Category Archives: Privatization

Revisiting the Issue of Privatization

By Peter Lindfield, published in the Telegraph-Journal 26th June 2012

In New Brunswick, few discussions become heated as quickly as those focused on the economic future of the province. In some quarters there is optimism that the province can simply grow out of its weakened state. More radical measures may be necessary to meet the challenges. But is the public ready to review the entire spectrum of options needed to remake New Brunswick?

The case for real transformation is strengthening. The financial pressures created by big deficits and the continued drag of public debt payments increasingly are restricting the freedom of the provincial government to manage the future of the economy. The New Brunswick government is rapidly losing its capacity to borrow to support growth and employment. The option of reducing government spending in anticipation of future taxes is unworkable in New Brunswick.

Currently, this may not be of great practical relevance because echoes of the financial crisis and weak growth mean that consumers and the private sector have temporarily reduced their spending. However, when the economy eventually recovers, crowding out can become a critical constraint on growth and productivity.

This is especially the case in New Brunswick, which needs to compensate for under-investment in those industries it has targeted for export-led growth.

In a period when New Brunswick is faced with difficult decisions on priorities for public expenditures and the provisions of public goods, it will be useful to exchange ideas and experiences among countries at comparable levels of economic and social development. Bismarck once stated that “fools learn from their mistakes; I prefer to learn from the mistakes of others.”

The experience of many countries is that some public assets are more efficient under private management and ownership than under government control. In Europe, many public-sector services have been privatized to good effect, and European water and power utilities now dominate the landscape.

In these examples, some strategic government direction typically is retained to achieve social objectives related to the environment and public safety, and service-level agreements are written into the privatization contracts.

International evidence suggests that some utilities and other non-critical government assets could readily be privatized or taken public to reduce the province’s debt. In New Brunswick, the transfer of public assets to the private sector remains a subject that has scarcely received attention. Because New Brunswick’s experience with the sale of public assets today is firmly rooted in the failed NB Power experiment, discussions of privatization unfortunately have become a political minefield.

In a small province with a population equal to that of the city of Mississauga, the privatization and public offering of government assets would additionally serve to reverse New Brunswick’s growing under-investment in physical infrastructure.

The goals of prosperity and social equity require that we seriously examine what the transformation of New Brunswick might involve, and we should include privatization in the discussion. The ensuing debate will reveal that some will be less than sanguine about the prospect that the privatization of public assets is not merely another form of market fundamentalism.

Others, pointing to recent failures in the United States, will view the moral principle of privatization as deeply flawed.

In a recent New York Times column, economist Paul Krugman highlighted the failed assumptions that feature prominently in the privatization of American public institutions, observing that “(privatization) reflects conservative belief in the magic of the marketplace, in the superiority of free-market competition over government planning.” Europeans, who are under fewer illusions about the moral properties of free-market ideology, have managed to make privatization work for them.

Privatization and the creation of corporations based on public assets will not be a panacea for the enormous challenges New Brunswick is facing. But in the face of growing and relentless fiscal burdens, New Brunswick has much to learn from the experiences and mistakes of others.

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