Why Public Ownership Is Great

10 comments on “Why Public Ownership Is Great ”

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1. Thinker 1

   25 June 2023 at 8:12 pm

   During my university years, we learned about a noteworthy case of a privately-owned monopoly—the Automobile Association's contract to supply yellow directional signs. In this instance, AA members acknowledged that their membership fees were subsidised by the AA's contract to the general public. Consequently, some of us belonged to the AA and enjoyed the benefits of the yellow signs, while others did not, yet still reaped the advantages.

   Our lecturer emphasised that, AA signs aside, as a general rule, monopolies should be publicly owned or at least regulated, while sectors with few barriers to entry and a true competitive environment benefit from the innovation and price-shaving of many competitors.

   Other monopolies, such as ports that are a city’s only means of delivering its exports to overseas markets and of sourcing the raw materials of production, should be kept under control. For example, foreign ownership of Auckland’s airport could strangle Auckland’s economy, through the pricing of freight costs that make Auckland uncompetitive to other cities.

   The lesson was that it isn’t generally desirable to put a market-based price on things that are vital, not optional based on whether one can afford them or not.

   We were taught about the potential for some sectors in our own times (this was in the 1980s, just before the advent of Rogernomics). Anywhere where the question could be asked: why would competitors choose to work together if not to control markets?

   With these teachings ingrained in my mind, I witnessed numerous examples of monopolies being transferred into public ownership during the implementation of Rogernomics.

   A good example from those times was the privatisation of power utilities. Previously, managed by public servants, power was priced to cover costs, including allowances for new projects and equipment maintenance. However, since becoming privately owned, the price of power became the discretion of the company, the only limitation being the balance between what people can afford and what the wider public perceives as exploitation. This pricing dilemma is reminiscent of the government's current investigation into whether banks are charging "too much" or the government's prior intervention in separating Telecom's lines business to establish Chorus. In essence, those actions of central government are/were questions as to whether the balance was skewed too far towards exploitation.

   In my opinion, it is too easy to make privatisation look desirable, but in many cases it seems to be no more than a street-entertainer's shell game, challenging observers to keep track of the egg cup concealing the ball:

   Consider a theoretical publicly owned power company where a team of inspectors conducts annual infrastructure checks and values key equipment based on a prudent 50-year asset life. "A privatised power company could achieve better results," claim the politicians. "No more public waste under our watch." The public service is privatised, and a Board of Directors, not elected by the public, is appointed. Half of the inspectors are let go, and inspections are irresponsibly shifted to a two-year cycle. Asset lives are extended from 50 years to 75 years, instantly inflating the new company's balance sheet by millions of dollars with a stroke of a pen. The Directors boast about the value they added through their business acumen but their so-called acumen is putting essential public infrastructure at risk.

   An amusing anecdote from the UK involves the privatisation of railways. The British public used to own the engines that pulled the Royal Train through the nationalised rail system. Margaret Thatcher deemed this undesirable, and as a result, some train routes were acquired by Deutsche Bahn, the state-owned railway of Germany. This revelation tarnished the theories of Thatcher, Reagan, and Milton Friedman, marking one of the first visible setbacks to neoliberalism. Many people objected to the apparent conclusion that every time the Royal Family travelled it subsidised the train fares of the Germans.

   To summarise, I was taught that, if something serves as a public good (a utility, service, the life-blood of a national or local economy, or a means to regulate a quasi-monopoly sector), it is best to keep it from market interference. If competition within a small economy like ours is sufficient to keep corporations in check, there is no need for public ownership.
2. roblogic 2

   25 June 2023 at 9:44 pm

   In the case of the Max Bradford electricity reforms, the religious devotion to market pricing mechanisms as a driver of efficiency has proven false. What we have ended up with is an assortment of ticket clipping marketing agencies who view power delivery as an inconvenient distraction.

   And in the case of supermarkets, we have a cosy little captured market where the duopolists collude to double the price of eggs overnight (for example) with zero benefit to the farmers or supply chain, but a tidy bit of profit for the supermarket owner’s new boat or whatever. Too bad about the NZ consumer, we are just morlocks to be bled dry and preferably ignored
3. Hunter Thompson II 3

   25 June 2023 at 11:02 pm

   Thanks for putting up these points (of which #1 is a strong argument by itself).

   Years ago I read a wry comment about the alleged justification for Max Bradford's electricity reforms. They were said to be essential because although the old power supply system worked in practice, it didn't work in theory, so it had to go.

   We are now paying for that decision.
4. tsmithfield 4

   26 June 2023 at 7:19 am

   From my perspective, I am usually in favour of private enterprise over central government control.

   However, there is not too much I disagree with in your post Ad.

   In some situations economies of scale and co-ordination make a lot more sense. For instance, I have always thought National's decision to break up electricity generation was nuts for the size of our economy. A good example where this works well is Pharmac, which is able to buy in bulk to get the best prices for medicines compared to, say individual chemists sourcing directly from overseas.

   And the situation that government ownership makes much more sense is when investment time frames and returns fall outside an acceptable timeframe for private business. For instance, in the electricity industry, it may take decades to get a new dam approved, and longer again to build it. Private businesses simply wouldn't be able to justify a return over that time frame. And hence would tend towards short-term solutions that don't solve the long term problem. In other words, kicking the can down the road.
5. roy cartland 5

   26 June 2023 at 11:51 am

   What an awesome post.

   Here is a slick Monbiot video from Double Down News about what happens when assets are flogged off to those who don't give a shit. Well actually, they do – quite literally. The state of UK's rivers is disgusting (to throw stones in a glass house and all).

   https://www.doubledown.news/watch/2023/june/19/the-government-is-poisoning-your-water-george-monbiot
6. Gosman 6

   26 June 2023 at 12:34 pm

   Except the reality of public owned utilities around the World is a legacy of failure in many places.

   This paper highlights why many Renewable Energy (RE) projects in Africa failure. One of the main causes is political interference

   “to some politicians, RE projects are nothing more than symbols of their efforts to ‘bring development to the doorstep of the people’”

   https://www.sciencedirect.com/science/article/pii/S0960148117305037
   • UncookedSelachimorpha 6.1

     26 June 2023 at 12:54 pm

     …So public ownership doesn't work well in places where the government is corrupt and weak (and where in fact the "public government" actually functions to benefit a private few – similar to oridinary private ownership).

     No surprises there.

     Every one of the countries examined in the paper you reference scores very high for corruption.

     https://www.worlddata.info/corruption.php
   • tsmithfield 6.2

     26 June 2023 at 1:38 pm

     Except the reality of public owned utilities around the World is a legacy of failure in many places.

     I would agree with you to the extent that public owned utilities can fail if they are poorly run similar to private ones.

     But, I think the bigger point is to be able to determine where public ownership is the best model in relation to the factors pointed out in this article and in the points I made earlier.

     I think it is good to be able to step away from our own ideology that privately run businesses most efficient, and recognise cases where public ownership is best (assuming it is run well).
7. Tiger Mountain 7

   26 June 2023 at 3:48 pm

   attn Shane Henderson…and others…
   https://cityvision.org.nz/what-we-stand-for/

   Public Private Partnerships–PPPs–are another manifestation of the penetration of public infrastructure and services by private capital. Surely a reconstituted Ministry of Works and Infrastructure could do a planned roading campaign better than the current contracted out pot hole patchers like Fulton Hogan?

   Hunter Thompson IIs comment is classic…
   “Years ago I read a wry comment about the alleged justification for Max Bradford's electricity reforms. They were said to be essential because although the old power supply system worked in practice, it didn't work in theory, so it had to go.”

   Kind of like Adrian Orr’s determination to raise unemployment and provoke a recession!
8. Hunter Thompson II 8

   26 June 2023 at 4:47 pm

   Along with public ownership of utilities, independent news media would be good.

   NZ doesn't have that. Its media have broken the rules laid down by H L Mencken, the sage of Baltimore:

   "Never accept a free ticket from a theater manager, a free ride from the Chamber of Commerce, or a favor from a politician."

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