From what ive read, consumers are definitely not the beneficiaries in such arrangements. Why do governments do this then? Why give up ownership and control of vital stuff (e.g. water, utilities, highways, etc.) to private – and often – foreign entities?
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Control doesn’t go to foreign entities.
It’s just financing, which can be good or bad. On one hand the government won’t have to borrow and tax and operate the utility. On the other hand, the private business is going to want to turn a profit. If it’s just a cost saver it’s an iffy prospect. If it’s used to supplement or expand it can make sense in the face of budget constraints.
In the UK, we sold of British Telecom in 1984.
It was losing money, which effectively cost the taxpayer. Despite having a monopoly on telecommunications.
Since going private, it enabled a huge growth in share ownership for the common person, with ‘retail’ investment growing from 7% to around 24%.
The growth, along with subsequent profits whilst being run better, made profit for these people as well as obviously those who run it. Those profits over a certain point are taxed, along with various other taxes by that money being spent on goods and services.
Privatisation can be good or bad (depending on your perspective and who you are). What we generally see nowadays is bad privatisation (from the perspective of the tax payer).
In most cases, privatization is harmful. In some cases, it’s a way to borrow money without borrowing money. Let’s say, a city sells its parking meters and spaces to a private company. The company pays the government a lot of money now so the current mayor can brag that he balanced the budget. Future mayors have a problem, because they no longer receive revenue from parking meters. If the company raises prices, it feels like a tax increase to residents. It’s like a tax increase where the government gets no money for schools and stuff.
The consumers can be beneficiaries in some ways. The reality is that the situation is far more complicated than we give it credit for. This reality is problematic for evaluating the efficacy.
One reason to privatise something is if a private company can do better and your goal is to deliver the best possible service for those that need it. This is problematic for a number of reasons.
Firstly it assumes immunity from corruption. You have no idea whether those private entities are engaging in some kind of bribery or other corruption in order to get the contract or the sale.
Secondly, what is the motivation/loyalty of the private company? Is it to deliver the best service to the customers, or to the shareholders and if push comes to shove, what’s the triage plan?
Finally, once something goes private, you lose absolutely all democratic control over that entity. Privatisation ultimately weakens democracy and your ability to do something about a bad situation.
This is why there’s a counter argument that anything that’s critical to society should be democratically controlled, which until we can elect the members of boards of corporations means they would have to be nationalised.
MPA here. The short version is that it saves money, at least in the short term, both by reducing the public infrastructure support needed to run it, as well as (theoretically) incentivizing the private entity to do a good job or get replaced.
And all of those qualifier words are necessary because it often works as well as communism in practice: the humans involved *will* fuck it up. Knowing this, why does it keep happening?
The other part that the general public either doesn’t know or refuses to acknowledge is that there’s often not really a choice. Most districts (since cities tend to consolidate these days, also to save money) are broke. They couldn’t possibly pay salaries and states are heavily pressuring them to keep as few people on public payrolls as possible because of the clusterfuck that lifetime pensions are causing after retirement. They’re bonded out so far that they don’t even know what their budget is going to be when they *start* paying down the bonds.
So, yeah: if you don’t like it, pay more taxes and make sure those taxes go toward whatever service you want to keep public (good luck with that). There’s really no other fix.
The main reason behind it is money. But not as a cost saving measure as it’s sold to the public.
A politician has donors. Donors are rich and own companies. Companies that can be used to gain contracts of govt services. So that donor hires a lobbyist, the lobbyist hires a think tank to make up some reasons why a particular service should be privatized that includes massive cost savings to the govt. The lobbyist hands that report to the politician with a wink and a nudge and promises to get him re-elected. The politician shows his or hers party and they all salivate over the “savings” (donations), and start to push for it. Constantly blaming govt for its inherent failures in the process.
If it finally gets privatized, pockets are lined, the donors stock portfolio takes a massive jump, and everyone pats each other on the back imagining how much money the tax payers will save with the new streamlined services.
Eventually, in the name of profits, because corporations care about profits, not services, the quality of the privatized service starts to diminish. Interestingly though, the politicians don’t complain about the inefficient contractors. Instead they stay quiet. Eventually the service is purchased by a new corporation that now must recover the costs incurred by the purchase, so even worse services.
Eventually people start to question the privatized services because it’s no longer what it once was, and the govt buys back the services from the corporation and funds the services with tax dollars.
It’s a basic corporate money grift straight from taxpayers pockets. Kind of like that scene in Goodfellas where the mob forces a restaurant owner to hand over the keys to his establishment because they’ve bled him dry, and then the mob burns it down for insurance money. Except in this case it can’t be burned down, and now it’s a taxpayer burden with much higher overhead than it ever was before it was privatized.
Utilities like water and electricity have huge capital investment costs, to pay for new generation, new reservoirs, power lines etc. whilst the government can of course pay for these out of the national debt, they will always compete with other priorities for funding like defence, education, healthcare etc.
Hiving them off to the private sector allows private capital to fund the expansion, and although the cost of debt may be higher than government debt, the dedicated and focussed operation of the private company means increased efficiency outweighs the extra cost.
The reasons behind privatisation are so government doesn’t have to raise unpopular taxes to pay for investment in essential utilities and services, and can at the same time pretend to be making everyone rich with the IPO’s (Initial Public Offering of shares).
I used to be a proponent of privatisation of essential services but all that happens is overseas companies buy them and take the profits to help fund essential services in their own country.
Take water utilities as an example. UK rivers are regularly polluted with raw sewage because of lack of investment in treatment plants. That government won’t legislate against that or for greater re-investment because that makes utilities unattractive to buy. Meanwhile profits go overseas. That’s how it works. That may not have been the intention, but that is the unintended consequences of the mis-management of privatisation.
My power company and trash service are excellent. Both are private and well run. My internet service (private) gives me an aneurism anytime I have to deal with them. I work for the federal government and our gov health care is absolute garbage at a high cost to the tax payer. The federal government does do well at ensuring I am paid regularly and have job security as well as retirement benefits.
Both private and public services have their strengths and weaknesses. Both are necessary to ensure a functioning society. The service in question needs adequate analysis to see whether privatization or gov is better for that particular service.
I would argue that the American government should take a good hard look at streamlining their systems to get rid of bureaucratic waste. The federal government could solve many of their problems if they just budgeted properly and held the various agencies accountable for their spending. This would free up funds to provide better services for citizens. Unless I missed something, the DOD has never successfully passed an audit for example.
Quite often international aid and loans from the International Monetary Fund, entry into trading organisations, come with the stipulation that nationalised industries have to be privatised. Sometimes with preference given to the powerful countries that demand this. Poor countries have a hard time resisting this even though it’s often an expensive disaster for them and the sell off and running of the service afterwards are normally riddled with corruption; which is in itself another cause of privatisation, corrupt officials who stand to get rich out of it are obviously very keen on privatisation. Finally you have idealogical free market capitalists within the country or coming in from the outside and, although they aren’t doing it to steal or harm, because so much economic theory is founded on pure fantasy and wishful thinking they do almost as much damage as the crooks.
For example after the USSR collapsed Russia was heavily pressured to privatise its state economy in order to gain access to the global market. Western countries sent advisors, some competent and helpful, some, due to pandering to the political/economic right, and soapbox political posturing, and maybe, even, active sabotage, the most rabid Miton Friedmanite extremists imaginable. People who were so far right even the early 90s US and UK governments wouldn’t let them so much as glance at a bank merger at home were sent to reorganise Russia. With corrupt officials, corrupt KGB, the mafia and the advice of those idiots, the voucher privatisation of Russia had no chance and led to massive economic failure and the kleptocracy we have now.
Privatisation doesn’t have to be awful any more than nationalised industries have to be inefficient and wasteful, but there’s a stupid, quasi-religious belief in the “hidden hand of the market”, while actual real world economic forces drive corruption in the sell off and a “privatise the profits, socialise the costs” model in the aftermath.
John Finnemore describes one of the many fuck ups of privatisation in the uk better than I ever could
[https://www.youtube.com/watch?v=HetLxhI1txY](https://www.youtube.com/watch?v=HetLxhI1txY)
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