Comments on: The Dark Side of Privatization

By: Morph Nitric

Morph Nitric — Thu, 15 Jul 2010 07:59:14 +0000

Hi, just a short comment to say that i am a new comer to your blog but I am without a doubt the latest fan.

By: Jacob Steelman

Jacob Steelman — Tue, 27 Oct 2009 19:42:06 +0000

I have been involved in privatizations in South America, Europe and Asia. As I remarked in my earlier comment the problem is the assets are not permanently transferred to the private sector. The assets are at best leased and revert back to the state within some period of time. The state tends to view these as opportunities to get money and let the new owners clean up the mess created by state management and operations. Then before the term of the privatization expires the state moves to terminate the contract early and have the new cleaned up business revert back to the state. Since the new company must take steps that are politically sensitive such as laying off employees and raising prices to market levels those wanting to get the assets back to the state have a political issue which they can use. The monopoly power that the public company has is normally retained by the privatized company for at least some period of time perhaps 5-10 years or more depending on the business. The new owners may or may not be required to retain all employees so the responsibility to fire excess employees is either left with the state or the new employer. Ditto arrangements with suppliers. The most successful privatizations have been of telecommunications and the most difficult are those of energy.

By: Ben Stafford

Ben Stafford — Tue, 27 Oct 2009 14:25:00 +0000

From my personal experience working at a state-based thinktank, people usually don’t go for privatization for a couple reasons: 1) They only hear about it from government employees, that is, they only hear negative things about it, and 2) People generally have more trust in the public sector than in the private sector (the reasons for this are debatable but the fact still stands). In short, people usually aren’t applying critical thinking skills to such opinion making.

By: Mike

Mike — Tue, 27 Oct 2009 13:42:19 +0000

Henry, I’m not so sure it’s that simple. Yes, perhaps I’m not sufficiently focused on the positive. But I think many times libertarians offer “privatization” as a simple solution and can’t understand why people don’t go for it. Well, it’s because so off “privatization” leads to “crony capitalism” as you say. So in order to convince people that privatization can work we have to (a) be sensitive to the fact that it won’t work everywhere all the time because the local political culture does matter and (b) offer advice for how to have successful privatizations even in corrupt political environment.

By: Henry Clevering

Henry Clevering — Tue, 27 Oct 2009 13:30:10 +0000

This post is as if you’re trying to find the “darkness in every cloud”. The kind of privatization you’re referring to is usually called “crony capitalism”, and yes, it’s not a good thing. But why focus on the negatives? The question is not about whether privatization has a dark side too. All human enterprises will since they are, well, human. The question is rather, “Would you like problems systematically corrected and fixed, or would you like your problems systematically institutionalized?” If you want them to be quickly corrected, then leave it to the private market, if you want problems institutionalized have the government take it over.

By: Jacob Steelman

Jacob Steelman — Tue, 27 Oct 2009 06:42:10 +0000

The concept of privatization is a great way to move government owned assets to the private sector. Unfortunately what the termed privatization tends to mean around the world is merely contracting with private firms to operate government owned enterprises which after a period of time are transferred back to the government for operation. For privatization to be successful the government assets must be sold and transferred to private owners who in turn assume the risks and are entitled to the rewards. Thus government assets become private assets. All too often the government engages in cronyism and corruption. I once represented a client in the privatization of a natural gas pipeline and control centre in Colombia during the late 1990s. My client has been in the natural gas business since 1910 (operating pipelines from coast to coast in America) but because we would not pay a 3% bribe to the brother-in-law of the Vice President of the state-owned energy company who was conducting the privatization we (and our partner who likewise has been in the energy business in South America for 50 years) were deemed not to have sufficient experience to operate
such a pipeline (they actually said that in making their award and denying my client the award).