paper about the privatization of toll roads, the author points out the problem with the Chicago Skyway concession agreement in very stark terms.
[QUOTE=Paper]
The Chicago Tollway concession agreement provides the initial model. The agreement sets forth a specific schedule for toll increases over the first ten years of the lease, then allows annual increases equal to the greater of two percent, the percent increase in per capita gross domestic product (“GDP”), or the percentage increase in the consumer price index. Future toll caps are therefore uncertain, since no one can predict what the GDP will be over the next ninety-nine years; in fact, the Government Accountability Office’s own figures only project GDP for forty years. However, GDP has historically risen much more sharply than wages. If a similar pricing scheme had been applied to the Pennsylvania Turnpike from 1940 to 2007, the cross-state toll would have risen to $553, instead of the actual rate of $22.75.
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(bolding mine)
Opposite of your point, I would be curious to find examples of privatization that increase efficiency and value to the taxpayer while decreasing the cost to the consumer. I can think of none. Can you?