Editorial cartoon by Anthony JenkinsAnthony Jenkins
News of forthcoming privatizations and fiscal austerity in the face of stimulus/tax-cut induced deficits is running rampant at every level of government. Whether it's Rocco Rossi in his quest for the mayoralty promising to sell Toronto Hydro, speculation that Dalton McGuinty is seriously considering putting up Hydro One and/or Ontario Lottery and Gaming and/or the Liquor Control Board ,or Jim Flaherty musing to himself about VIA Rail and/or the Mint, the lyrics may change but the song remains the same.
The idea is pretty simple really: you've had a windfall inheritance (deregulation and privatization) you've partied like a fiend and blown the principal (derivatives, mortgage backed securities, etc., etc.) and now you've gone crawling back to dad to sustain you while you sober up (bailouts, stimulus). This analogy applies rather more the Americans than us but you get my drift. Leaving aside the longer-term fiscal problem inherent in selling the cow to pay for the milk, there's another more fundamental question: To what extent does the continual stripping of government assets undermine the common weal?
This question - complicated and nuanced and well beyond my limited resources - is the subject of the most lucid political essay I've read, well, ever. Tony Judt - best known as a historian ( Postwar: A History of Europe Since 1945. Reappraisals: Reflections on the Forgotten Twentieth Century) - addresses squarely the problem in the holiday issue of the New York Review of Books.
Judt's thesis is straightforward. The efforts at establishing post-war social security ("European style" social democracy/the New Deal) are under continuous attack by the political/corporate forces who seek to keep the state away from "planning, manipulating, or directing the affairs of their fellow citizens."
Later Judt elaborates: "The most revealing instance of the kind of problem we face comes in a form that may strike many of you as a mere technicality: the process of privatization. In the last thirty years, a cult of privatization has mesmerized Western (and many non-Western) governments. Why? The shortest response is that, in an age of budgetary constraints, privatization appears to save money. If the state owns an inefficient public program or an expensive public service-a waterworks, a car factory, a railway-it seeks to offload it onto private buyers.
The sale duly earns money for the state. Meanwhile, by entering the private sector, the service or operation in question becomes more efficient thanks to the working of the profit motive. Everyone benefits: the service improves, the state rids itself of an inappropriate and poorly managed responsibility, investors profit, and the public sector makes a one-time gain from the sale.
So much for the theory. The practice is very different. What we have been watching these past decades is the steady shifting of public responsibility onto the private sector to no discernible collective advantage. In the first place, privatization is inefficient. Most of the things that governments have seen fit to pass into the private sector were operating at a loss: whether they were railway companies, coal mines, postal services, or energy utilities, they cost more to provide and maintain than they could ever hope to attract in revenue.
For just this reason, such public goods were inherently unattractive to private buyers unless offered at a steep discount. But when the state sells cheap, the public takes a loss. It has been calculated that, in the course of the Thatcher-era UK privatizations, the deliberately low price at which long-standing public assets were marketed to the private sector resulted in a net transfer of £14 billion from the taxpaying public to stockholders and other investors.
To this loss should be added a further £3 billion in fees to the banks that transacted the privatizations. Thus the state in effect paid the private sector some £17 billion ($30-billion) to facilitate the sale of assets for which there would otherwise have been no takers. These are significant sums of money-approximating the endowment of Harvard University, for example, or the annual gross domestic product of Paraguay or Bosnia-Herzegovina. This can hardly be construed as an efficient use of public resources."
There's a lot more to Judt's argument than merely elucidating the problem of privatization. For the rest, I recommend you read the essay… at least twice (and by "you" I mean anyone who has ever voted Liberal, Progressive Conservative or NDP). Beyond that I would only add the following.
There is a direct line between Judt's arguments and recommendations and the solution to the problems inherent in Canada's being reduced to a laughing stock on the world stage at the recent debacle in Copenhagen. That we were, among the hundred and ninety two nations present, thought to be just slightly ahead of Saudi Arabia in offering any sort of solution to the problem of self-induced global annihilation is something more than a disgrace. Over the holidays a relatively sensible player in the current federal fracas referred to his home and native land as a "rogue state."
There's a jolly thought for the fourth day of the new year.
(Editorial cartoon by Anthony Jenkins/The Globe and Mail)