Privatizing Profit
When Rational Decisions Run into Fear of Mismanagement
Time for the Takeaway, and who profits from privatizing assets. As part of its announced ‘Canada Strong Fund’ the Federal government has floated some trial balloons about how to raise cash for the investment vehicle. One way is to sell off assets owned by the government.
On its face it’s a pretty simple proposition. Governments own a ton of infrastructure that is in some ways “dead money.” From airports to roads to marine ports, these assets are extremely attractive to deep-pocketed, often global, investors. So, a government that wants to free up cash can simply sell - or privatize - these assets.
The trouble with this line of thinking is that it runs into pretty stiff opposition from the public. An airport isn’t just a business, it’s a monopoly play that serves the entire economy, and all travellers, with little or no competition. A for-profit model brings with it fears of travellers and airlines being gouged. Of course, the flip side of that argument is that an asset run by private, for-profit investors is leaner, more competitive, and more innovative than a public one.
It’s a debate that isn’t easily settled by the math, and in the real world, the results have been mixed. Places that have privatized airports for instance, certainly have shown higher levels of investment and innovation. But they have also produced higher costs - one estimate suggests ticket costs rise between 3 to 3.5% after privatization.
There may be middle ground for assets of national significance: either public private partnerships, or a hybrid system that allows the assets to be managed privately but with regulatory controls on the amount of profit, or the way that profit is reinvested.
The real allure of these transactions is it takes an otherwise dormant asset and creates value from it. The catch is that value goes to the government that unlocks it.
And here we come to the underbelly of public resistance.
It seems we don’t trust governments to use that money wisely. And perhaps we’d rather it was locked up in the asset than squandered. But that doesn’t feel like a good solution to the problem it describes.
My Takeaway? If we don’t trust our political leaders to manage our affairs, we have bigger issues than the question of what to privatize.Time for the Takeaway, and who profits from privatizing assets. As part of its announced ‘Canada Strong Fund’ the Federal government has floated some trial balloons about how to raise cash for the investment vehicle. One way is to sell off assets owned by the government.
On its face it’s a pretty simple proposition. Governments own a ton of infrastructure that is in some ways “dead money.” From airports to roads to marine ports, these assets are extremely attractive to deep-pocketed, often global, investors. So, a government that wants to free up cash can simply sell - or privatize - these assets.
The trouble with this line of thinking is that it runs into pretty stiff opposition from the public. An airport isn’t just a business, it’s a monopoly play that serves the entire economy, and all travellers, with little or no competition. A for-profit model brings with it fears of travellers and airlines being gouged. Of course, the flip side of that argument is that an asset run by private, for-profit investors is leaner, more competitive, and more innovative than a public one.
It’s a debate that isn’t easily settled by the math, and in the real world, the results have been mixed. Places that have privatized airports for instance, certainly have shown higher levels of investment and innovation. But they have also produced higher costs - one estimate suggests ticket costs rise between 3 to 3.5% after privatization.
There may be middle ground for assets of national significance: either public private partnerships, or a hybrid system that allows the assets to be managed privately but with regulatory controls on the amount of profit, or the way that profit is reinvested.
The real allure of these transactions is it takes an otherwise dormant asset and creates value from it. The catch is that value goes to the government that unlocks it.
And here we come to the underbelly of public resistance.
It seems we don’t trust governments to use that money wisely. And perhaps we’d rather it was locked up in the asset than squandered. But that doesn’t feel like a good solution to the problem it describes.
My Takeaway? If we don’t trust our political leaders to manage our affairs, we have bigger issues than the question of what to privatize.
No we don’t trust our political “leaders” to manage our affairs. They can’t even manage their own affairs, balance a budget, or protect the citizens. Our political “leaders” in Canada have taken one of the most blessed countries in the world, and are hellbent to drive us into the ditch.
Agreed that if we don’t trust our governments to manage these foundational national infrastructure assets we have much bigger problems. Let’s keep these essential assets in public hands, for the public good.