Saturday, January 26, 2008

Easton on Privatisation

This week's Listener has an interesting piece by Brian Easton on The "P" Word - privatisation - in which he hooks into both the history and ideology of privatisation in New Zealand:

Sometimes a private monopoly under rigorous regulation will give a better outcome. Sometimes production can be a combination of public and private supply. That was the idea behind public-private partnerships (PPPs) where the private sector provided the capital (say, a school or hospital) that the public sector used. I may be seeing biased samples, but whether they come from Australia, the UK or the US, many of these arrangements have been a financial disaster to the public purse because the risks were stacked against it. Too often the private provider had little incentive to minimise that risk.

Unfortunately the pro-privatisation side of the debate is dominated by business advocates, or their acolytes, who are the beneficiaries of the transfer from the public sector. They claim that privatisation generates greater efficiency, but there is surprisingly little evidence of this. An OECD survey concluded that the efficiency gains came from corporatisation when the government tightened up the running of the public enterprise.

Gains from selling such businesses were much less clear. If there are no national gains from the privatisation, the considerable private profits are made at the public expense of inferior services, higher prices and running down the capital asset. That is what happened in the 1980s and 1990s. Not a few of today’s millionaires were the beneficiaries.

As for the theory that private businesses are more efficient than corporatised public enterprises because their managers are under greater pressure from the threat of a sharemarket takeover, it has no adequate empirical underpinning. Recently, one of its proponents, Michael Jensen, seems to have backed down, because firms behaved differently when his theories were put to the test.

Unfortunately, that evidence doesn't seem to have reached the National Party, who still advocate part-privatisation of New Zealand's infrastructure monopolies and oligopolies on exactly those grounds. But then, that seems to be more about transferring revenue from the government to private pockets, rather than any real concerns about these businesses (which return massive dividends to the government) being run "badly". Easton reaches the same conclusion:
General privatisation is not a policy. It is a substitute for a policy, an excuse to dole out generous returns to one’s friends at the expense of the public.
This sort of looting of the state is not something we should permit to happen again in New Zealand. But preventing it means either refusing to elect National until it swears off any attempt to enrich its friends, or ensuring they are saddled with a coalition partner who will pull the plug at the first sign of such corruption.