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Privatization - A neccessary agenda to cut debt

Updated on January 26, 2014
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Consider the following scenario: you are heavily indebted and you’ve reduced your spending as low are reasonably possible, however, you have a number of unneeded or under-used assets. Just like the majority of Western governments, would you not think it appropriate to sell off a number of assets or property in order to straighten your financial situation? This is exactly what governments should be attempting to achieve in order to eliminate debt.

There are obvious things a government would never sell. National icons with diverse historical importance or heritage listed properties such as the Louvre in Paris, Yellowstone National Park in Wyoming or Australia’s Uluru would and should never be sold off. However, there are many other assets governments should look to privatize. A 2011 audit found that of the one million buildings the US government owned, at least 45,000 were deemed unneeded or under-used. Furthermore, one-fifth of the country’s land, which beneath it lies vast quantities of gas, oil and minerals, is unable to be explored due to government ownership. Throughout Europe these examples of unneeded or under-used assets and property are plentiful. Italy, for example, with debt equaling 132% of GDP, an extensive privatization plan would help to stabilize their debt burden. While Italy has a vast amount of government owned assets (more than many richer countries) its privatization agenda is non-existent. In OECD countries alone, the sale of such assets would tally almost US$9 trillion – that’s 20% of these countries’ combined debt.

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Not all Privatizations are appropriate:

There is a reluctance from governments, however, to attempt to privatise assets as it is generally met by fierce opposition, just as Reagan experienced as he tried to sell land in America’s West and was met by a vehement coalition of left-wing activists and ranchers. The ranchers had a legitimate reason for concern of losing their grazing rights, however, many may well have been better off under more stable economic conditions. It is a political gamble for many governments and, if not considered and implemented appropriately can in fact cause greater problems, both financially and politically.

It is important to note that not all privatizations are appropriate. There are many services which should never be privatized to ensure all of society has access to them including healthcare, education and law enforcement. This is the widely held view from those of the center-right of politics. Left-wing activists have this fundamentally wrong where the failings of extreme instances such as the Soviet Union’s communist agenda exemplify. Even modern China, which was built upon communist principles has now moved into the realm of capitalism and operates as the world’s second biggest economy.

The privatization of a range of government assets and property is important to create more competitive markets which in turn offers the best possibility of increased productivity. When the private sector is able to build capital there is more incentive for performance improvement and when performance increases productivity inevitably follows. Privatization is not merely stripping assets away from the public sector but a comprehensive strategy for restructuring welfare systems and public services.

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Australia's example of Privatization:

Many people will argue at this point that increased profits will lead to greater disparity between the rich and the poor. It may be true that the gap becomes wider, however, in most circumstances the standard of living for the poorest citizens dramatically increases as real wages will rise. Where there is incentive and opportunity to do well it is imperative of the human condition to work harder. With greater opportunities employment rates will drop, consequently lowering the welfare burden on governments.

An example of effective privatization occurred in Australia over the turn of the millennium. The center-right Government led by John Howard in 1996 inherited $96b debt (>$138b today) during the worst recession the country had seen since the Great Depression. With his liberal economic policies, Howard moved to privatize government assets, including the government-owned telecommunications provider, Telstra. Along with deregulating the market and implementing tax cuts Howard and his Treasurer paid off the $96b debt and within 2 years delivered a budget surplus which they would continue to do for the 12 years they held government. John Howard showed the political courage and determination to do what was right for his country even in the face of public dissent and disapproval.

History has shown exactly what systems work in order to create robust and productive economies - that is the free market economy. Privatization complements free markets by introducing competition and supplementing productivity. At a time when markets are showing improvement governments must be looking to privatize inefficient, unneeded or under-used assets and property. Leaders of the world today must look beyond personal politics and implement the appropriate economic reforms - its time to privatize!

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