Saturday, May 31, 2008

The Final Solution : How Private Ownership of Public Services will come unstuck!

It has been about 20 years since the heyday of Reaganomics, Thatcher's privatizations and Milton Friedman's great triumph. The popular media has this habit of convoluting things - but it is almost two decades since the evil Soviet regime collapsed in Russia, and also about 20 years since Tienanmen [though this must be forgotten on the year of the Olympics].

In our minds, save that Tienanmen bit, or in fact including that Tienanmen bit, this is actually the bits of the same picture - the win of free will, capitalism, or whatever name you call this by. An ideological triumph, that is. Unquestionably, as all countries have fallen in line, there is a free market for everything including nuclear weapons, and except the poor farmers in Europe and the United States, everyone wants Doha round!

However, there is this ugly spectre of credit crunch around the corner, which must be dealt with. It is not going away, though many people have predicted at different times that the worst is past. Some doomsayers like me would like to think it is going to stay - and it will be far more humane than Sharon Stone's ill-advised comment on Chinese earthquake as Karma [she got fired by Christian Dior for saying that] to say that the payback time for all our Karma for last 20 years has come.

Consider public services, with Thatcher privatized in Britain with such pomp. The conventional wisdom is that the Public Services improve under private ownership, though this is another urban myth in the same class as The Superman. It can't, all things remaining the same. Public Services can be managed efficiently and effectively, one does not know why unions always have to be seen as an unmitigated adversary, and there are many examples of successful public services generating money.

The private ownership of public services can not work, because, for most public services, competitive models don't apply. And, allowing private ownership in a monopolistic marketplace is the next best thing after hell. The objective of public services are to provide people with a level of service to keep the society functional - and the private owners of course wants to make as much money as quickly as they can - the two goals are incompatible.

No doubt, the public services were badly managed and the private ownership enjoyed an initial bounce. However, the twenty year cycle is over, and potentially we are looking at the long, deep recession in its face. Under the watch of a generation of central bankers who knew nothing but interest rate manipulation, inflation has now returned, the efficiency gains from global expansion and peace dividend from the end of cold war have evened out and costs of fuel and food have climbed up to unimaginable level. An almost Malthusian crisis has arrived, a turn of the long term growth cycle, something which our generation hasn't experienced yet.

This isn't another stock market crisis or house price meltdown. This is the first general crisis of the post-cold-war economics. The private ownership of public facilities - transport, water, electricity, gas - will be the first to fail the society now, as the incompatibility of their objectives will show up for the first time. The governments will initially try the ineffective way of subsidy, which is taking money from us to protect corporate profits under another name, but even the space for that is minimal.

It seems that the FINAL SOLUTION of Capitalism has come to unravel now, and we shall see a wave of nationalization again. Who said retro fashion does not work in politics?

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