Government companies

Government companies

There was a time, at the peak of social democracy’s domination, when nationalization was a trend. Then privatization became a trend. Political and economic trendies have a superficial attitude like all other trendies. Nationalization and privatization should not be a trend but a best response to unique circumstances. In some instances, privatization is good and in others nationalization is good. Nationalization usually is in cases that the private sector in unable to keep a company alive. The taxpayer will bear the financial loss so that jobs would not be lost or an important for the economy company will keep operating.

Private companies charge a price for the service or the product the produce to the buyer. When they are nationalized the charge remains. Some of the services that the government provides get paid by the users. Examples may be postal service, utilities and telecommunications. Most services are free and get paid indirectly by the taxpayer through taxes. If there is no charge, we cannot tell if it operates at a loss, break even or profit. Except administrative duties, public sector has limited production of services like policing, national defense, education and health services.

Public sector could be as productive as private. It is usually less productive for many reasons, stealing, wasting, poor organization, ineffectiveness, inefficiency. Effectiveness is doing the right thing while efficiency is doing things right. Combined result in productivity which getting the most output from input and is usually measured by output/input. The cost of education per student is approximately education expenditure/number of students. The matter is not quantitative but qualitative as well. In education, some public universities are among the best in the world. If public sector became as productive as private, it would be actually cheaper because usually private is for profit and public non-profit

There is a simple explanation why public sector is less productive. Nobody cares. In the private sector everybody cares. Shareholders care most of all because they will lose their money. Management will lose their jobs if the company does not do well. Employees will lose their jobs if the company becomes insolvent. Companies can only operate for a while with losses. In public sector none of these happens. Companies and organizations keep operating with loses. Taxpayers lose money as a whole. Management and employees keep their positions.

Usually the larger the state, the more ineffective and the more theft and waste incur. Of course, these phenomena can be observed even in a small state. Size is not the only factor that determines the inefficiency and ineffectiveness of public sector but it is an important factor. If the state is indeed unproductive, then the greater part of the economy is under state control, the more unproductive the economy is. If a company is unproductive, it is the shareholders problem. You are not obligated to become a shareholder. If the public sector is unproductive, it is the taxpayer’s problem. You are obligated to pay taxes, there is no option of not paying.

In parallel systems it was proposed that government could have means of production only to assist the very poor. In this case, it does not matter if public sector is less productive but whether the company or organization can break even because there will be no burden for the taxpayers. Even a loss may be tolerated because the alternatives may have larger cost for the taxpayers. They would have to pay for unemployment benefits, negative taxation and income redistribution.

There are situations where the private sector is unable to make the appropriate corrections. One situation is that the private sector does not have the capital required for the appropriate investment, if it is big enough. Another possibility is that the private investor does not want to take the risk involved. The public sector does not have these problems.

Government investment is a way to boost the economy. It is done indirectly. Government spends in infrastructure and through multiplier effect it will spread to other sectors of the economy. In this way the segments of the population and sectors of the economy that need the most assistance are not targeted.

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