One of the main impulses in favour of privatising public assets is the belief that private owners are just always more efficient and effective managers than public ones. People who are successful in business are supposed to have been selected by the market for their competence. Market competition is supposed to have a disciplining effect on its participants. You must be good at what you do or you will go bankrupt. Public administrators meanwhile are thought to be political operators. The survival and growth of their department depends on their ability to convince government to maintain their budget. The connection between the real performance of their enterprise and their rewards in terms of budget and salaries is murky and unreliable. Getting to the top is about office intrigue and self-promotion rather than genuine acumen.
But, when we think about governments carrying out selloffs of public assets, this lack of faith in the competence of government comes up against a few contradictions.
1.
Whichever way you fall on the question of privatisation, it is clear that there is a price sufficiently high that selling an asset would be in the interests of the public even if keeping the asset would be better in general. On the other hand, there is a price sufficiently low that the public is being ripped off, even if there were gains to be made from private management.
But if you believe that privatisation is good because governments are always inferior managers, why would you trust the government to sell the asset at a good price and secure a good deal for the public? If they stuff it up they’ll undervalue the asset and essentially hand over a big chunk of the public’s money to a private investor.
2.
A traditional area of government ownership, where even neoclassical economists acknowledge that markets do not work, is natural monopoly. These are industries where having multiple, competing enterprises would be infeasible, such as public utilities.
With natural monopolies they must always be heavily regulated. If a private enterprise were given complete freedom with such a monopoly they would use their power to take as much value as they could from their customers, through artificially high prices. So if governments are incompetent, yet are the only option for regulating natural monopolies, why would you think they’d be able to effectively regulate private monopolists?
At least when the asset is publicly owned there is a more direct channel of accountability. The public receive and evaluate the service, then can respond at the ballot box if they are dissatisfied.
3.
And lastly, with privatised natural monopolies, a private manager is constrained by regulations. But because their profits would be greater if those regulations were to be loosened they always have an incentive to appeal to politicians to favour their financial interests. They can use political donations or offer jobs to retired members of parliament for example, in implicit exchange for changes in regulations that increase their profits.
If you don’t trust governments, why would you think they could resist the pressure from lobbyists to give them economic rents at the expense of the public?
So even if you believe private managers are always better than public ones, that might be reason to actually favour public ownership in certain cases.