Privatisation turns liabilities into assets

Article by John Blundel in The Business

WHERE else could we learn that Mongolia is to sell off its nationalised circus troupe? The Camel Wool Company of Ulan Bator is also coming to market. I know nothing of their wines but it has to be good news that Kosovo’s vineyards are being privatised. I am heartened to learn the factory that produced those millions of bronze busts of Lenin at Sherematova, near Moscow, is now making busts of great names of the Enlightenment, including my hero Adam Smith.

I learn these little nuggets from my monthly mailing of Privatisation Watch, a newsletter from the Reason think tank in California that eavesdrops on the practice of liberalisation around the globe. It has a bias towards the experiences of North America but it picks up deliciously obscure morsels too.

The French navy is contracting out much of its sub-Arctic island Kerguelen. Private prisons in Arab nations have zero torture and deg-

radation, unlike the state-run ones. Stunted by state-owned monopoly telecom companies, millions in Africa are being liberated by mobile phones and lives transformed.

We ought to applaud the first stock market flotation by this government – that of Qinetiq, the Ministry of Defence’s laboratories, which have now been subjected to the mysterious processes that convert loss-making companies into profitable ones. This is a profound alchemy.

Britain once led the way in privatisation. After the opera bouffe of the Falklands War, a reinvigorated Conservative government under Margaret Thatcher got serious about selling off the state’s sleeping assets. Having been timid, it suddenly was emboldened to bring so many nationalised industries to market it created a phenomenon that was picked up and copied around the planet. Companies such as British Airways, British Gas, British Telecom, British Steel, British Rail and other former monoliths were all sold off.

But today Britain no longer leads the world. Everyone is doing it. It is not possible to construct a league table of privatisation enthusiasm but Estonia – a mere Soviet province 15 years ago but which has since discarded its state assets with alacrity and joy – must make any shortlist.

Privatisation Watch is an inspiration. It is rich in comedy too. I cherish the notion of the teacher unions that argue school choice cannot work as the parents, educated at municipal schools, are not literate enough to exercise choice. I cannot but giggle to learn that Fidel Castro, devout Marxist, has personal assets above $500m. He should be privatised; in time he will be.

The team at the Reason Foundation that produce this inventory of pleasure is not uncritical. Replacing a state monopoly with a corporate one is scant improvement. The authors are critical of the creation of BAA out of the Department of Transport’s top UK airports, including Heathrow and Gatwick. They argue instead that the airports should have gone into separate ownership. The mooted Spanish takeover bid may achieve this.

But for this monthly dose of cold sense I would not have known that the only smoothly-running bit of the M6 motorway is operated by the Macquarie Infrastructure Group of Sydney. They could run all our motorways far better than the Highways Agency. Here is a vivid example of a simple reform that would be highly popular. For mysterious reasons the bureaucracy will not yield.

Britain struggles to pay its council taxes and the Treasury has to top up what householders cannot afford to keep our bloated local authorities lubricated. If you want a service run badly leave it to Municipal Man. Schools, libraries, crematoria, housing, or planning can be assured of dud delivery. In Ecorse, Michigan, I learn, the local government went into receivership. Under commercial criteria it pays out a dividend instead of demanding a tax. Every department of UK local government could be brought to market. It would be a revolution but a happy one. Imagine the annual buff envelope from the town hall containing a cheque?

The charm of Privatisation Watch is that it is not merely abstract good thinking. It also recounts the experiences of diverse nations. From paltry but pleasing liberalisations – the United States has sold off 800 municipal golf courses – to the potentially enormous trend of letting teachers and schools secede from the torpor of “public” ownership. In America there are now 3,500 “Charter Schools” run by 59 for-profit companies. Americans may start to learn to read again.

My juices flow to learn of Burt Rutan’s confident predictions, after winning the “X” prize for commercial space flight, that he is confident the moon will be a tourist destination within a decade. Nasa is as badly run as Amtrak, the American Federal railway. Let it be brought to market.

Reason’s admirable publication is not just for the affluent West. I think privatisation is at its most noble and perhaps most subversive in a Third World damaged by aid. Good intentions in Westminster or Washington crumble to dust in Africa. Only the Swiss banks profit from the millions of aid dollars that pass fleetingly though corrupt tyrannies.

I despair sometimes of the good-hearted nature of so many on the Left in politics. They undeniably have the best of intentions but they condescend upon the poorest. “Make Poverty History” is a splendid line. A better one would be “Privatise Poverty”. Then it will evaporate.

To read how the people of Malawi are barred from having any title to their homes or farms because of their government-imposed handicaps invites my anger. In Peru or any Andean nation only the already rich can negotiate the mazes of officialdom. Dynamite these grotesque bureaucracies. Set the people free by having what we want for ourselves: straight laws, low taxes and open markets.

Reason even detects movement in the most closed societies. The Arab world has been locked in versions of socialism for many generations. Reason says that these antique ideas are now exhausted and discredited. Led by the beacon of Dubai in the United Arab Emirates, Lebanon, Egypt and Morocco are also taking steps seen as impossible until recently. Even Libya is relaxing state ownership. Jordan and Syria are re-opening the Damascus to Medina railway – 90 years after Lawrence of Arabia blew it up.

We have many institutions frozen in state ownership. There is no shortage of candidates for liberation. My favourite of the moment is our universities. With the happy exception of the University of Buckingham, our colleges are really just different campus satellites of one vast DES empire. Privatisation Watch illustrates that the real dynamism in universities in every Continent comes from the private ones that have the discretion to act freely. Indeed I go so far as to say the higher education fetish – “tenure” or jobs for life for academics – is only a vivid example of the universal hunger of state employees to slumber. Granting civil servants tenure over assets that nominally belong to us all is to send them to sleep.

Privatisation is not about enriching merchant bankers (though that may be one of its legitimate side-effect). Rather, privatisation at its best is the closest thing economics has to magic. It is an elixir that converts liabilities into assets.


John Blundell is Director General of the Institute of Economic Affairs.

IEA Brexit prize

Invest in the IEA. We are the catalyst for changing consensus and influencing public debate.

Donate now

Thank you for
your support

Subscribe to
publications

Subscribe

eNEWSLETTER