Methods, not the goals, that are at fault

Those public-sector enterprises that suffer from lapses in corporate governance do so because they do not have face the discipline of the market. Private firms that depend upon capital markets must show concern for costs and profits. Few technocrats are fired when revenues, or projects fail or profits decline. They are more likely to lose their jobs when there is a change in the ruling party.

Use of resources

Besides inducing socially efficient use of resources, privatization also helps stop the misuse of enterprises for narrow political benefit. This may involve corrupt practices of public officials that also arise from the incentive structure of government-run enterprises. As the involvement of politicians or public-sector bureaucrats increases in the economy, the opportunities for corruption grow.

Indeed, in a purely market-driven economy there would be no corruption. This is because corruption arises from a imbalance in political power that can be perpetuated by the political culture. On the contrary, market exchange does not rely upon such imbalances. Where such imbalances might exist, competition and the dynamics of the market will undermine them. Even a mighty "monopolist" like Microsoft will succumb to technological change that cuts away at its market dominance. The only effective restriction on competition is the legal provision of monopoly privileges that can only be provided by governments.

One of the crucial elements of successful privatization is the promotion of competition. Enterprises must compete with operators and owners to provide the best quality products and services at reasonable prices. Yet even though some public officials may have enriched themselves or their friends, privatization within a competitive setting will still generate positive benefits to the community.

Thus, competition generally leads to a better husbanding of valuable inputs into the production process. So privatization should interest those who care about protecting the environment and conserving scarce resources.

If privatization is unpopular or brings disappointment, the principal failure should be seen in the method chosen by public officials.

It is therefore the method, and not the goal, of privatization that is at fault.

Christopher Lingle is an independent corporate consultant and adjunct scholar of the Center for Independent Studies in Sydney, Australia.