Privatization is the process of transferring ownership of a business, enterprise, agency, public service, or public property from the public sector (Government) to the private sector. It may also mean the government outsourcing of services or functions to private firms, e.g. waste disposal or water distribution but could as well include activities such as revenue collection, law enforcement, and prison management as is done in other parts of the world.
In Barbados, privatization is a frightening “P” word, the fear of which has won an election, but has resulted in the Government being “hoisted high on its own petard” so that it cannot now “P” despite increasing pressure caused by a recurring massive deficit and a ballooning mountain of debt.
The Government’s choice of “P” or bankruptcy is a Scylla and Charybdis story (a choice between two extremes) resulting from the plethora of (30+) unaccountable and under-performing public agencies which are costing hundreds of millions in tax payer dollars each year. Instead, the Government fiddles by printing money rather than “P”ing.
A couple of years ago, the minister who had been responsible for GEMs of Barbados referred to the GEMs malperformance by saying that “the Government cannot run anything”. So why are they persisting?
A 2014 Report on the “rationalization” of the 30+ Government agencies which the Government promised to release to the public since April 2015 has been kept hidden. That leads us to conclude that the Government does not want us to know what it contains/recommends.
Studies and experience show that private enterprise can more efficiently deliver many goods and services than governments. Over time this tends to lead to lower prices, improved quality, more choices, less corruption, less red tape, more jobs and/or quicker delivery. Why is this?
1. Bureaucracy or centralized decision-making in state-run agencies reduces efficiency and increases costs. Some scholars suggest that the cost of bureaucracy was one of the reasons for the fall of the Roman Empire. It has also been the downfall of communism and socialism;
2. Increased efficiency –– Private companies and firms have a greater incentive to produce goods and services more efficiently to increase profits;
3. Specialization –– A private business has the ability to focus all relevant human and financial resources onto specific functions. A state-owned agency does not have the necessary resources to specialize its goods and services, frequently using a “milch cow to run a horse race” because it will also give milk . . . or worst yet “flogging a dead horse”;
4. Corruption –– A state-monopolized function is prone to corruption; decisions are made primarily for political reasons or personal gain of the decision-maker (i.e. “graft”), rather than economic or financial ones. Examples of this abound in Barbados;
5. Accountability –– Managers of privately owned companies are accountable to their owners and/or shareholders and to the consumer, and can only exist and thrive where needs are met;
6. Goals –– A government tends to run an industry or company for political goals rather than economic or financial ones;
7. Capital –– Privately held companies can sometimes more easily raise investment capital in the financial markets when such local markets exist and are suitably liquid. State-owned industries have to compete with demands from other government departments and special interests. In either case, for smaller markets, political risk may add substantially to the cost of capital.
Opponents of privatization believe that certain public goods and services should remain primarily in the hands of Government in order to ensure that everyone in society has access to them (such as law enforcement, basic healthcare, and basic education). Some national constitutions in effect define their governments’ “core businesses” as being the provision of such things as justice, tranquility, defense, and general welfare.
However, the concept of common good (in the public interest) is seriously undermined by the poor performance of the bureaucracy e.g. Civil Justice or the lack of it in Barbados. Furthermore, a democratically elected government is accountable to the people through a Legislature, Congress or Parliament, and is motivated to safeguarding the assets of the nation. The profit motive may be subordinated to social objectives. Unfortunately this accountability does not apply to the State’s employees or civil servants who have neither reward nor sanction as incentive for performance.
A major concern with privatization is also the concentration of wealth. Profits from successful enterprises end up in private, often foreign, hands instead of being available for the common good. On the other hand, where is the common good available from our poorly performing bureaucracy? Furthermore, young potential entrepreneurs need opportunity to capitalize on their talents.
Government’s widespread activities and monopolies will stifle and suppress that opportunity not only inhibiting the concentration of wealth but also its creation which is most important if we want to improve the wealth status quo and have it spread wider. Experience in other countries shows that while the concentration of wealth initially seems to be the result, wealth creation and distribution win out over the long term so that privatization needs to be supported with some “faith”.
It is acknowledged by many studies that there are winners and losers with privatization. The number of losers can be unexpectedly large if the method and process of privatization and how it is implemented are seriously flawed. For example: lack of transparency leading to state-owned assets being appropriated at minuscule amounts by those with political connections; absence of regulatory institutions leading to transfer of monopoly rents from public to private sector; improper design and inadequate control of the privatization process leading toasset stripping. Transparency, regulation and control are therefore key to nationally beneficial privatization.
There is also the concern over job loss. Due to the additional financial burden placed on privatized companies to succeed without any government help, unlike the public companies, jobs could be lost over the initial short term to keep more money in the company. Over the longer term, however, the economic benefits end up creating many more jobs. Again some “faith” is required.
Finally, the concerns of the National Union of Public Workers (NUPW). Their membership will likely decrease as a result of privatization and they have to accept this. Especially since the union has done nothing about their member’s poor performance by taking the position that this is the job of public sector managers, not theirs. The NUPW’s loss will be the gain of the other unions and the country as a whole.
It would be a pity if they selfishly pushed the country closer to bankruptcy. Both the union and its members stand to lose either way!
(Peter Webster is a retired Portfolio Manager of the Caribbean Development Bank and a former Senior Agricultural Officer in the Ministry of Agriculture)