What are the pros and cons of state owned businesses?

[Flubber]

Originally posted by Agathon


It depends. Power generation is one area where privatisation has been disastrous in my country. The public system worked very well and provided cheap power without interruption. People didn't realise how good it was until the privatised services started jacking up the price..



I don't disagree, but a well run public utility will always be more efficient than a private one because the private one must make a profit.

I worked on a planned but aborted privatization of a generation company. It was amazing, but every private company that looked at buying was amazed at the layers and layers of top level management. One CEO said to me that they would have to cut 2/3 of the people to approach efficiency and the workloads typical in private companies doing exactly the same type of work.


I will admit that electricity deregulation and privatizatioon has been a downright mess in some places but that does not mean that government ownership is either good or efficient. Your precondition of a "well-run" government utility breezes past the biggest problem with the vast majority of government ownership . . . its generally NOT well run. I do not know the cause of thise phenomenon but it seems pretty rare that a government-run business is seen as being efficient



QUOTE] Originally posted by Agathon


But it doesn't matter as long as everyone is compelled to fund it. Most people are incredibly dumb when it comes to taxation. They all want increased services and a tax cut at the same time (what they really want to do is throw the costs onto others).

No wonder governments have such a hard time - their citizens are venal morons. [/QUOTE]


Actually, here in Alberta, I see less demands put on government than I did down in eastern Canada. Take snow-clearing-- people in Calgary just seem to accept that very few roads get ploughed . .. they seem to understand that this is one of the tradeoffs to get lower taxes.

This attitude permeates in that I find Albertans generally are less likely to look to government to solve their problems. Government is for roads and schools and health-care and even in those areas people are looking for private options

[Panag]

hi ,

any type of public transportation , port authority , etc , .... that cant be in private hands , ......

the rest , it can without a problem

have a nice day

[Kuciwalker]

Actually, I'd like to add something to what I said in my previous post. There are a few companies that should be state-run, not due to essential liberties or anything like that, but simply for issues of convenience and feasibility. For example, the Metro. It's hard to imagine even two competing metro companies, and it would cause many inconveniences, so it's better off just leaving it state-run.

[johncmcleod]

How about this. What if in a state company the better the company does and the more efficient it is the more the management gets paid, but of course the profit still goes to the government. The management of public owned companies is elected. The people would elect them, and the leaders of these companies would be judged on by how much profit they make towards the government, efficiency, and how well they serve the people. The people would want the company to make more profit because that would mean more services and/or less taxes. This would cause the companies to be efficient, profitable, and great for the people.

No one has said anything about insurance. Don't you think you would rather have elected leaders, who want to help the people, serve you, rather than some corporate owner who wants to make money.

[Kuciwalker]

The problem there is that a) it's difficult to measure efficieny and b) the measurement is likely to be "how likely am I to be reelected" (for the senator).

[Az]

Since most of the managers these days are paid employees, I see no reason why can't everything be owned by the government.

[Spiffor]

JohnMcLeod:

The biggest pro of state owned businesses is that their objective is to provide a service, rather than to make money. I.e, it is a way to provide directly a public service to the population without the use of a profit-driven middleman.
For example, let's say the country's interetst (as defined by the democratic government) is to have a fast and efficient railroad, which can be affordable to any citizen. The state-owned railroad company will provide this efficient service (if sufficiently funded) even though the prices are too low for the railroad company to be profitable. OTOH, a private company wouldn't make the costly effort to improve its service, or to lower its prices, because it is profit-driven. In this situation, the private company cannot satisfice the country's interests.

The biggest con of state owned business, as someone else put out, is that they're using someone else's money. It generally leads to a bad and wasteful management. Besides, public companies have generally the same culture as public administrations, as they are very bureaucratic, which adds to the inefficiency. This has to do with the fact that high-ranked politicians or administrators will tend to put a fellow politician or administrator in charge.

The worst thing that can happen to a state owned business is to keep its managerial habits, but to have private-like objectives. That what happened to the French public bank Crédit Lyonnais:
- There was an ambitious boss at the bank, who wanted to turn it into one of the biggest banks in the world. He hired reputed traders etc.
- The State trusted him blindly and poured huge money into the bank, with little to no control over what was done. The guy was expected to do his job like a model civil servant, i.e honestly.
- The strategy was terrible. Hazardous acquisitions, unchecked loans etc. sunk the bank in a few years. The climate was completely lax: so much money being poured and so little control made blunders the norm and successes the exception. In the meantime, the boss gave false reports over the bank's results to the State. And he was trusted.
- The resulting 200 billions Francs lost (about $ 40 billion at the time IIRC) was the worst financial debacle in decades in France. Guess who paid for the losses ? The French taxpayer of course !

[Kuciwalker]

Spiffor, the rail company in your example (the privately owned one) would improve service, because better service = more people ride on your trains instead of competitor's trains = more profit.

However, the person running the state-owned company has no incentive to improve service. He was probably put in place, as you said, by politicians he has connections with.

[Az]

If all the Industry is government owned, you can predict what will be the supply and the demand, and regulate various manufacturing capabilities, the training of specialists, etc. accordingly. The Market is good, in that that it's self-correcting, but it uses resources less efficiently.

[Kuciwalker]

Azazel - it uses resources more efficiently. Just look at the IRS, the Pentagon, any government agency.

EDIT: forgot the flag

[Bugs ****ing Bunny]

Originally posted by Imran Siddiqui
Laz: Or you could use the example of British airliners after privatization (ie, a more favorable example to use).

Not really, given BA's monstrous reputation for dirty tricks and shady business tactics (see Laker, see Virgin, etc....).

[johncmcleod]

However, the person running the state-owned company has no incentive to improve service. He was probably put in place, as you said, by politicians he has connections with.

If he was democratically elected, he would care because the better he did the better chance he had of staying in power.

How come everyone that is at this thread seems to be for privatized business? How come hardly any communists have come? There doesn't seem to be enough argument, most people are on the same side.

[Kuciwalker]

You want to democratically elect business leaders???

How would that work? You'd have hundreds or thousands of simultaneous elections.

And he wouldn't have a better chance of staying in power for doing a better job - he'd have a better chance of staying in power for cutting prices.

[Spiffor]

Any reasonable debate about privatization takes these both aspects into account:

- The necessity to satisfy the public interests where the market can't do it.
- The bad managerial habits of public companies.

Today's 'consensus', at least in Europe, is to have private companies do the job on behalf of the State. This means:
- private companies provide services that would be considered public services
- the State signs the contract only with a company that can satisfy its conditions. These conditions can be extremely precise, ranging from client-prices to technicalities (for example, French private highways are built according the strict orders from the government).
- As such, the State gives subsidies to the private company to compensate for activities willingly not profitable.
- The private business is assumed to have a better efficiency, and on the whole, it is considered the service for the end user will be the same, while being much less costly for the community.

However, this idea is far from being perfect. Several companies will compete to have the market, and the deciding factor will be the price they'll charge. As such, rivaling companies are incited to reduce their costs as much as possible in the many grey zones not covered by the contract. It can lead to cuts in the client's security or comfort, it can lead to inhumane working conditions for the staff, it can lead to overused and aged hardware, etc.

I personally think state run enterprises have a bright future before them, if they keep in mind their public services missions, while having high standards of performance. This means these services should be much less bureaucratic, and that employees should be accountable for their performance, to a reasonable extent.

I don't know about the British Royal Mail, I'd be glad if someone could tell me more about its success.

[Bugs ****ing Bunny]

Originally posted by Myrddin
On the rail service it is privatisation, or is it something else that has wrecked the rail industry in the last 5 years (clue: Prescott., Byers, etc)

It's 10 years of unbelieveable incompetence on top of 20 years of neglect. While it's convenient to blame present politicians, it's hardly realistic to consider them to be the key factor behind the laughably amateurish services provided by Connex and Virgin.