Privatization can be more inefficient than government since efficiency solely reflects relative power, not organizational form.

The profit incentive associated with ownership of corporate equity is one of the most powerful known. It is important however to keep in mind that this is only one form of incentive. Private equity ownership is only efficient across members of society when markets are competitive and innovation is important. Infrastructure-type investments are by their very nature best served by stable large entities not subject to major competition, such as governments.

This is true because a private monopoly or oligopoly will extract profits that reflect its market power – it’s intermediary power – even if they shroud it within friendly-looking structures such as industry SRO’s (Self Regulatory Organizations). The latter is just a case of the fox watching the hen house. Monopoly or oligopoly providers will often actually be less efficient than government, as the latter is at least held to many more standards of accountability than profit. Private enterprises unabashedly pursue profit first and foremost and only corporate social responsibility to the extent that it doesn’t get in the way of profit.  Then again, if a government doesn’t fear potential political competition, it can be the most exploitative of all, as we often see in the world.

What Give and Take Economics teaches us is that whether government or private enterprise, a lack of viable competing alternatives sets up intermediary power and an intermediary tax – an inefficiency – which is often a ‘rip-off’ of the public. The bottom line is that private enterprise is the best model for delivering services when rapid innovation is a primary benefit and change can be tolerated, whereas government is the best model when stability with small incremental innovation is required. Where balance is required, public/private partnerships can make sense, with a highly competitive bidding process. With this understanding in place we can see why the mixed economy involving both private enterprise and government participants is so important.

However, realization of the most benefits to the most people in society always relies upon both governments and private enterprises being kept in check (keeping a lid on their intermediary power). This in turn reflects how strongly the 4 Axioms of Freedom are realized within a society.


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