Privatize the US to Avoid Default?
By Staff News & Analysis - February 24, 2011

President Obama's latest budget proposal includes a five-year freeze on nondefense discretionary spending and tax increases on higher earners. But even if all goes according to plan, the gross debt will still rise above 105 percent of gross domestic product – and stay there. Yet there is another fiscal option that neither party seems to be considering. The U.S. needs to do exactly what it would if it were a severely indebted company: sell off assets to balance its books. – Newsweek

Dominant Social Theme: Give free-markets a chance.

Free-Market Analysis: It sounds so simple. The US is facing terrible debts but has many assets. Sell them off and win the best of both worlds. Additional funding and a renewed surge of market capitalism could save the day. That's the thesis of this article in Newsweek (excerpted above). Of course we disagree with it, as we have written previously. Privatization, under the present PE controlled system of mercantilist capitalism, actually ends up with the WORST of both worlds from our point of view. What the State is doing is selling a "franchise" – often one that is a monopoly.

Privatization may cut costs – making things worse, in fact – but the monopoly issues remain. Without competition, privatization is nothing but nomenclature. It is the Invisible Hand that gives privatization its effectiveness. Every day, hundreds of decisions, large and small, are made based on competitive pressures. In a government-based privatization situation, these decisions are made with laxity; the same laxity that affects the public arena. It is not the private sector that creates efficiency, but competition. Presumably, the introduction of legitimate competition into the public sector would be far more effective than merely privatizing a public monopoly. Here's an except from an article we wrote on the subject back in August 2009:

There is a difference between a private enterprise and the privatization of a public one. In private enterprise, a company finds a niche and offers services that are good enough to raise it above at least some of the competition. The company lives and dies by its product, services and continued market research. But when a private enterprise takes over a public monopoly situation, the leaders of the private enterprise do not have to worry about providing the goods and services that will maintain their company and expand their customer base …

Practically speaking this means that under so-called privatization – monopoly privatization anyway (where one vendor administers the services), costs shall be controlled but services shall likely suffer as much or even more than under a public administration. In a public administration, bureaucrats are likely to be extremely rigid about regulations but not entirely immune to public outcry if services aren't provided. In the privatization paradigm, employees are likely to be more concerned about the cost structure than about the service – as cost control is the reason that the privatization is advanced in the first place.

For more from that article, click here:

We find none of this reasoning in the Newsweek argument for privatization. In fact, we don't even find an author for the article, though it is written partially in the first person. Newsweek seems to have stopped attributing articles to writers. (At least we can't find the names on its website, and we looked.) Of course, we're in favor of that. It's an old tradition, and one we share. But it works best with publications that have a homogeneous tone (the Economist comes to mind). Tina Brown has her work cut out for her.

Anyway, when we get past the lengthy first-person introduction involving Clint Eastwood and Eli Wallach, we come to a fairly brief description of the underlying problem, which we have excerpted above. The problem is that politicians simply won't cut enough spending to make a "real dent" in the debt. It's a lack of political will, and despite America's current debt crisis, the political element involved will never muster the courage to do what it necessary. The Tea Party for instance wants cuts but has to some degree exempted the military and America's bloated intelligence agencies. Democrats – at least in the past – might have targeted military spending but not social outlays.

So far so good. But then we come to this paragraph, explaining the "three different arguments against asset sales" as a way of chopping serious debt. The first one, we learn, has to do with national security. America ought not to sell "critical" defense assets such as forts and ports. The second argument is made by unions and has to do with concerns that private or foreign owners will be difficult to work for. Lastly, Newsweek informs us, there's plain-old "chauvinism" that stands between US potential solvency and the disbursement of assets to which Americans have a sentimental attachment. (It would be hard to sell the Statue of Liberty for instance.) What's Newsweek's position on as regards these objections? …

Such arguments were never very strong … The mystery is why freedom-loving Americans are so averse to privatization – a policy that has been a huge success nearly everywhere it's been tried. From Margaret Thatcher's Britain, where the word "privatization" was coined, to present-day China, selling off government-owned industries has not only improved the fiscal position of governments; it has usually enhanced the efficiency with which the sold assets are managed.

The figures are impressive. Since the 1990s, about 75,000 medium-to-large firms have been privatized all around the world, from Argentina to Zambia, as have hundreds of thousands of smaller enterprises. The total proceeds: $735 billion. The United States accounts for only a tiny fraction of that number. Other countries are miles ahead. On a visit to Beijing in November last year, I even heard a leading Chinese economist half-seriously recommend the privatization of the Great Hall of the People. Yet American fiscal reformers – including the boldest of them, Republican Rep. Paul Ryan – tend to steer clear of the P word.

So let's get down to business. What can the U.S. federal government and the various bankrupt states put up for sale?… In fact, the U.S. government currently has about $233 billion worth of nondefense "property, plant, and equipment," according to the Treasury's Financial Management Service. That is almost certainly an understatement.

Newsweek has other suggestions. Sell America's highways, for one. The article points out that, in fact, this is already being done in the Midwest and that it ought to be done in large, troubled states like California. What is most interesting is the perception that privatization is taking place around the world. We hadn't realized the trend, but it is certainly a disturbing one.

It is truly an authoritarian solution, so we are not surprised that China is involved. Privatizing monopoly services is surely a way to provide citizens with the worst of both worlds. Citizens lose any possibility of having input into dysfunctional systems; meanwhile the services themselves surely degrade. When there is competition, there is a reasonable expectation that companies will balance efficiency and profits with customer service. But what is the incentive for a company running a government monopoly to provide a better brand of service to its "clients?" The clients will show up nonetheless. The ONLY incentive in such situations is to cut costs, presumably making the service even less desirable.

Defenders of privatization will no doubt argue that there are usually "benchmarks" that privatized public service entities have to meet or a company's contract may be cancelled. But benchmarks are no substitution for competition. Numbers can always be massaged. Palms can be greased. Performance can be spruced up. It may be true that privatization might bring in some much needed revenue. But the cost will be the further erosion of government services in our view.

There are larger issues here as well that Newsweek does not refer to. The Anglo-American power elite has been trying to jam a superhighway from Mexico to Canada that would cut the US in half. Right now the project has been slowed (though not halted) through determined government lobbying. But it occurs to us that in a privatized economy, it is probably a lot easier to build relationships between private contractors and government entities. This means to us an opportunity for even more mischief.

After Thoughts

Ultimately, privatization is nothing more than mercantilism – the opportunity for private entities to gain control of the public purse. The very same private entities, controlled by wealthy elite money interests who have generated their enormous purchasing power by sucking the productive lifeblood from the very populace, will now "save the day" by effectively managing the countries infrastructure on behalf of a bankrupt (defrauded) populace. They will "invest" some of their appropriated fiat wealth, all made possible thanks to the central bankers and bought-and-paid-for politicos, and end up owning anything of "value" still remaining in America. What a deal! This has been historically the elite's methodology as it drives the world toward ever-more aggressive centralization. Privatization is just one more dominant social theme in our view, making the realization of elite command-and-control goals even more achievable. It's not what it appears to be.

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