Privatization and the Public Good

At The Guardian, via nc links:

What of the argument that the private sector is more efficient at running things because of competition? Although this may hold true for the production of many commodities (as we know from the sad experience of Soviet-style central planning), it is by no means a universal principle.

It used to be argued that publicly owned industries are necessary in the case of "natural monopolies"; ie, where long-term economies of scale in production make for "monopoly profits". It is only fair that government – through ownership or regulation – captures such revenues for the public benefit. Also, because natural monopolies (eg, water, energy, transport) typically require very large initial capital outlays, often the state alone is in a position to finance them. What has happened in recent decades to many public utilities is that, having been established and run by the state often with a strong element of public subsidy, they have been sold to private interests at knockdown prices on the grounds of fiscal rectitude (and with the blessing of the IMF).

Another reason for preferring public provision is where "external" costs or benefits exist. A contemporary example of such an externality is where an industry damages the environment. A private company might want to cut down swathes of forest to grow crops for biofuel, disregarding the long-term environmental impact. Such companies typically have short-time horizons – they must make profits for shareholders next year, not next century. Government needs to step in to take the long-tern environmental effect – or any other form of market failure – into account.

The notion that competition always makes the private sector more efficient than the public sector is therefore quite unjustified. Markets are not perfect, the future is uncertain, externalities are important and some goods and services by their very nature must be publicly provided. What politicians typically mean when they speak of greater efficiency is lower costs, typically achieved by employing cheap, non-unionised labour. This is the real reason so many public services are outsourced.

Three things I don't think should be for-profit are hospitals, schools and prisons.  As the for-profit colleges indicate, that profit motive gets in the way of good outcomes.  Another area where privatization seems like a bad deal for the masses is infrastructure.  Usually the taxpayers pay for building it, then corporate interests bid to manage it, and gouge those same taxpayers while lining their own pockets.  We need to get back to respect for public good.