Tuesday, September 23, 2008


Privatization is a divisive issue.

The term refers to taking something that was owned 'in common' or by the state, and granting ownership to a private individual or firm.

One famously controversial example is the British enclosure movement of the mid-1800s.

Village common land was 'enclosed' with fences and turned into private properties. What had been places where anyone could go for a walk, grazing or firewood became exlusive property.

Those for enclosure argued that the land was being used very inefficiently. The tragedy of the commons is that when the land may be freely used by all people, no people will take care of it. This is a good point. Much of the land enclosed was in very bad shape, and was not being used with any semblance of agricultural efficiency.

Those against enclosure pointed out that the community was losing rights and privileges that were important to it. This is also a good point, and one which it is difficult to overstate. For example, largely as a result of the enclosure movement, there were no green spaces available for working class Britons for much of the 19th century. Imagine a life with no greenery, no parks, no walks, no fresh air. (This is before modern sewage treatment, as well.)

Nowadays, the privatization argument is likely to center around national industries. Perhaps the government owns an electric company, and is thinking of selling it to the private sector. Or maybe a government decides to purchase a controlling share in what had once been a private investment firm.

Those for privatization argue that government industries are often poorly run and ineffective. There are a lack of incentives to excel, and a surfeit of red tape before anything can get done. The pro-privatization crew has a point, as I can attest from personal experience.

On the other hand, those against privatization argue that a private company will care only about profits. Everything else, possibly including things that the community cares about (such as non-agriculturally-efficient garden spaces and grazing lands) may be lost.

For a long time, I thought privatization with government oversight was a combination that should work most of the time. If the community, hopefully represented by the government, is so concerned about garden spaces (say), then simply include their maintenance as a clause in the purchase agreement. If the garden spaces are not kept up, the land reverts back to the government.

These days, I'm not so sure this is a good idea.

IF the government representing the community and the firm have identical goals, then I continue to believe that the firm will be able to do the job far more efficiently than government.

The problem is that the goals of government and the private sector seldom overlap.

If the community owns land through the government, then there's a good chance that the government will do a half-baked job of fulfiling its objectives.

If a private firm owns the land and signs an agreement with clauses imposed by the government, then it will fulfil the letter of the contract very efficiently... but ONLY the letter of the contract, and only if it can't find a legal loophole that will allow it to slip out of the clauses that lower its profits.

My current opinion is that in many cases, a government that honestly tries to achieve the community's goals but does so inefficiently is a lesser ill than a private firm that fulfils the community's goals in an efficient but perfunctory and unwilling manner.

Advocates of privatization would probably agree that privatization brings the most benefits when government is inefficient, or when the private sector is very efficient. Unfortunately, a government that is inefficient at handling a resource is probably also inefficient at ensuring that the provisions of a contract are met. A firm that is very efficient at running a resource is probably also efficient at evading inconvenient regulations.

In other words, the very times that privatization is most helpful are the times when non-profitable community goals are the most endangered by it. The combination of a high rate of enclosures, competent landlords and incompetent monitoring certainly helped to make the village green vanish for nearly a century in the United Kingdom.

I'm not greatly attached to my opinions, so it's entirely likely that I'll be of a different mind next month, if not next week.


Mithrandir said...

I find the key problem with privatization is that some parts of government can be privatized effectively to run like a business yet others cannot. BC Hydro can be an effective business by itself if there are certain regulations which must be followed. I don't see how social services can be run like a business. It is funny how BC Hydro is under government control yet Community Living BC is private.

Hyel said...

There was a movement towards privatisation of healthcare in Finland before I left it, and schools (all government-owned, free and efficient) were closing down and stuffing more kids into a single classroom, because of cuts, I expect. Healthcare was mostly handled by state and, save for hellishly long waiting lists and, as a result, waiting rooms stuffed with people with bad flus who needed a doctor's note for work, it was a high quality service and I applauded it and distrusted private doctors who always charged more than I could afford.

Now I'm in Belgium. Belgium is stuffed with doctors. There's one in every street corner. The system is, you get one GP you keep going back to, and make your own engagements with specialists, there are no impossible waiting lists, the visit only costs around 20-60€ (same as government healthcare in Finland) and you get most of it back from the insurance. Insurance for a year costs about 70€ and there are many different health care "mutualities" to choose from that, obviously, compete with each other, which is probably why the price is low; that, or because there aren't too many and everyone still belongs to one, meaning they must be raking it in nicely. It works beautifully - but of course, if there were less doctors (and if schools cut down on the production of medical doctors as a result of the surplus this might happen in the future) it would drive the price up. Basically, then, Finland needs a lot, lot more doctors in order for the privatization of healthcare to be a good thing for the people.