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The bad business of privatisation

  • 13 September 2016


For at least three decades there has been an all but universal chorus about the supposedly unassailable virtues of privatisation. The claim, at once simple and simplistic, has been that businesses are efficient and well organised whereas government bureaucracies are, by nature, unmotivated and poorly managed.

Putting as many government operations as possible into private hands, therefore, ensures that things will run better and society will benefit.

The argument is not merely a stretch; it is in many respects patently false. Proponents of the limitless virtues of markets — often called neo-liberals — rarely stop to notice the contradictions in their argument.

An amusing example was the recent claims by the head of the Australian Consumer and Competition Commission Rod Sims that he had 'lost patience' with privatisation.

The argument for privatisation is based on the claim that the market always produces superior price signals, which leads to efficiency and a better outcome for customers. Yet Sims believes the prices being paid for the government assets are 'gouging'. So the market, it seems, is simultaneously a mechanism for arriving at the right price and the wrong price.

The contradictory conclusion is unsurprising. The problem with the privatisation argument has always been that it is, if not circular — markets are better, private enterprises are in the market, therefore private enterprises are better — at least indiscriminate. There has been little attempt to analyse what business is good for and what it is not suited to.

One area where private enterprise definitely fails is long term stability. The most cursory observation tells us that business enterprises do not last. If there is an expectation that a privatised service should last in the long term, and usually there is, then selling it to business is a bad choice. Very few businesses last longer than ten years and almost none longer than 20 years. A glance at the Australian Stock Exchange reveals just how many companies fail to survive. 

Another area where business is suspect is in the pursuit of profit margins. Even if we accept that business is more efficient — and anyone who has worked in a corporation and observed the savage internal politics and blundering bureaucracy will find such a claim amusing — does the greater efficiency outweigh the profits that are being extracted?


"Such nonsense is not something that would ever be attempted in government because governments do not have investors demanding a return and there is