Tuesday, August 09, 2005

Privatization

Jordan at Just Left tells us about labours new campaign to attack National in regard to its potential to sell assets.

As Gooner points out however both the desire to sell assets and this sort of a campaign to keep them are both nonsense and knee-jerk.

"Asset sales are silly. We should be keeping all our state assets. We should definitely not be flogging off state assets to overseas owners.

However, state liabilities should be "gone by lunchtime". On trade me if necessary."

I have to make two arguments here one for the right and the other for the left.
First for the Right

This is the simplistic way of saying if the government can use the assets well enough to make money then why would they sell them? It would just remove an income stream that would have to be replaced by taxation in the long run. Governments have certain advantages over private companies in terms of economies of scale and ability to coordinate strategies and trust from the public as well as the fact that they may just by chance have put in a very good team better than the likely private replacements so it is possible it would be economically foolish to sell assets.

Now for the Left
there is no point holding onto assets that are haemorrhaging money - and it may be a bad idea even if it makes less money than the interest rate - this is because the opportunity cost must effectively be made up in taxation or cuts to other services. This is quite likely for a loss making company because private enterprise often has better incentives to be profitable and may well have other advantages like technology.
A private company may be able to run a loss making industry better and then achieve the government's aims as well as saving them money which can be spent on lets say health. If the government gets really desperate at any stage they can renationalize or just pass regulations to force the company to behave.

1 Comments:

Blogger Toonpi said...

sure sure

I agree with you

10:55 PM  

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