Saya lihat ada perbedaan dalam praktek antara US dan Indonesia, US umumnya
hampir semua sudah ditangani swasta hanya tinggal sedikit yang bisa
diprivatisasi utilities seperti air, listrik, gas, dlsb semua sudah ditangani
swasta, sehingga disini yg dibicarakan bagi kita agak mboten2 seperti
privatisasi penjara.
Kalau kita kaitkan dengan NEP-nya Lenin: US faktor Private Capitalism yg sangat
dominant, sedang di Indonesia fator State Capitalism-nya besar. Dus sebenarnya
Indonesia sebenarnya menganut ekonomi komunisme.
On Monday, October 10, 2016 2:25 PM, Sunny <[email protected]> wrote:
Ada yang bilang yang diprivatisasikan ialah keuntungannya, dan yang
disosialisasikan ialah kerugiannya. From: mailto:[email protected] Sent:
Monday, October 10, 2016 10:54 PMTo: [email protected] Subject:
[GELORA45] Does Privatization Serve the Public Interest? Dari Harvard
Business Review, kalau HBR juga dibilang salah dan nggak ngerti bisnis ya nggak
tahulah.---
https://hbr.org/1991/11/does-privatization-serve-the-public-interest
ECONOMY
Does Privatization Serve the Public Interest?
- John B. Goodman
- Gary W. Loveman
FROM THE NOVEMBER-DECEMBER 1991 ISSUEFor decades prior to the 1980s,
governments around the world increased the scope and magnitude of their
activities, taking on a variety of tasks that the private sector previously had
performed. In the United States, the federal government built highways and
dams, conducted research, increased its regulatory authority across an
expanding horizon of activities, and gave money to state and local governments
to support functions ranging from education to road building. In Western Europe
and Latin America, governments nationalized companies, whole industries, banks,
and health care systems, and in Eastern Europe, communist regimes strove to
eliminate the private sector altogether.Then in the 1980s, the tide of public
sector expansion began to turn in many parts of the world. In the United
States, the Reagan administration issued new marching orders: “Don’t just stand
there, undo something.” A central tenet of the “undoing” has been the
privatization of government assets and services.According to privatization’s
supporters, this shift from public to private management is so profound that it
will produce a panoply of significant improvements: boosting the efficiency and
quality of remaining government activities, reducing taxes, and shrinking the
size of government. In the functions that are privatized, they argue, the
profit-seeking behavior of new, private sector managers will undoubtedly lead
to cost cutting and greater attention to customer satisfaction.This newfound
faith in privatization has spread to become the global economic phenomenon of
the 1990s. Throughout the world, governments are turning over to private
managers control of everything from electrical utilities to prisons, from
railroads to education. By the end of the 1980s, sales of state enterprises
worldwide had reached a total of over $185 billion—with no signs of a slowdown.
In 1990 alone, the world’s governments sold off $25 billion in state-owned
enterprises—with continents vying to see who could claim the privatization
title. The largest single sale occurred in Britain, where investors paid over
$10 billion for 12 regional electricity companies. New Zealand sold more than 7
state-owned companies, including the government’s telecommunications company
and printing office, for a price that topped $3 billion.Developing countries
have been quick to jump on the privatization bandwagon, sometimes as a matter
of political and economic ideology, other times simply to raise revenue.
Argentina, for example, launched a major privatization program that included
the sale of its telephone monopoly, national airline, and petrochemical company
for more than $2.1 billion. Mexico’s aggressive efforts to reduce the size and
operating cost of the public sector have resulted in proceeds of $2.4
billion.Over the next decade, privatization is likely to be at the top of the
economic agenda of the newly liberated countries in Eastern Europe, as well.
Czechoslovakia, Hungary, and Poland are all committed to privatization and are
in the process of working out the legal details. The most extensive change thus
far has taken place in what was the German Democratic Republic. In 1990 alone,
the Treuhandanstalt—the public trust agency charged by the German government
with the task of privatization arranged the sale of more than 300 companies for
approximately $1.3 billion. The agency still has more than 5,000 companies on
its books, all looking for buyers.Having migrated around the world,
privatization has also changed venue in the United States, from the federal
government to state and local governments. Over 11 states are now making use of
privately built and operated correctional facilities; others plan to privatize
roadways. At the local level, communities are turning to private operators to
run their vehicle fleets, manage sports and recreation facilities, and provide
transit service. In the past several years, more and more state and local
governments have adopted privatization as a way to balance their budgets, while
maintaining at least tolerable levels of services.This growth of privatization
has not, of course, gone uncontested. Critics of widespread privatization
contend that private ownership does not necessarily translate into improved
efficiency. More important, they argue, private sector managers may have no
compunction about adopting profit-making strategies or corporate practices that
make essential services unaffordable or unavailable to large segments of the
population. A profit-seeking operation may not, for example, choose to provide
health care to the indigent or extend education to poor or learning-disabled
children. Efforts to make such activities profitable would quite likely mean
the reintroduction of government intervention—after the fact. The result may be
less appealing than if the government had simply continued to provide the
services in the first place.Overriding the privatization debate has been a
disagreement over the proper role of government in a capitalist economy.
Proponents view government as an unnecessary and costly drag on an otherwise
efficient system; critics view government as a crucial player in a system in
which efficiency can be only one of many goals.There is a third perspective:
the issue is not simply whether ownership is private or public. Rather, the key
question is under what conditions will managers be more likely to act in the
public’s interest. The debate over privatization needs to be viewed in a larger
context and recast more in terms of the recent argument that has raged in the
private sector over mergers and acquisitions. Like the mergers and acquisitions
issue, privatization involves the displacement of one set of managers entrusted
by the shareholders—the citizens—with another set of managers who may answer to
a very different set of shareholders.The wave of mergers and acquisitions that
shook the U.S. business community in the late 1980s was a stark demonstration
that private ownership alone is not enough to ensure that managers will
invariably act in the shareholders’ best interests. The sharp increase in
shareholder value generated by most of the takeovers was the result of the
market’s anticipation of improvements in efficiency, customer service, and
general managerial effectiveness—gains which might, for example, come from the
elimination of unnecessary staff, the cessation of unprofitable activities, and
improvements in incentives for managers to maximize shareholder value. In other
words, the gains from takeovers were the result of the anticipated removal of
managerial practices commonly thought to characterize public sector management.
The lessons from this experience are directly applicable to the debate over
privatization: managerial accountability to the public’s interest is what
counts most, not the form of ownership.Refocusing the discussion to analyze the
impact of privatization on managerial control moves the debate away from the
ideological ground of private versus public to the more pragmatic ground of
managerial behavior and accountability. Viewed in that context, the pros and
cons of privatization can be measured against the standards of good
management—regardless of ownership. What emerges are three conclusions:1.
Neither public nor private managers will always act in the best interests of
their shareholders. Privatization will be effective only if private managers
have incentives to act in the public interest, which includes, but is not
limited to, efficiency.2. Profits and the public interest overlap best when the
privatized service or asset is in a competitive market. It takes competition
from other companies to discipline managerial behavior.3. When these conditions
are not met, continued governmental involvement will likely be necessary. The
simple transfer of ownership from public to private hands will not necessarily
reduce the cost or enhance the quality of services.
The Privatization Debate
Privatization, as it has emerged in public discussion, is not one clear and
absolute economic proposition. Rather it covers a wide range of different
activities, all of which imply a transfer of the provision of goods and
services from the public to the private sector. For example, privatization
covers the sale of public assets to private owners, the simple cessation of
government programs, the contracting out of services formerly provided by state
organizations to private producers, and the entry by private producers into
markets that were formerly public monopolies. Privatization also means
different things in different parts of the world—where both the fundamentals of
the economy and the purpose served by privatization may differ.One accounting
of privatization appears in Raymond Vernon’s The Promise of Privatization, a
comparative analysis of international privatization activities of all sorts.
According to Vernon’s figures, by the late 1980s, the growth in state-owned
enterprises in Africa, Asia, Latin America, and Western Europe had generated a
nonfinancial state-owned sector accounting for an average of 10% of gross
domestic product, with much higher shares in France, Italy, New Zealand, and
elsewhere. In many developing countries, state-owned enterprises operated at
substantial deficits and were responsible for as much as one-half of all
outstanding domestic indebtedness. In many instances, Vernon says,
privatization in these countries was driven purely by the public sector’s sorry
financial condition. As conditions worsened in the early 1980s and credit
markets tightened significantly, these governments sold off public assets to
raise cash.Contrary to the skeptics’ assertion that governments won’t sell the
winners and can’t sell the losers, governments sold off many prized assets in
the 1980s. The most notable example is in the United Kingdom, where by 1987,
the Thatcher government had shed more than $20 billion in state assets,
including British Airways, British Telecom, and British Gas. Sales also ran
into the billions of dollars in France and Italy, and many less developed
countries sold off a large portion of their interests in public enterprises.The
story in the United States has been somewhat different, largely because the
U.S. government has never had as many assets to privatize. Compare, for
example, the concentration of public sector employment in other nations to that
in the United States. In the late 1970s, nearly 7% of employees in other
developed market economies worked in state-owned enterprises; the comparable
figure for the United States was less than 2%. Unlike other industrialized
countries where many of the utilities and basic industries are state-owned—and
thus ripe targets for privatization—in the United States, the
telecommunications, railroad, electrical power generation and transmission, gas
distribution, oil, coal, and steel industries are entirely or almost entirely
privately owned.If there is a similar privatization phenomenon in the United
States to the one Vernon describes in developing countries, it is in state and
local governments where financial conditions in recent years have reached
crisis proportions. Budgetary shortfalls have induced administrators to
consider privatization as a means to avoid higher taxes or large cuts in
services. Touche Ross surveys of state comptrollers in 1989 and city managers
and county executives in 1987 show that the vast majority of state and local
governments contract out some services to private providers. The most often
cited motivation for contracting out was to achieve operating cost savings;
survey results from city and county administrators suggest that, in nearly
every case, some cost savings were achieved. The second most often cited reason
for contracting out was to solve labor problems with unionized government
employees. Asset sales, on the other hand, were uncommon: only 5 state
governments of the 31 that responded to the survey had used that approach.A
second impetus for privatization emerged in the United States in the 1980s.
Privatization was a central piece of the Reagan administration’s efforts to
reduce the size of government and balance the budget. A book by former Reagan
staffer Stuart Butler, Privatizing Federal Spending: A Strategy to Eliminate
the Deficit, provides an intellectual rallying point for conservative efforts
to reduce the federal government payroll and put a brake on the growth in
government spending. Butler argues that private enterprises will cut costs and
improve quality in an effort to gain profits and compete for more government
contracts. Government providers, on the other hand, will pursue other
objectives, such as increased employment or improved working conditions for
government employees—initiatives that only result in higher costs, poorer
quality, or both.But most important, Butler contends, is that privatization can
simply reduce the size of government. Fewer government workers and fewer people
supporting a larger role for government means less of a drain on the nation’s
budget and overall economic efficiency.Butler’s arguments for privatization
find sympathetic ears at the California-based Reason Foundation, which has been
advocating privatization of both public assets and public services since the
late 1970s. Using language designed to push the hot button of the average
taxpayer, the foundation claims: “If your city is not taking full advantage of
privatization, your cost of local government may be 30% to 50% higher than it
need be. The costs of state and federal government are also greater without
privatization.”To the Reason Foundation, the benefits of privatization are
clear and nearly universal; there seem to be no limits to the type of
government activities that would benefit from privatization. Its annual report,
Privatization 1991, considers privatization activities of all sorts around the
world, always with a uniformly optimistic perspective. The message is clear:
the shift in ownership or control from public to private hands will necessarily
lead to cheaper, better services for the citizenry. As its press release
states: “No service is immune from privatization.”This may sound extreme, but
there is a practical experience to support its ideologically driven claim.
Within the United States, an impressive array of cities and local governments
has made effective use of privatization to improve efficiency, increase
competition, and reduce expenditures. Consider the case of Chicago. City towing
crews could not keep up with abandoned vehicles that littered the streets, so
in 1989, the city government turned to a number of neighborhood companies. The
private sector operators paid the city $25 per vehicle, which they then sold
for scrap. What had been a drain on Chicago’s resources turned into a $1.2
million bonanza. In addition, city crews were freed up to focus their efforts
on illegal downtown parking.Chicago also found that competition from the
private sector could create incentives for public managers to be more
effective. In 1990, city street-paving crews in Chicago were inspired to
improve their performance when the city government decided to hire private
contractors to pave adjacent wards. According to Mayor Richard M. Daley, both
sets of crews began to compete “to see who could do the job faster and
better.”Of course, all of the evidence is not on one side of the privatization
debate. The expansion of the private sector into prisons, for example, has
generated considerable controversy. As John Donahue reports in The
Privatization Decision: Public Ends, Private Means, corrections departments in
all but a few states have contracted with private firms to build prisons. And
over two-thirds of all facilities for juvenile offenders are privately run,
albeit most on a not-for-profit basis.But in recent years, several large
corporations have sought to extend the role of the private sector to the
incarceration of adult criminals. This prospect of private corporations owning
and operating prisons for adult offenders raises questions of costs and
competition. As Donahue writes in a separate report on prisons: “Even if
corrections entrepreneurs somehow succeed in cutting incarceration costs
through improved management, there is unlikely to be enough competition, in any
given community, to ensure that cost savings are passed on to the taxpayers,
particularly after private contractors have become entrenched. Indeed, private
prison operators insist on long-term contracts which buffer them from
competition.”Often privatization’s promises vastly exceed its results. In the
Job Training Partnership Act (JTPA), for example, the federal government
decided to relinquish most direct responsibility for job training. On the
surface, the JTPA appears a resounding success: two-thirds of the adult
trainees found jobs, and over 60% of youth trainees had positive experiences.
But, JTPA local officials and training contractors can affect their measured
performance by screening applicants.The problem in the JTPA system is not
private ownership, but the controls and performance measurements of the private
owners. With only short-term performance measurements and no enforced
imperative to create long-term value, JTPA’s statistics give the impression
that privatization has made much more difference for the employment, earnings,
and productive capacity of American workers than it actually has.As Donahue
notes: “It is as if Medicaid physicians were presented with a population of
patients suffering from complaints ranging from tendinitis to brain tumors,
were asked to choose two or three percent for treatment, and then were paid on
the basis of how many were still breathing when they left the hospital.”In
addition to the problems of insufficient competition and monitoring, there are
broader objections to the no-holds-barred advocacy of privatization. While
acknowledging that privatization may make sense on economic grounds, Paul Starr
argues in his paper, “The Limits of Privatization,” that privatization will not
always work best. “‘Best’ cannot mean only the cheapest or most efficient,” he
writes, “for a reasonable appraisal of alternatives needs to weigh concerns of
justice, security, and citizenship.”Starr also attacks the claim that
privatization leads to less government. He contends that profit-seeking private
enterprises servicing public customers will find it in their interests to lobby
for the expansion of public spending with no less vigor than did their public
sector predecessors. In other words, privatization introduces a feedback effect
in which influence on government now comes from the “enlarged class of private
contractors and other providers dependent on public money.” This influence is
especially dangerous if private companies skim off only the most lucrative
services, leaving public institutions as service providers of last resort for
the highest cost population or operations.It is not hard to find examples of
undue influence. Michael Willrich’s Washington Monthly article, “Department of
Self-Services,” describes corrupt contracting practices in Mayor Marion Barry’s
Washington D.C. administration that led to several investigations, trials, and
convictions. Willrich claims that Rasheeda Moore, Barry’s former girlfriend,
received $180,000 worth of contracts to run summer youth programs. In 1987,
Alphonse Hill, a deputy mayor, was convicted of steering $300,000 in city
contracts to a friend’s auditing firm.More generally, a lack of competition for
government contracts actually leads to higher costs and creates perceptions of
corruption. A New York Times special report, “The Contract Game: How New York
Loses,” provides several examples. New York City’s Parking Violations Bureau
hired American Management to help it design a system to bill for parking
tickets and to record payment. As part of its consultancy, American Management
wrote technical documents that became the basis for bid specification to build
and implement the system. In 1987, the city awarded the $11 million contract to
build and run the system to American Management, despite claims of impropriety
from competing bidders. An audit by the New York State Comptroller showed that
American Management had missed contract deadlines and that its system had
billed millions of dollars in fines to New Yorkers who did not even own cars.
The city had hoped to take over management of the system in 1990, but it has
been unable to develop the necessary organization. Current plans anticipate
city management in 1994. American Management has received a $10 million
contract to run the system until 1992.The New York Times report shows that
noncompetitive bidding is commonplace in New York City. In fiscal years 1989
and 1990, 1,349 of 22,418 contracts recorded by the City Comptroller’s Office
attracted only single bids; several of the single-bid contracts were for
multimillion dollar projects. Thousands of other contracts had two or three
bidders, a circumstance conducive to “high cost, collusion, and
corruption.”Even in the absence of corruption, however, Starr argues that
privatization should not be considered in terms of economic efficiency alone.
Less government, he states, is not necessarily better; therefore, just because
privatization may reduce the role of government in the economy, it is not
necessarily beneficial. The voter and consumer, Starr argues, are also
interested in access, community participation, and distributive justice:
“Democratic politics, unlike the market, is an arena for explicitly
articulating, criticizing, and adapting preferences; it pushes participants to
make a case for interests larger than their own. Privatization diminishes this
public sphere—the sphere of public information, deliberation, and
accountability. These are elements of democracy whose value is not reducible to
efficiency.”While it is clearly impossible to decouple privatization from the
broader social and political issues raised by Butler and Starr, it seems
logical that privatization decisions can and should be based primarily on
pragmatic analyses of whether agreed-on ends can best be met by public or
private providers. The ends need not be limited to efficiency; they need only
be clearly specified in advance.John Vickers and George Yarrow’s recent
article, “Economic Perspectives on Privatization,” uses economic theory to show
that there are flaws endemic in both private and public ownership: private
ownership is not free of its own set of problems. In short, public provision
suffers when public managers pursue actions that are not in the interests of
the citizenry—for example, the employment of unnecessary workers or the payment
of exorbitant wages. Private provision suffers when private managers take
action inconsistent with the public interest—for example, performing shoddy
work in an effort to boost profits or denying service when costs are
unexpectedly high.These issues, which only now are beginning to emerge in the
privatization debate, have been showcased for managers in another context. They
were central to the wave of leveraged buyouts in the late 1980s, which showed
that private businesses also often suffer from managerial behavior inconsistent
with shareholder interests. Takeover artists like Carl Icahn saw the same
excesses in corporations that many people see in governmental entities: high
wages, excess staffing, poor quality, and an agenda at odds with the goals of
shareholders. Monitoring of managerial performance needs to occur in both
public and private enterprises, and the failure to do so can cause problems
whether the employer is public or private.
Managerial Control and Privatization
In the late 1980s, a wave of public company buy-outs swept across the
previously insulated world of publicly traded corporations, prompted in large
part by the failure of internal monitoring and control processes in these
companies. These buyouts provide an important and useful analogy to
privatization. In particular, Michael C. Jensen’s analysis of these buyouts
makes it clear why privatization alone is insufficient to guarantee that
providers of important services will act in the public’s interest.In his HBR
article, “Eclipse of the Public Corporation,” Jensen argues that a variety of
innovative organizational forms that reduce the conflict between the interests
of owners and managers are replacing the publicly held corporation. The problem
has been that managers in many industries, especially those with little
long-term growth potential, have wasted company assets on investments with
meager, if any, return. Managers have been consistently unwilling to return
surplus cash to their shareholders, preferring to hold on to it for a number of
reasons: excess cash provides managers with autonomy vis-à-vis the capital
markets, reducing their need to undergo the scrutiny of potential creditors or
shareholders. And excess cash provides managers with an opportunity to increase
the size of the companies they run, through capacity expansion or
diversification.This unwillingness to surrender cash to shareholders is not
limited to a few companies. Jensen reports that, in 1988, the 1,000 largest
public companies (ranked in terms of sales) generated a total cash flow of $1.6
trillion. Less than 10% of these funds were distributed to shareholders as
dividends or share repurchases. Private managers, it seems, are vulnerable to
the same claims levied against government agencies.To monitor these tendencies
on the part of public corporation managers, Jensen identifies three forces:
product markets, the board of directors, and capital markets. The first two,
says Jensen, have been falling short. Even the onslaught of international
competition has been insufficient to prevent managers from squandering valuable
assets. Moreover, boards of directors, consisting largely of outsiders selected
by management who lack a large financial stake in the company’s performance,
are often unwilling or unable to prevent managerial initiatives that do not
enhance shareholder value.In short, managers have been able to make investments
that do not maximize shareholder value because the processes assumed to be
disciplining their behavior no longer function effectively. In recent years, it
has fallen to the capital markets to assume the role of monitor. Jensen writes,
“The absence of effective monitoring led to such large inefficiencies that the
new generation of active investors arose to capture the lost value… Indeed, the
fact that takeover and LBO premiums average 50% above market price illustrates
how much value public company managers can destroy before they face a serious
threat of disturbance.”The privatization of government assets and services has
similar potential. But it should be clear from Jensen’s finding that private
ownership alone is not enough to make the difference. The key issue is how the
private managers behave and what mechanisms will exist to monitor their
actions.It is significant that the firms that specialize in LBOs have
organizational features that differ dramatically from the corporations they
acquire. These key criteria—rather than the simple category of
ownership—account for the difference in performance and prevent the waste of
resources perpetuated by the preceding management.1. Managerial incentives tie
pay closely to performance. There are higher upper bounds, bonuses are linked
to clearly identified performance measures such as cash flow and debt
retirement, and managers have significant equity stakes.2. The organization is
more decentralized, as incentives and ownership substitute for direct
supervision from headquarters.3. Managers have well-defined obligations to debt
and equity holders. The debt repayments force the distribution of cash flow,
and cash cannot be transferred to cross-subsidize divisions.The LBO firms, in
sum, differ radically from most public corporations; it is the installation of
these changes that created the value associated with the “reprivatization.” Had
no such organizational changes been clear to the capital markets, the share
prices of target corporations would not have risen as a consequence of takeover
activity.
Monopoly vs. Competition
Like the takeovers of public corporations, the privatization of government
assets or services is a radical organizational change. The public seeks both
monetary and nonmonetary value, including equal access to services, adherence
to performance standards, and a lack of corruption. The public’s goals for
private garbage collection, for example, might include serving all members of
the community (no matter how inconveniently located) at equal cost, disposing
of waste in environmentally sound ways, and conducting honest bidding with city
officials. But for these goals to be met, privatization will have to learn the
same lesson taught by successful LBOs: managers must have effective incentives
to act on behalf of the owners. The application of their lessons to
privatization will help resolve the conflict between the public and the private
providers, and identify cases where continued public provision makes sense.The
major criterion is easy to specify: privatization will work best when private
managers find it in their interests to serve the public interest. For this to
occur, the government must define the public interest in such a way that
private providers can understand it and contract for it. The best way to
encourage this alignment between the private sector and the public interest is
through competition among potential providers, which may include governmental
entities. Competitors will take it upon themselves to respond to the expressed
wishes of the citizens.The city of Phoenix’s experience with garbage
collection, described by David Osborne and Ted Gaebler in their forthcoming
book, Reinventing Government, illustrates the crucial role played by
competition. In 1978, the mayor announced that the city would turn over garbage
collection to private firms. The Public Works director insisted that his
department be allowed to bid against the private firms, even though the city
had promised not to lay off any displaced Public Works employees as a result of
contracting out. After losing in four successive bidding opportunities, in
1984, Public Works employees introduced a series of innovations that resulted
in costs well below those of private firms; and the Public Works department won
a seven-year contract for the city’s largest district. By 1988, Public Works
had won back all five district contracts. The central lesson from this
experience, says Phoenix city auditor Jim Flanagan, is that the important
distinction is not public versus private—it is monopoly versus
competition.Competition is the first factor to help privatization; a second,
also learned from LBOs, is linking the compensation of private managers
directly to their achievement of mutually recognized goals that represent the
public interest, goals which may include a variety of criteria like those Starr
associates with the traditional role of government.Osborne and Gaebler describe
the extensive set of performance measurements used in Sunnyvale, California.
City managers there are evaluated on the basis of service measures which
include the quality of road surfaces, the crime rate and police expenditures
per capita, the number of days when the air quality violates ozone standards,
and the number of citizens below the poverty line. Departmental managers who
exceed their “service objectives” receive annual bonuses that can be as much as
10 percent of their salary.There is another reason why goals and performance
measures are critical elements in making privatization work: the failure to
hold private managers to agreed-on results can be very costly. In 1963,
President Kennedy established Community Mental Health Centers to serve the
mentally ill outside of large institutional settings. Osborne and Gaebler
report that the National Institute of Mental Health gave millions of dollars to
private firms to build and staff the centers—but established no monitoring
process to track the results. A Government Accounting Office investigation in
the late 1980s revealed that many centers had converted to for-profit status
and served only those who could pay. Others provided psychotherapy to patients
without serious mental illnesses. Meanwhile, write Osborne and Gaebler,
“Perhaps a million mentally ill Americans wandered the streets sleeping in
cardboard boxes or homeless shelters.”
Pragmatic Privatization
As these and countless other examples make clear, there is a pragmatic way to
view privatization. It is one arrow in government’s quiver, but it is simply
the wrong starting point for a wider discussion of the role of government.
Ownership of a good or service, whether it is public or private, is far less
important than the dynamics of the market or institution that produces
it.Strikingly, these issues of managerial control have first emerged in Eastern
Europe. The question there is less what to privatize than how to privatize. And
the new governments realize that a privatization scheme is only as efficient as
it is politically palatable. In Poland, the recently adopted method for
privatizing the massive state industrial sector involves issuing shares in
newly privatized companies and putting all the shares of many companies into a
mutual fund. A number of mutual funds would then control the shares of all the
companies. Citizens would receive shares in the mutual funds that would not be
tradable for, say, one year.This plan is appealing because it provides equal
access to the ownership of state assets and it offers citizens diversification
against the tremendous risk of holding shares in any one or two companies. The
shortcoming of the plan lies in its lack of control mechanisms. The fund
managers must monitor the performance of many companies whose transitional
problems are enormous. At the same time, there are no explicit incentives
(other than reputation and patriotism) to ensure that fund managers act in the
interests of shareholders. The short-term prohibition on trading shares between
mutual funds further shields the managers from the immediate discipline of the
financial markets. While these problems appear to be easy to anticipate, they
have only recently come to light in Poland as politicians and economists begin
to work through the details of the privatization program.If the LBO experience
teaches anything, it is that the focus of the privatization debate should be on
the nature of organizational changes, not on a broad ideological debate over
the role and efficacy of government. The replacement of public with private
management does not of and by itself serve the public good, just as private
ownership alone was not sufficient to maximize value to the shareholders of
many large corporations.Accountability and consonance with the public’s
interests should be the guiding lights. They will be found where competition
and organizational mechanisms ensure that managers do what we, the owners, want
them to do.A version of this article appeared in the November-December 1991
issue of Harvard Business Review.John B. Goodman is assistant professor at the
Harvard Business School, where he specializes in business-government relations.
He is the author of Monetary Sovereignty: The Politics of Central Banking in
Western Europe(Cornell University Press, forthcoming in 1992).Gary W. Loveman
is the CEO of Harrah’s Entertainment, in Las Vegas.
---Nesare:Masih ngotot bilang privatization adalah perpindahan pemilik dari
negara ke swasta!!
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