Privatisation – the Myth



One of the main tenets of neo liberal politics is the mantra that government is inefficient at running business (in fact it’s pretty inefficient at most of the things it does!) the private sector can do it better and that most government run industries are loss making anyway so to continue running with them must maintain high taxation levels.

There has been lots of privatizations, governments from the UK to the Philippines have “sold off” all sorts of things—electricity generation and transmission, water, railways, prisons, coal mining.

The UK even privatized its probation service, apparently with disastrous results. Come to think of it most of the much vaunted privatisations end up with if not disastrous, at least unsatisfactory results—for the end user, you and me.

So if governments sell things off its not unreasonable to ask where the money goes that government earns from the sale? There seem to be two options, it can be used to decrease taxation or it can be used to reduce the national debt. But taxation does not decrease as a result of wholesale privatization, nor does national debt. By selling off the assets government loses the income from that asset which prior to privatization would have been used to service whatever debts the nationalised entity had. So in a privatization government retains the debt payment obligation but turns over the potential income stream to the private sector because it must be assumed that no private sector business would take over the debts incurred by the entity prior to privatization.

By this thinking the state retains the debts of the nationalized entity to the point of its sale and turns over the income stream to the private sector which then reduces operational costs by reducing the labour force and possibly cutting corners on maintenance activities in order to deliver according to much research which has been done on the topic, a poorer quality service at higher cost to the consumers and subject to the fickle forces of the stock exchange and institutional investment. “Produce and maintain a good return or die.” In order to achieve a sale the state may actually have to subsidise the private sector in return for the private sector taking the non-performing asset off its hands. In the case of Philippines electricity there is no state subsidy, the consumer is forced to pay the astronomical costs levied or simply do without power.

All that government actually gains by privatization is an end to continuing losses, but as a large part of such losses is brought about by servicing past debts incurred (the scale of such past debts is exemplified by the interest payments of about $300,000 to P14,000,000/day which Philippines government paid for 30 years in respect of the Bataan Nuclear Power Plant, abandoned in 1986 when nearly complete, an act which to my mind totally messed up the Philippines power sector) the state continues to carry a big burden.

Privatisation is good news for private sector investors and bad news for everybody else. So why do responsible governments do it? It is a mantra of the World Bank and its satellites thus less developed countries cannot challenge the mantra for fear of avoiding coming under IMF supervision, and it is a policy which can be spun politically as a good idea—the state sells off non-performing assets to the private sector “which is much more efficient and subject to the competition of market forces, so the cost of maintaining the state [taxes]will be a lesser burden on the citizens and what is more, competition will ensure that consumers get better service at lower cost.”

Problem is it doesn’t really work like that. It is in most cases a flawed policy, even leaving aside the way that market competition works particularly in the Philippines, but also elsewhere.

Mike can be contacted at


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1 Comment

  1. Amnata Pundit on

    Now that you’ve had your epiphany, and congratulations for it, perhaps you can follow through by asking who benefits from privatization if it is not the people, and why would the World Bank and IMF push for it if it is a flawed policy especially since we know the people running those two entities are not idiots. Actually, it is the lynchpin in the money lenders’ ideology, and I am referring to the banking mafia that lends money they merely create out of nothing that people pay for with real blood, sweat and tears. Combine this with your realization as stated in your column sometime back that banks do not lend real money, they just create IOUs to each other- they manufacture debt- then it becomes clear that the world’s powers that be, namely the moneylenders who else, are just conning us to be their debt slaves, and do-gooders like the WB and the IMF are fronting for them! BTW, Marcos opposed privatization, deregulation and import liberalization, policies that were enthusiastically promoted by the yellow regime starting with Cory Aquino. The American-led West’s opposition to him had nothing to do with the false political gods called democracy and human rights but with economic ideology. Marcos opposed the money lenders’ ideology while the Yellow regime that replaced him are happy to watch the money lenders sodomize our people. Its that simple.