Rethinking the Logic of Selling Public Assets
Privatisation—the transfer of ownership and control of enterprises from the public to the private sector—has been a defining feature of global economic policy since the 1980s. Promoted for its promises of efficiency, innovation, and fiscal prudence, privatisation has reshaped economies from the UK to India, from Argentina to South Africa. Yet, while advocates have often touted its successes, an increasing body of economic literature, political analysis, and lived experience presents a robust critique. This article explores in detail the multifaceted arguments against privatisation, drawing on economic theory, case studies, and empirical outcomes across sectors.
1. The Efficiency Myth: When Markets Fail
A central argument for privatisation is the presumed superior efficiency of private firms. However, this assertion is context-dependent and often fails to hold, particularly in sectors that are natural monopolies or characterized by public goods.
1.1 Market Imperfections
In sectors such as water supply, railways, and electricity distribution, competition is structurally limited. These industries exhibit high fixed costs and network effects, making them natural monopolies. Privatisation in such contexts often replaces a public monopoly with a private one, reducing incentive for cost control or innovation.
1.2 Administrative vs Allocative Efficiency
Private firms may be administratively efficient—reducing overheads or boosting productivity—but allocative efficiency may decline. That is, firms serve those who can pay, not those who need the service. As a result, essential services risk becoming inaccessible to poorer populations.
2. Inequity and Social Exclusion
Privatisation often deepens socio-economic inequality. When services like healthcare, education, or transport are handed over to the market, access becomes tied to purchasing power rather than human need.
2.1 Regressive Cost Structures
Privatised entities tend to implement pricing strategies based on profit, not affordability. For example, post-privatisation fare hikes in the UK rail system disproportionately affected low-income users while shareholders reaped dividends.
2.2 Loss of Universal Service Obligations
Public providers are typically bound by mandates to serve rural, remote, or economically disadvantaged populations. Private firms often retreat from such commitments unless subsidized, as seen in the exit of telecom providers from rural areas post-privatisation in several African and Latin American countries.
3. Public Accountability and Transparency Deficits
State-run services are subject to oversight by elected representatives, independent audit institutions, and public inquiry. Private companies, however, prioritize shareholder interests and often operate under commercial confidentiality.
3.1 Democratic Deficit
Privatisation limits public control over essential services. Citizens have little recourse to influence decisions made by private boards. This shift undermines democratic governance and public service responsiveness.
3.2 Corruption and Crony Capitalism
The privatisation process has often been marred by opaque dealings, undervaluation of assets, and political patronage. The Russian privatisations of the 1990s, which created oligarchs by transferring vast wealth to a few insiders, remain a cautionary tale.
4. Undermining Labor Rights
Privatisation is frequently accompanied by job cuts, wage stagnation, and erosion of union power. In pursuit of efficiency, private owners may downsize staff, outsource jobs, or impose less secure employment conditions.
4.1 Precarity and Wage Suppression
Evidence from the UK’s National Health Service (NHS) outsourcing experiments and the Indian Railways’ contract labour schemes demonstrates how privatisation fragments labor protections and increases precarity.
4.2 Union Busting
Private firms often resist collective bargaining, viewing unions as impediments to profit. This undermines worker voice, safety, and long-term institutional knowledge.
5. Short-Termism Over Long-Term Public Value
While public institutions may be criticized for bureaucracy, they can invest with long-term societal returns in mind—environmental protection, social cohesion, and equitable development.
5.1 Capital Investment Neglect
Private operators may underinvest in maintenance or infrastructure upgrades to maximize short-term returns. A 2017 investigation into UK water companies found that despite high profits, several had deferred crucial investments in leak prevention.
5.2 Dividends vs Reinvestment
Instead of reinvesting surpluses into system improvement, privatised utilities often divert profits to shareholders. In many privatised sectors, particularly transport and energy, public subsidies continue while private owners extract profits—creating a scenario of “privatised gains, socialized losses.”
6. Price Gouging and Consumer Exploitation
Without strong regulation, privatised monopolies may engage in price manipulation. Empirical data from UK energy, rail, and telecom sectors shows recurring concerns of overpricing and poor service.
6.1 Asymmetric Information
Consumers may lack the knowledge or alternatives to challenge exploitative pricing. In many cases, the “choice” promised by privatisation is illusory—prices converge while service quality stagnates.
6.2 Regulatory Capture
Private entities may exert undue influence on regulators, lobbying for favorable rules or leniency in enforcement. This “capture” erodes regulatory independence and public trust.
7. Strategic and Security Risks
When vital sectors like defense, telecommunications, or energy fall under foreign private control, national interests may be compromised.
7.1 Foreign Ownership
Several privatised UK utilities, such as Thames Water and EDF Energy, are owned by foreign firms or sovereign wealth funds. This raises concerns about foreign influence over infrastructure critical to national resilience.
7.2 Crisis Response Limitations
During crises such as the COVID-19 pandemic, state-controlled entities proved more adaptable in responding to emergency needs. The NHS, a publicly funded health system, was able to coordinate nationwide responses more effectively than fragmented, profit-driven systems in other countries.
8. Lost Opportunities for Collective Wealth
Public ownership allows citizens to collectively benefit from the returns of profitable enterprises. When assets are sold, this stream of income is lost.
8.1 Sale of Undervalued Assets
Many privatisations involve selling state assets at below-market prices. The 1984 British Telecom sale and the Royal Mail flotation in 2013 are examples where public assets were arguably “given away.”
8.2 Declining Fiscal Autonomy
Rather than strengthening state coffers, privatisation can erode public revenue in the long term. Governments lose income from formerly profitable enterprises and must often subsidize failing private ones.
9. Case Studies Illustrating Failures
9.1 UK Railways
Privatisation of British Rail led to fragmented services, inconsistent pricing, and frequent disruptions. Despite extensive subsidies, many operators failed to deliver improvements, prompting calls for re-nationalisation.
9.2 Australian Electricity
Privatisation in Australian states like Victoria resulted in price hikes and grid instability. Reports from the Australia Institute found that consumers paid more post-privatisation with little efficiency gain.
9.3 South Africa’s Eskom
Partial privatisation and outsourcing within Eskom, the national electricity utility, contributed to mismanagement and severe energy crises. Corruption and reduced maintenance compounded operational failures.
10. The Ideological Problem
Privatisation is often driven more by ideology than empirical evidence. Neoliberal orthodoxy, emphasizing small government and market supremacy, can blind policymakers to sector-specific realities.
10.1 One-Size-Fits-All
Applying privatisation indiscriminately ignores sectoral variation. While competition might benefit telecoms, applying the same logic to prisons or schools can lead to social harm.
10.2 Ignoring Public Preferences
Polling across the UK, France, and Germany consistently shows public support for public ownership in health, transport, and utilities. Privatisation often proceeds against majority public opinion, undermining democratic legitimacy.
Reviving Public Purpose: Alternatives to Privatisation
Rather than choosing between inefficiency and exploitation, alternative models exist:
- Democratic Public Ownership: Co-determined governance with worker and citizen participation
- Public-Public Partnerships: Collaboration between government entities to share resources and knowledge
- Performance-Based Management: Improving public sector performance through accountability reforms, not ownership change
The core challenge lies not in ownership per se, but in aligning enterprise goals with public welfare and sustainable development. Public systems need reform, not replacement.