Friday, September 24, 2004
Reaping the results of privatization
The news today spotlighted the pending closure of another hospital. The reason given was that it was "swimming in red ink". It is a public facility that had been privatized. Since it was now no longer profitable, it is being closed.
This is where privatization falls short. The reason is the skewed nature of a corporation's needs to those of a service guarantee. We have government for the purpose of providing ourselves with services. The paramount goal is the service. As governments privatize those services, the paramount goal changes from the service to profit.
The argument for privatization is that the service will be provided more economically. It is further argued that the service level will not degrade because the level of service determines what a customer will pay to the extent that the customer will refuse service entirely if the service is poor. Thus, to maintain profitability, the company will maintain service levels. This dependance on the market to ensure both the availability and quality of these services is fraught with misconceptions.
The most aggregious misconception is that a private company will provide a service more economically. The fact is that private companies are plagued with all the encumberances that dog most government agencies. The people that populate them are the same people that populate our private enterprises. This fact runs so contrary to current market theory so as to be ignored. But, anyone who has spent any time in corporate America can atest to the infighting, cover your ass and other attitudes and actions that impede activity. They can also atest to the fact that those things do not kill a company as per market theory, but given the astuteness of the perpetrators, can keep such a company afloat and even looking good. The market will not ferret out incompetancy.
Using the market to maintain service levels for a service for which there is a captive market is insane. We use government to develop services because the market has failed to. To then hand those services back to a market driven enterprise pretty much dooms them. A market mechanism here is what is known as a bottom feeding. The acquisition can be very profitable for the market driven enterprise in the short term. This is accomplished by failing to make the long term investments required to maitain the service. By so diminishing expenses, the revenue stream will more than cover them leaving a healthy profit. When the service capabilities of the acquired infrastructure fall below what is acceptable, the private concern will close the doors and move on.
In the end, privatization leads to loss of service for those who can least afford it. With privatization we give up things we as a community have built. It is not always wrong, but for core rights and guarantees it is not worth the risk.
This is where privatization falls short. The reason is the skewed nature of a corporation's needs to those of a service guarantee. We have government for the purpose of providing ourselves with services. The paramount goal is the service. As governments privatize those services, the paramount goal changes from the service to profit.
The argument for privatization is that the service will be provided more economically. It is further argued that the service level will not degrade because the level of service determines what a customer will pay to the extent that the customer will refuse service entirely if the service is poor. Thus, to maintain profitability, the company will maintain service levels. This dependance on the market to ensure both the availability and quality of these services is fraught with misconceptions.
The most aggregious misconception is that a private company will provide a service more economically. The fact is that private companies are plagued with all the encumberances that dog most government agencies. The people that populate them are the same people that populate our private enterprises. This fact runs so contrary to current market theory so as to be ignored. But, anyone who has spent any time in corporate America can atest to the infighting, cover your ass and other attitudes and actions that impede activity. They can also atest to the fact that those things do not kill a company as per market theory, but given the astuteness of the perpetrators, can keep such a company afloat and even looking good. The market will not ferret out incompetancy.
Using the market to maintain service levels for a service for which there is a captive market is insane. We use government to develop services because the market has failed to. To then hand those services back to a market driven enterprise pretty much dooms them. A market mechanism here is what is known as a bottom feeding. The acquisition can be very profitable for the market driven enterprise in the short term. This is accomplished by failing to make the long term investments required to maitain the service. By so diminishing expenses, the revenue stream will more than cover them leaving a healthy profit. When the service capabilities of the acquired infrastructure fall below what is acceptable, the private concern will close the doors and move on.
In the end, privatization leads to loss of service for those who can least afford it. With privatization we give up things we as a community have built. It is not always wrong, but for core rights and guarantees it is not worth the risk.
