Pseudo-Privatisation

Economics lessons have been pretty dry with focus turned to the syllabus, which forces students to look into highly superficial issues and to give answers that can be expected. Although they require intense analysis, and really deep thinking, the breadth appears highly restricted and there’s not much efforts to highlight special features of different context. For example, in a nation like Singapore, Monopolies may be good because of the highly limited market size and so on. I thought it would be a little more interesting to say something about the trend of pseudo-privatisation in light of the world’s event and the fact that we have began advocating privatisation in our economics textbooks.

Economics started out as a biased study – it favoured market economy and offered no other solutions to distribution and use of resources, despite the fact that it has pointed out several problems with existing mechanisms. It sets out to predict and recommend economic decisions and such – the main differing feature from the study of Business. As such, one can expect the whole focus to be on praising market economy and the private businesses. In the beginning, that was true, but subsequent efforts to identify problems of the study proved very much the flawed nature of the classical theories because of technological and practice changes that set in after the World Wars and the Great Depression. In addition, the successes of certain planned system at the initial stage of a developing region that boomed helped convince people that a degree of control is required in the world of economics – at least before the people are able to discipline themselves.

The movement started out with Marx and then toned down by Keynes. It was powerful and Nationalization became more than just a moral obligation of the government (it was so for the Brits before). There’s now an economic reason for Nationalization – it was to combat the dangers and then ills of the market economy that may just pop out and cause chaos. But as novel methods of control came in, nationalization had to give way to the regulations that were seen as being more efficient. The efficiency of the economy remained the most important consideration despite understanding the danger of free market (which is deemed the most efficient of all – at least economic efficiency, not social efficiency).

Then the capitalist fought back with trade, globalization and whatever network that helped raise demand almost infinitely and made it possible for privatization to become important – to keep up with the market and the rest of the world, in product development, research and management. It made privatization the trend, the priority, the goal, of many economies – at least for those who were forced upon such aims by trade agreements and trade organizations. It was another victory of the capitalist over the left-wingers (not too sure, maybe I used this word wrongly) though it was an overhaul of the capitalist perspective (Monetarism became much more important in this so there was an incorporation of the socialist ideas as well).

So much for the support of privatization and historical setting but the main point is not even raised. These aims, being forced upon the nations of different nature, had to retain control over key industries and at least those important in generating the revenues for the government and such. Such requirement that the governments deregulate markets and try to allow more competition ends up resulting in more control unfortunately. The overt nationalization, under such circumstances, cannot work. The government had to show, at least as apparently as possible, that there exist competition, or potential for competition. This caused the rise of ‘Pseudo-Privatization’, where the government retains almost full control over the key industries or prefered businesses that are generating lots of profits. This is made possible by complicating different processes and issuing highly exclusive licenses for starting the businesses.

Asian societies have not been comfortable with intense competition – mainly because they had a great culture of collaboration, and emphasized the importance of working together in the business in order to prosper. As such, the governments would like to retain as much control as possible to reduce uncertainty that may be present in an event when key industries are bought over by foreginers. The intention of pseudo-privatization is largely good, to protect the interest of the nation and its people. Fortunately, to privatize would mean the need to raise prices, and that compromises the interest of the consumer and this have not been solved mainly because the owners of the firms eventually benefit from the higher prices. It is under such circumstances that the government and firm owners are gaining more control rather than less.

To the distaste of citizens, there’s another scenario that’s worse off. Governments try to raise revenue by deregulating a industry that is highly profitable, then allow competition while they own the original firm through government-link companies or huge corporations started by the family members of those who may be in the government (though it may not necesssarily constitute neopotism) and this would result in the non-allocative efficient equilibrium across such industries – highly undesirable by the standards of the college economic textbook.

The general strategy of pseudo-privatization is making it obligatory for the firms to expose accounting information and company data by forcing them to list publicly when they attain a certain size, then the main ‘investing arm’ of the government will try takeover firms that have been privatize or capture rival firms with their [infinite] financial power. They would then manage the firms professionally, generating enough revenue to cover up such costs and advertising mainly to give foreigners the illusion that the market have been deregulated. This translates into unnecesary spending and thus worse consumer welfare.

It would then perhaps be better sometimes for firms to be nationalized if they are just pseudo-privatised because it simply creates a worse scenario for the consumers. It is important, though that we recognize that these pseudo-privatized firms helps create jobs and thus stimulates and propel the economy – something deemed extremely desirable in a society in need of demand and purchasing power. So looking back at the point I made earlier, small markets, should still have lots of pseudo-privatized firms; so that they may have a chance to be as good as our nation.