Almost my entire professional career has been in and around large corporations, some of which were in domains that used to belong to the category of State Owned Enterprises (SOE) – publicly owned organizations responsible for the management of public assets and services – and have since been privatized into a number of competing organizations. Working in such an environment has provided me with a perspective that is somewhat different to the one you would normally hear or read about in discussions exploring the pros and cons of privatization.

As outlined in a HBR article from Nov 91, titled “Does Privatization Serve the Public Interest?“, the rationale for shifting from public to private management was based on the conjecture that:

it will produce a panoply of significant improvements: boosting the efficiency and quality of remaining government activities, reducing taxes, and shrinking the size of government. In the functions that are privatized…the profit-seeking behavior of new, private sector managers will undoubtedly lead to cost cutting and greater attention to customer satisfaction.”

The jury is certainly still out and the question of whether privatization is good or bad is still pending further historical perspective.

Here’s my two cents:

Like most people I make an assessment of a person’s wealth by observing and studying the type of house she has, its location, size, etc. I learn about the holidays she take, the car she drives and the furniture and other gadgets she surrounds her self with. It does not tell me how happy or healthy she is but it is nevertheless a good indication of how well she is doing financially – all through a perception of her standard of living.

A similar observation can be made in the organizational context. You step into a company’s HQ building and with your very first glance you can learn a lot about that company. The architectural style of the building, the way it is furnished, the level and sophistication of the technology installed in the building, the meeting rooms with their various video and communication conferencing capabilities, the kitchens, the bathrooms, the lifts, the open space – all adding up to a story, culminating in an appreciation of the company’s standard of living.

As an employee or a contractor working for or with such an organization it feels fantastic. Who would not want to work in a 5 stars environment. It is great, it is sexy, it is convenient and it is so ever soothing.

As a customer of such an organization you quickly ask yourself whether such luxurious and stylish comfort really supports the public good. And when considering the fact that it is not just one but a number of companies, all exhibiting similar expensive attitude, all of which sprung from a single public entity, whose combined running costs could not have been but a fraction of the total operational cost of the new privatized organizations, you ask your self whether or not the transaction has been a worthwhile one.

Think about it!

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4 Comments

  1. Shim,
    I’ve also worked in/for a number of SOEs and concur, not only on the aspect of the “luxurious appointments” but have seen a number of other aspects where pursuit of profits ended up getting in the way of Customer Service. And yet, with its history of government bureaucracy, they seem to have held onto a few undesirable aspects such as finding it difficult to “cull the dead wood”. They make redundancies, but not necessarily wisely. They approve “investments” with dubious ROI, with stated benefits in the business cases that seem more like euphemisms for opportunities for the boys to play with their toys.

    I personally think it would have been better to keep them in public ownership, provide more rigorous oversight structures in an efficient and not overly bureaucratic fashion, and avoid the rape & pillage of the “village commons”.
    Peter R.

    Reply

    • Thanks Peter. This whole topic raises a whole myriad of ethical issues and sheds doubt on the ability of governments to make the right decisions for us. I agree with your final comment – selling off public assets seem like a way of running away from the responsibility to have them managed properly.

      Cheers, Shim.

      Reply

  2. Privatization will not support public good if the privatized entity cannot gain.

    Often times the public good requires that decisions that do not return on investement (no $) be made. Private entities don’t play taht game. However, if the execution part is privatized but the governance part is not, the public may gain from getting the least costly execution even if there is no return ($) on investment.

    Of course, you have to hope that there is no corruption…

    Reply

    • Hi Patrick, I suspect the issue most opponents of privatisation have against it is not the fact that private entities operate for gain (or profit / ROI) but rather the fact that they develop a culture of greed and thus do not operate within the boundaries expected of them at time of privatisation.

      Reply

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