Despite Prime Minister Junichiro Koizumi’s claims that privatization is a concept undergoing a rethink and should be considered carefully before implementation, the truth is privatization has been thriving for some time abroad.
The administration of Margaret Thatcher offered many noteworthy programs that have impacted over 100 countries and made privatization part of their core economic and financial strategies. In fact, in major countries such as France and the United Kingdom, the conversion of nearly all government organs capable of being privatized is basically complete.
As this article will attempt to show, the undeniable success of proper privatization should recast the current debate on “Why privatize?” to “Why not privatize?”
Is it preferable to let the Post Office continue to exponentially deepen its operating loss? In the business world, such a practice wouldn’t last very long.
While there has yet to be a comprehensive study of Japan’s many experiences with privatization, the information provided by a fairly recent study of 204 foreign companies indicates that privatization works.
The improved profitability, efficiency, investment, output, employment, leverage and dividends at well over 50 percent of the non-Japanese companies that have been privatized is testimony to its benefits.
The most common misconception about privatization is that the government is completely usurped in a fiscal coup d’etat. But experience has shown that government continues to have a role in privatized companies, and that its role is to lead.
Imagine each preprivatized government organ as a boat. If the various oarsmen were political groups, they would probably row in different directions, for lack of a good pilot or captain. Worse yet, the rowing would be done with tax dollars.
By comparison, the government serves better as a captain by adjusting the course of the boat to the degree necessary and lets the market and the companies involved row as hard as they wish. To an extent, the less the government steers, the faster the boat goes. But without a captain, the boat goes in circles.
Along these lines, the government should provide only as much guidance as necessary without completely giving up the reins of control. This role is fulfilled by providing “output specifications.” Please consider the following example, in which only the necessary amount of control was used to succeed.
For the U.K.’s Ballistic Missile Early Warning System, a privatized government function, the government issued the following criteria:
1) The system must operate 24 hours a day, 365 days a year. 2) No more than two minutes of downtime at any one stretch. 3) Only two hours of total downtime per year.
These are what are known as output specifications, project goals that are set out but pursued with freedom. What resulted was a very successful system designed with proper decision-making flexibility.
In contrast, Nurrungar, the U.S.-Australian joint defense facility in Woomera, Australia, suffered from government requirements in the form of input specifications.
The government required the presence of a certain number of communicators, generator operators, cleaners, cooks, and other personnel, which actually increased the manpower required and produced no savings in the privatization. These criteria indicate how to reach a goal, like the captain of a boat continuously showing the oarsmen how to row.
What is the risk of releasing the reins of power completely? Consider the recently privatized bus services in Auckland, New Zealand.
Auckland is a geographically complex city whose public transportation system is largely dependent on buses. The New Zealand government legislated in 1989 that all bus services must be commercially provided or operated by competitive franchises. The competition for this business was initially hot, and many improvements resulted.
The downfall occurred when competing bus operators failed to integrate services, leaving passengers confused about bus routes, transfers, destinations and other critical operations. The ensuing shakeout resulted in a monopoly.
On the other hand, the Australian government in Adelaide hung in there by forming a public transit regulation organization called the Passenger Transport Board that designed the routes, monitored service and retained ownership of key assets to assure the bus system would work.
The lesson here is that the government can’t just sit back and enjoy the ride; it has to get in the driver’s seat and let business turn the wheels.
I guess I could try to list the Japanese government organs responsible for considering potential privatization candidates, or even the titles of the politicians who are engaged in the privatization debate. But the fact is the best privatization analysis groups are already private, and they simply need a good captain.
So the next time the government asks “Why?”, remember to ask “Why not?”
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