Is government competent to do anything the political system decides it should do? Is government always the best available social mechanism to do what ought to be done? Does government naturally serve the public interest? Is government more likely to serve the general interest than other social mechanisms?
If the answer to these questions is "yes" then government should do everything. If the role of government is to "do good" and it is competent to do any good it sets out to do, then there is no limit on the size of government -- there is always more "good" to be done.
Clearly, however, the answer to these questions is not "yes". The "government can do anything" approach has been tried and has been a grotesque failure; an immensely humanly, socially and environmentally destructive failure. If experience has convinced even the Central Committee of the Chinese Communist Party that public ownership has its limitations, then the rest of us can surely get the point. Privatisation is a world wide trend -- between January 1984 and September 1995, in the area of infrastructure alone, 547 firms in 86 countries were privatised for a total value of $US357billion.
Not that we have fully got the point, even yet. In the last 40 years, after adjusting for inflation, GDP per head has doubled, taxation per head has tripled and welfare expenditure (health, education and income transfers) per head has gone up five-fold -- welfare expenditure increasing faster than revenue, the economy and the population is not a trend that can continue forever! We may have given the idea of nationalising the economy, but the trend towards nationalising households is still pretty strong -- the proportion of the civilian population aged 15 and over on government income support has gone from 13 per cent in 1970 to 30 per cent in 1996.
Still, clearly the government is not competent to do everything. So sensible policy is about working out the actual strengths and weaknesses of government action, compared to the alternatives, and the then getting it to "stick to its knitting" -- stick to the things for which it is genuinely the best mechanism available.
We rely on government to make laws, to be the regulator in the public interest. Now, if one is the person being regulated -- the player -- and the regulator -- the umpire -- at the same time, that is a pretty clear conflict of interest. Which is a reason to be sceptical about public ownership -- the clear conflict of interest in being both regulator and producer.
The crucial problem with public ownership, however, is that it is not real ownership. The notional owners -- the public -- do not elect the board, cannot hire and fire the managers, do not have their personal wealth at stake, lack any real incentive (and often the information) to keep track of an individual enterprise's health, do not borrow on the basis of interest rates with any connection to the risk associated with the firms' assets and are not under the pressures involved in the "market for managerial control" of the stock exchange. A central part of the appeal of "public ownership" -- that it is ownership without personal effort or risk, ownership "on the cheap" -- goes to the heart of its problems as a form of ownership.
The government, as our agents, is supposed to do these things for us. Well, it should do these for us, but generally it does not -- or rather, it does not do them very well. For example, the information reporting requirements for firms listed on the stock exchange are far greater than those imposed by government on government business enterprises. It is easier to get crucial information on BHP -- a private company -- than ANL -- the government shipping line -- despite us being the notional owners of the Australian National Line. That is because BHP has real owners (and potential owners) and a great deal of money and effort is put into scrutinising its performance (which has been pretty lousy in recent times -- as the market made cruel comment when it greatly increased the value of BHP upon the announcement of the resignation of the Managing Director, thereby rating his performance as being of negative value to the tune of millions of dollars). No one has the incentive to put anywhere near the attention to ANL (whose performance is truly appalling).
We got an insight into who the real owners of ANL are when the Keating Government tried to privatise it. The key negotiations ended up being between the union and P&O -- the potential purchasers. Our agents -- the Government -- essentially stepped aside. But, then. we are only the pretend owners. The real owners -- the employees of ANL -- were represented by their agent -- the union. Of course, the taxpayers had an interest -- the millions of dollars in ANL's losses we cover each year. Unlike private sector owners, the employees of ANL are not liable for the capital they waste.
That public ownership is pretend ownership is why privatisation typically leads to sizeable cuts in staff numbers -- once the capital invested has real owners, they will no longer tolerate the very wasteful, inefficient and expensive staffing practices typical of government enterprises lacking real owners of the capital invested (the command economies were notorious for this -- hence the joke about "they pretend to pay us and we pretend to work"). Employees of the old State Electricity Commission used to say "SEC" stood for "Safe, Easy and Comfortable" -- given that about 6,000 workers now do what 25,000 workers used to do, they weren't wrong. The dramatic drop in wholesale electricity prices -- making Victorian industry much more competitive -- and the massive drop in State debt -- freeing up funds previously absorbed in interest payments -- are pretty major social returns from changing from pretend ownership to real ownership.
As for government being "our" agents, at each election we are given the choice between a duopoly competing for government (ALP or the Coalition) where we are given one vote to choose between two packages of promises about an immense ranges of issues which may or may not be carried out. Expecting government to be effective commercial agents is just expecting too much -- as disasters like the VEDC, Tricontinental, the State Bank of South Australia and "WA Inc" have showed. The private sector produces its disasters too -- but people consented to risk their capital in that way, the long-suffering taxpayers of those States did not. And the performance of private sector companies with real owners of the invested capital is generally much better; they are generally much more productive users of the resources entrusted to them. But, then, they have the right incentives to be.
Society is better off with real owners of resources, rather than pretend owners. Which is why, privatisation ought to be, and is, a strong global trend.
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