Privatization - Beyond Capitalism

by John Yu
cyu [at] oz.net

What is a government? What makes something publicly-owned and something privately-owned? What is the difference between abolishing government control and allowing each person to rise as his or her own sovereign government?

Privatization is the name given to the transfer of a business from government control to non-government control. The World Bank and International Monetary Fund are two of the most vocal supporters of privatization. The nominal purpose of privatization is to improve the efficiency of government-run businesses - that is, to allow the economy to reap more gain for the amount of effort expended. To achieve efficiency, they argue that government-run monopolies have little incentive to improve their services and thus should be broken up to create competition. A secondary purpose of privatization is as a source of funds for a government's fiscal policy.

The usual method of privatization advocated by the World Bank and IMF is to sell off the businesses to various capitalists. The problem with this approach is that of representation. Governments, even dictatorships, claim to represent their citizens (regardless of whether they do in reality or not). The businesses controlled by these governments at least nominally represent the nation's citizens. Capitalist-run businesses make no such claim - they freely admit to not attempting to represent anyone but their shareholders. They rely on a market economy to ensure that consumers (at least the ones who have the most spending money) are represented in their privatized world. Workers, however, have lost their representation - except alone or in the form of trade unions.

The question of efficiency begs the question, "Efficient for whom?" Who reaps the most gain and who expends the most effort? In the capitalist-run business, with an undemocratic system of pay determination, the clear winner is with the capitalist - much gain, no effort. For the employees who do not hold many (or any) shares, the result of capitalist privatization is just the reverse of efficiency - the results of their effort is concentrated in the hands of financiers.

One alternative is to allow sovereignty to rest with the employees of these companies. In this case, new competition and alternative businesses can still exist, however the distribution of revenue is determined by whatever system the employees agree on (who better to determine how much individual contributions are valued than those working most closely with the results). Efficiency for workers results from the elimination of profits being paid to capitalists. In addition, the transparency required for employee participation in the running of these businesses opens them up to greater consumer scrutiny.

However (a World Bank or IMF economist might object) if these state-run businesses are no longer being sold but merely taken over by their employees, the government loses the money it could have used for fiscal spending. They would instead advocate the selling of these business to foreign investors, so that the government would not only gain money, but money in the form of foreign exchange. The problem with this argument is that it is only a short- term gain. Who would sell a farm for five years' worth of produce, unless they didn't expect to live for more than five years (or didn't expect to be held responsible for their actions after five years)? The handing over of control of these businesses to foreign hands opens up the country to exploitation by those who have little stake in the nation other than as a source of profit. While there may be a new source foreign exchange in the short-term, the long-term effect is the loss of the wealth of the nation as foreign capitalists take profit overseas. Again, a more secure alternative would be for control of these businesses to remain locally with the employees.