Privatisation works

Professor William Megginson in the print edition of the NBR:

“. . .  privatisation ‘works’ in the sense that divested firms almost always become more efficient, more profitable, financially healthier and increase their capital spending.” . . .

. . . “You certainly have variation – in that it doesn’t always happen – but on average, across countries, across time, the financial and operation performance of privatised firms is significantly improved.”

Opponents of privatisation highlight past failures and use them to argue against any more asset sales.

Prof Megginson shows they are wrong.

That not every asset sale in the past went well is not a valid argument against any in the future.

We should learn from past failures to avoid repeating mistakes but we shouldn’t let them be used to justify opposition to any and all privatisation.

10 Responses to Privatisation works

  1. Richard says:

    1.Privatisation only works if there is competition in the market and the playing field is level. If you are alluding to the privatisation of the electricity market, the is much to be done to unravel “Mad” Max Bradford’s reforms before the sell off of Government shares in electricity companies.
    2. Government’s role is to provide the country’s infrastructure, roads, communications, power, etc to support the economic growth.
    3. The problem we have is that government, once they decide to privatise core infrastructure services, they interfere. Telecom – is a perfect example.
    4. Rail, is a different example. Sold to the private sector, milked, no investment, purchased back by Government- eventually, at an uneconomic price. Might go somewhere—we will see. Rail had/has competition- the road-subsidised by government.

    “Opponents of privatisation highlight past failures and use them to argue against any more asset sales.” does not wash with me- please clarify.

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  2. gravedodger says:

    One thing the socialists hold dear in the debate on getting government out of business is the loss of opportunity to use the government commercial arms to distribute largesse for political ends and buy votes with FREE services. The kneejerk response of Leckie, the education sector unionist with his rant against the PPP pilot on the North Shore was a classic uninformed, misdirected, ineffective rant in the media and not questioned by the forth estate.

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  3. homepaddock says:

    Richard- “Opponents of privatisation highlight past failures and use them to argue against any more asset sales.” should be read with the Professor’s staement that “You certainly have variation – in that it doesn’t always happen – but on average, across countries, across time, the financial and operation performance of privatised firms is significantly improved.”

    i.e. just because the privatisation of some assets had problems doesn’t mean that privatisation per se is wrong.

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  4. Dave Kennedy says:

    I agree with Richard, privatisation works best in commercial markets where monopolies and price fixing can be avoided and good regulation and monitoring provides safety nets and protections for consumers

    There are places where privatisation works and many where it doesn’t and the key areas where privatisation shouldn’t occur is in the provision of core public services. Education, health and welfare do not work well under commercial models. The countries that do these best internationally are those that have higher taxation and large public services, like the scandinavian countries. The United states tends to be well down internationally for their access to consistent health care for all their people, for their levels of academic achievement and their management of welfare and justice. Why would we want to replicate them?

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  5. Roger Parkinson says:

    When both sides of the argument resort to anecdotal evidence then we need a serious study analysing what actually does happen to privatised enterprises as well as what happens to those which aren’t.

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  6. Bearhunter says:

    Can someone point out the success stories of privatisation? I can’t think of any off the top of my head.

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  7. homepaddock says:

    Most businesses are private Bearhunter and the good ones succeed.

    As an example (and this isn’t one which anyone has suggested selling) Landcorp makes a pitiful return on investment (.6% on $1668.7m in then 09-10 year).
    Wouldn’t it be better to sell the farms and either use the money to reduce debt or invest where it would give a much better return?

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  8. Richard says:

    Roger,
    I agree with you. Surely there is knowledge out there that would indicate which enterprises would work if privatised.
    Ele, my concern is that the government will go headlong into privatising e.g. power/electricity, only to find it does not work.
    I not against privatisation. Its an attractive idea. But prove to me that it will work. A major concern for me that would be that government once an entity was privatised, the potential gains are lost by government interference and additional legislation.

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  9. Richard says:

    HP, Landcorp. Agree, sell. But put up the case for selling all government shares in power entities.

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  10. Bearhunter says:

    I agree on Landcorp, I’ve never worked out why a government should also be a farmer, but to turn your question around a bit, given the poor history of privatising public assets, it’s a bit like doing the same thing over and over again and expecting a different outcome.

    In the three countries I have lived longest, I have rarely if ever seen a successful privatisation that led to lower prices, increased benefits for the public users or anything other than the enrichment of shareholders.

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