Thursday, 24 November 2011

Myths of privatisation

I am a fan of privatisation for several reasons, not the least being that I think that private companies tend to be less wasteful, more productive, and if they fail the taxpayer isn't called to bail them out, let alone continue to fund them indefinitely. I also do not think it is the government's mandate to run most companies.

Roger Kerr has a good article discussing what he considers are false beliefs held by many opposed to privatisation of public companies. These are the 8 myths he discusses:
  1. Privately owned businesses consistently outperform publicly owned businesses.
  2. Privatisation is ideological.
  3. Privatisation is needed to reduce debt.
  4. The government should own SOEs [State Owned Enterprises] because it has a lower cost of (debt) capital.
  5. SOEs were sold too cheaply.
  6. Privatisation leads to more foreign control over New Zealand.
  7. The government loses financially from privatisation because it forgoes dividends.
  8. Air New Zealand is a good model for the government’s partial privatisation approach.
Myth 2 is interesting as even proponents of privatisation may think this. Kerr argues it is in fact pragmatic.
Myth #2 Privatisation is ideological. To the contrary, it is pragmatic: it (generally) works. When the Thatcher government embarked on privatisation in the 1980s, some regarded it as a leap of faith. It was not a popular policy to advance but was supported when the benefits became clear.

As a British minister said, “facts overtook the debate.”

The genuinely ideological argument is the reverse: the Marxist attachment to “public ownership of the means of production, distribution and exchange.”
Of course it could be both. An ideal system can be the best system if the underlying ideology is basically correct.

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