GARY RYNHART: Privatisation debates have moved on from failures of the past

An observation by the late US political satirist PJ O’Rourke was that there are four ways to spend money.

First, you spend your money on yourself, so you want the best deal. Second, you spend your money on other people. You still want a bargain, but you’re interested in pleasing the recipient of your largesse. Third, you spend other people’s money on yourself. You get what you want but price no longer matters. Fourth, you spend other people’s money on other people — so who cares. The fourth way to spend money, he noted is the only way governments spend money.

I recently reread his book Eat the Rich, which is a kind of travel guide for economists. In the book he looks at different economic models from (in his view) the “good capitalism” of Wall Street to the “bad socialism” of Cuba to the “good socialism” of Sweden. The book is a take on the age-old question: “Why do some countries succeed, and others fail?”

In recent decades, a number of countries deployed a “development state” approach to achieving economic growth and structural transformation, notably China. A “development state” is defined as one led by elites capable of constructing and implementing economic policy without giving in to the demands of the public. Critically, countries that deployed this model are not or were not full democracies and that enables rapid deployment of infrastructure projects or policy interventions.

This model (also known as the Beijing Consensus) has produced success, mostly in Asia. An alternative to the development state was the Washington Consensus approach, a set of 10 market-orientated policies that Washington-based institutions (World Bank/IMF) prescribed for improving economic performance in “developing countries” focused on fiscal discipline, market-orientated domestic reforms, and openness to trade and investment.

The success of this model was at best mixed and in cases disastrous. What was mostly missing were concurrent pro-poor policies to minimise the potential negative effects of macroeconomic reforms on domestic populations. The politics of policy conditionality also left a long and bitter taste.

Probably the main lesson to take from both the Washington and Beijing Consensus is to ignore universal recipes and instead rely on diagnostic and contextual solutions that prioritise experimentation, evaluation, and monitoring as tools that can select the best policies for individual states.

China, for example, the original “development state”, has consistently been one of the top privatisers over the past decade. The term used in China for this ownership change is that the large state-owned enterprises are “corporatised” rather than privatised. The typical form this “corporatisation” takes is that of a minority share traded in the stock market and merged into a large state-owned conglomerate, the controlling shareholder.

In general, the tone of the privatisation debate has evolved in recent years and moved on from the failures in the 1990s. There is much greater realisation of the importance of efficient regulatory and institutional frameworks, well-functioning capital markets, and the protection of consumer and workers’ rights that need to be present for effective privatisation.

In some ways, Covid-19 was a salutary lesson on the role of the government and its importance, with some of the biggest state interventions in history. Similarly, the disruption to energy supplies caused by the Russian-Ukraine war have seen much more activism by states — witness the French government's plan to nationalise EDF, the main electricity provider. The German government is also nationalising three gas companies.

We can probably expect to see more state intervention, especially in areas such as energy, science and health. Yet that doesn’t mean that governments should be in the business of owning airlines, hotels or transport companies. They should leave that to private sector actors who can do a much better job.

“Giving money and power to government is like giving whiskey and car keys to teenage boys,” was another of O’Rourke’s witty observations. It’s a great line with some truth in it and it demonstrates why institutions and other checks and balances are so critical. 

The global uncertainties will continue for some time. Populist regimes are eroding democracy. Protectionism is blocking access to global markets. Automation is boosting productivity for some, while eroding old sources of advantage for others.  Climate change offers an existential threat. Disrupted supply chains have created a cost-of-living crisis. Rising to these challenges, governments require adaptable and nimble decision making, free of ideology, sourced from the full palette of policy options.

• Rynhart is senior specialist in employer activities with the International Labour Organisation, based in SA.