Effectiveness of government vs. private companies

[Mokele]

One thing I hear a lot of, especially from conservatives and libertarians, is that X or Y should be privatized or the domain of private industry rather than the government, with the reasoning that because of competition, private companies will be more effective / efficient / faster / insert performance metric here.

 

But then you actually deal with private companies, and realize how accurate Dilbert is: the heads of the company are often clueless, the management can be staggeringly inept, and they waste billions of dollars on things like "team building" or obscene CEO salaries / perks.

 

So, my question is, has anyone actually done real studies to compare which group really is the most efficient / effective at various tasks? Obviously, one would have to compare similar agencies and companies, but there should be some overlap, especially if this is expanded to any country. Are private companies really better?

 

I know all the reasons why they should or should not be, but this is a science forum, and in science, predictions and theories are tested. Does anyone know of any data testing this theory?

 

Mokele

[ecoli]

As I understand it, governments, being elected for directly by the people, are more controllable and are generally more responsible for public good. (speaking very general here). Corporations can only be indirectly controlled through market forces, and so do not always act for the public good (especially if the public good isn't directly profitable). As such, companies tend to act for immediate profit rather than looking at the bigger picture, which opens them up to the potential for ignoring factors such as the environment or employee welfare.

[Dak]

anecdotally, it seems that privatising something is a good indication that the quality of service will drop; however, it's hard to tell wether this is attributable to the media winging about privatisation (as they do in the uk), the govournment screwing stuff up just before they sell it, etc.

 

i dont know of any hard data, but some low-grade armchair-science should be quite easy, i think: just compare, say, alcohol in new hampshire (where i believe its govournment controlled?) and the rest of the us, postal services in the uk a decade ago v america decade ago (i think govournment v private), im sure you could find examples of govournment and private transport in various countries, etc.

[JohnB]

Hmm, good question.

anecdotally, it seems that privatising something is a good indication that the quality of service will drop; however, it's hard to tell wether this is attributable to the media winging about privatisation (as they do in the uk), the govournment screwing stuff up just before they sell it, etc.

I find inefficiency in an organization to be directly proportional to size. Small companies are generally efficient as are small government departments (like local council departments). As the organization gets larger, it becomes more inefficient due to the larger number of incompetent people in management. (It's called "The Peter Principle", don't laugh.)

 

Both private and government industries must be able to demonstrate to "The Shareholders" that they are "doing something". Both are after short term apparent gain. For the private company it's return on shares or increase in share price while for the gov. company it's votes for the party in power. Neither of these goals give any regard to the long term benefit to society as a whole.

 

I would say both are equally inefficient, but in different ways. (But I'd really, really like to see some hard data on the subject.)

[1veedo]

Both private and government industries must be able to demonstrate to "The Shareholders" that they are "doing something". Both are after short term apparent gain. For the private company it's return on shares or increase in share price while for the gov. company it's votes for the party in power. Neither of these goals give any regard to the long term benefit to society as a whole.

Public companies have to be able to show they're "doing something"* -- private companies, sense they dont have public stock, have no need to file any reports about what they're doing.

 

I think we know what you're talking about but the problem is that when privatizing a company (as in removing it from government control) it can either become a public (stock not government) or a private company.

 

Traditionally, at least in the US, when the government privatizes a company, it's usually to the benefit of a few people who have friends in congress but ends up hurting everyone else. When this happens, the company usually does become private, in the stock market sense, and they are thus no longer "responsible" for showing that "they're doing something." (what they really do is make a couple people a lot of money)

 

As for the generally sense, I'm not sure one is better then the other. There probably isn't a test you could make to determine this because there are so many other factors involved. Just because companies usually turn out to be worse when they become privatized doesn't mean private ownership is bad.

 

Schooling, for instance, is simply not something a company can do responsibly. There are private schools but they only work for certain groups of people -- private schools would not educate everyone in a country. In fact, if we were to privative the education system, it'd probably turn around a couple hundred years when only the "rich" (or depending on the country and time period, "middle class") were educated.

 

*Be careful, public isn't synonymous w/ government/state. In the US when you talk about a public company it literally means a company that you can buy stock in, not a company run by the government. Just about every company is public, with the exception of Mars and maybe some law firms (if yo uwant to count them). Private companies on the other hand are usually small businesses. They become public when they start getting bigger. (again w/ the exception of Mars which is still, I believe, a family company. Instead of making stock holders money, it's only purpose is to make the owners money. And it does a pretty good job at it, too.)

[Amos Schuman]

There's a ridiculous amount of literature on the subject. And just like most things in the social sciences the particular findings are highly local and conditional. Presently, there is no macroeconomic model of efficiency for the total space of mixed economic configurations that's entered into the realm of theory. At present, I've seen nothing to suggest that any simple laws are forthcoming.

 

One thing I hear a lot of, especially from conservatives and libertarians, is that X or Y should be privatized or the domain of private industry rather than the government, with the reasoning that because of competition, private companies will be more effective / efficient / faster / insert performance metric here.

 

But then you actually deal with private companies, and realize how accurate Dilbert is: the heads of the company are often clueless, the management can be staggeringly inept, and they waste billions of dollars on things like "team building" or obscene CEO salaries / perks.

 

So, my question is, has anyone actually done real studies to compare which group really is the most efficient / effective at various tasks? Obviously, one would have to compare similar agencies and companies, but there should be some overlap, especially if this is expanded to any country. Are private companies really better?

 

I know all the reasons why they should or should not be, but this is a science forum, and in science, predictions and theories are tested. Does anyone know of any data testing this theory?

 

Mokele

[Dak]

I think we know what you're talking about but the problem is that when privatizing a company (as in removing it from government control) it can either become a public (stock not government) or a private company.

 

ah, sorry. just to clarify, when i said public, i meant owned by the govournment on behalf of, and for the benifit of, the public.

 

---

 

private v govournment aren't neccesarily the only options. the govournment can own exclusive rights to, say, public transport, but commission a company to provide the service, allowing them to dictate the level of service that needs be provided, whilst commissioning, say, a few coumpanies to provide public transport across different locations would allow for competition, with poor services resulting in loss of contract and the location going to one of the other providers (eg, with aspects of both govournment ownership and capitalistic competition). or you can set targets for any companies operating within a 'public service' area, and pay them from the tax coffers for providing this service, and/or charge them for not meeting them, thus forsing a level of service above meer profiteering.

 

in some cases, competition is not strictly speaking possible due to a neccesary monopoly -- air traffic control, for example, and the people who own and maintain local train tracks.

[Pangloss]

There's a ridiculous amount of literature on the subject. And just like most things in the social sciences the particular findings are highly local and conditional. Presently, there is no macroeconomic model of efficiency for the total space of mixed economic configurations that's entered into the realm of theory. At present, I've seen nothing to suggest that any simple laws are forthcoming.

 

This is the correct answer. Everything else is emotion/speculation.

[Skye]

It depends very much on what you consider to be "effective". Since you can pick pretty much any metric and measure it, and these metrics vary from situation to situation, it is possible to make the data say what you want.

[Sisyphus]

Agreed. It's all situational. You can easily find lots of anecdotal evidence for either side, where something becomes public/private and vastly improves/goes to hell. A general study would be meaningless, because different situations are completely different, and there are no one-size-fits-all solutions in economics. Anyone who tells you otherwise is blinded by idealogy.

[D H]

It is indeed all situation/sensational/ideological. Both extremes, pure government ownership (communism) versus no government ownership (anarchy) have been attempted and both have failed miserably.

 

However, imagine a world in the government owned and controlled all means of information exchange. I would not like that in the least.