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The problem with privatization is it often involves granting monopoly powers to a private company instead of opening up the market to private competition. This

• dreta 10y ago
  Monopoly is granted by governments creating laws that prohibit smaller companies from competing on the free market. Quality of goods and services suffer when there’s government protection placed on companies. These are problems the government creates, not private enterprise.
  • pjc50 10y ago
    .. no. The market is not always free or frictionless in its natural state. Especially for big network-based operations like railways. Railways are impossible in a "completely free" market without compulsory purchase. So they end up as at best heavily regulated entities and at worst the strange shell company system of the UK TOCs. Markets are also not naturally free when customers can't sensibly opt out of the use of the service (water, arguably heathcare). Non-market systems may be built for the positive externalities on the rest of society which can't be captured by market pricing (education).
    • dreta 10y ago
      Railways is a completely arbitrary example. If they would be impossible (which i sincerely doubt) without government involvement, the free market would find alternatives. That’s the beauty of it. It’s how progress happens. Education is not an externality, and should be handled by the free market, not the government. Public education is in a horrible state everywhere you go, precisely because it’s public.
      • bsbechtel 10y ago
        It's unfortunate you're being downvoted here. The market for railways is not railroads and trains, it's transportation. People and goods will find the most efficient way to move around regardless of government involvement.
        • deleted 10y ago
          [deleted]
        • adamlett 10y ago
          People and goods will find the most efficient, available way to move around. Regulation can sometimes make more efficient ways available where the market cannot.
      • Malarkey73 10y ago
        (IMHO) Absolutely everything in that response is completely wrong: 1. Railways are a real and concrete example of wrongheaded privatisation. 2. More congested roads are not an alternative to efficient rail services. 3. The greatest technological innovations of our time from cancer drugs to satellites to the internet are spin-offs from government funded research. I could bore on all day about this... 4. A good education system is an externality in that society as a whole benefits from highly trained doctors, engineers and even in my view artists and poets. It is a profoundly social enterprise that we all have a stake in. 5. Public education maybe messed up in the US (I don't know it well) but it's doing just fine through much of Europe and the UK - or even in profoundly free market economies like Singapore. Indeed the UK in particular where the tensions in education exist over school placement and better/worse schools within the public system illustrate that educational variation is usually down to social status and economics - not public ownership.
        • icebraining 10y ago
          3. The greatest technological innovations of our time from cancer drugs to satellites to the internet are spin-offs from government funded research. I could bore on all day about this... Of course. The rich use the State to publicly fund research (socialize losses) which they then commercialize and profit from. Otherwise they'd have to actually pay for the research themselves.
    • saosebastiao 10y ago
      Railroads are not impossible...just unlikely. There are a handful of railroads that were built using entirely private negotiation.
  • matt4077 10y ago
    https://en.wikipedia.org/wiki/Natural_monopoly https://en.wikipedia.org/wiki/Natural_monopoly
    • gravypod 10y ago
      It is my opinion that many organizations that you would consider a "Natural Monopoly" can, by nature, only provide a fair service/cost without being optimized out by the free market. The two examples provided in the wiki page are not what I'd consider to be concrete: - Electricity: Solar Panels will replace these companies when they provide a poor enough, or expensive enough, service - Water: Allow people to tap wells on their property. Put them in charge of their own water. You can also run your own septic tank.
      • tomp 10y ago
        Your examples aren't well thought out. Solar panels can't provide electricity at night, so you still need a network (for the time being - hopefully batteries change this sometime soon). Most properties don't have wells, especially in the cities, so you'll always need a functional water network. Networks result in natural monopolies, unless correctly controlled/legislated.
        • gravypod 10y ago
          Batteries change this currently. Many people I know have solar installations. And as for well taps, each building network can tap their own water.
• pabloski 10y ago
  This and there is another reason why privatization creates inequality. It is a proven method for the oligarchs to rob public assets. First they put their friends as key figures of a public company. These people let the company rot, so its price on the market goes down. Then the oligarchs buy it at a ridiculously low price. They even made it with an entire country: Russia. And this is why they ( the western backed oligarchs ) are screaming against Putin ( and the oligarchs backed by him ) since then.
  • tomp 10y ago
    Another country where this was done almost successfully is Slovenia. But then the Great Financial Crisis happened and the "ridiculously low price" actually turned out to be too high as the companies started going bankrupt.
• vintermann 10y ago
  Privatization can be a problem depending on how much competition there will be, and how efficient existing arrangements are. Prices can only be squeezed so much. Some people act as if unlimited competition will drive prices to zero, but it won't - it will just drive it asymptotically closer to the marginal cost of production, which isn't necessarily all that far away from what you pay today. And on the way towards that limit, unpleasant things can happen. The benefits of "cheating" of all sorts, from reading the tender specification like a malicious genie to tax fraud and worse, grow higher the closer you get to the marginal cost of production boundary. At some level of competition, the cost of policing - keeping actors honest - eclipses the savings.
  • candiodari 10y ago
    And government control is no guarantee of low prices. Real estate in China would be one example, or oil prices would be good examples. Real privatisation (meaning not a granted monopoly) is as close as we seem to be able to get to good prices, choice, and some incentive for these businesses to do well. How that can be implemented in practice is often a tough question, mostly in the industries most complained about : phone, cell, internet. All of which has government or private monopolies in the chain, and in virtually every case those are the source of the complaints. But no worries: in Australia the NBN (the new government monopoly) is/was going to fix everything ! Of course, now the government is fucking with it and serious cracks are showing : it seems to create an unfair advantage for the incumbent telecom operator, who doesn't seem to be paying the same prices as everybody else ... (and of course it's the fault of party X, never mind that now both parties have messed with it)
• jhoechtl 10y ago
  > because those providing those goods and services don't have an incentive to do a good job For me it's more like because those providing those goods and services don't have the sufficient time and resources to do a good job. It's someone behind me telling me that worse is better, good enough is fine and acquire instead of finish.
• usgroup 10y ago
  Put this way, the relationship where A squeezes B can still hold regardless of whether A is an single company, many companies or a whole industry. Examples abound. Unleashing the market provides no magic bullet. This is especially true when there only 1 customer for the service and it's long term contract based.
  • rayiner 10y ago
    In theory, when there is only one customer for the service, prices will be artificially low, not artificially high.
    • usgroup 10y ago
      Assuming the supply is competitive sure ... Otherwise you're in the worse of both worlds.
    • xg15 10y ago
      But when you privatize a public utility you have many customers and a single provider - the exact opposite. Hence higher prices and/or worse service.
      • r_smart 10y ago
        The top level comment was pointing out that privatization isn't necessarily the issue, it's that the government picks one company, and hands them a monopoly. That is what creates the situation you're describing. I have no idea why it's done this way (without devolving into pure cynicism). I guess maybe it's easier to administrate? And it allows the government to technically still own the utility, which they've just farmed out? Once you let a bunch of businesses take over, you're never really getting it back. The real answer is probably just: Laws.
    • r_smart 10y ago
      As a clarification: You mean in the absence of a negotiated contract that allows the price gouging the government often gets handed in the deals it negotiates, yes?
• richmarr 10y ago
  Absolutely agree. Markets are great when they meet the conditions for proper competition; and privatisations frequently occurs in sectors that don't meet those conditions; e.g railways.
  • glormph 10y ago
    Markets are also problematic where customer feedback (money) is not rewarding quality increase (e.g. when teachers are rewarded when setting artificially good grades).
    • icebraining 10y ago
      That's balanced by the fact that the certificate of learning will be valued less. If that doesn't happen, you should reconsider whether people are actually purchasing an education, even if that's what it looks like.
      • glormph 10y ago
        The balancing may work if you have a degree from a university known for inflated grades, but consider a system where your highschool degree of a certain type automatically qualifies you for university education. Grades do not matter anymore but the students with inflated grades may have had a worse preparation for higher education. Edit: in my example the university could change from accepting all students with correct diploma to doing admission tests to resolve. I know nothing of the feasibility of this though.
        • icebraining 10y ago
          Grades do not matter anymore but the students with inflated grades may have had a worse preparation for higher education. Then people will choose their high school depending on whether they need that extra preparation, and those schools will have more students or be able to charge more.
          • 10y ago
• imagist 10y ago
  > The problem with privatization is it often involves granting monopoly powers to a private company instead of opening up the market to private competition. Private competition almost always ends in monopoly or trust anyway. Private competition isn't a stable state. When two companies are competing, both are trying their best to put the other out of business. It should be no surprise at all when that eventually happens. Monopoly, on the other hand, is a stable state--it takes extraordinary circumstances, usually government intervention, to overturn a monopoly. Even if a small competitor manages to eat a chunk of a monopoly, the monopoly company can simply buy them out in most cases. Giant corporations can even become unassailable by government, as their wealth allows them to lobby for laws that favor them. The alternative is for corporations to form a sort of truce, where they don't touch each other's slightly different markets, effectively granting each other a monopoly in each other's areas. The clearest example of this is cable companies not laying cable in each other's territory, but there are plenty of other examples--Coke/Pepsi, IBM/Intel. This is also a stable configuration which is more sophisticated than a monopoly. The benefit to corporations is that it reduces their risk--having to overturn competitors means taking the risk of overplaying your hand--but there's no real benefit to consumers. So ultimately, I'm not sure it makes sense to say that monopolies are the problem and not privatization. Privatization ends in monopoly.
  • saosebastiao 10y ago
    This is entirely false, and there are stacks of economic literature spanning a 200 year timeframe and covering every economic ideology that have explored why it isn't like that, and surprise surprise there actually is a consensus. High barriers to entry are the cause of natural monopolies. And not every industry has high barriers to entry. And oligopolies and collusion have never been stable.
    • wfo 10y ago
      Ironically in simultaneous parallel to the 200 years of economic literature we have explaining why it isn't like that, we have 200 years of recorded history explaining why it is like that. When scientific theory and facts come into a disagreement, theory walks away defeated. But when economic theory and facts come into a disagreement, the opposite occurs -- the facts must be reinterpreted properly to fit the theory, of course, so economists may continue on as highly educated cheerleaders for wealthy capitalists. Oligopoly and collusion is nothing more than a succinct description of actual economic history.