(This policy bulletin is an extract from Nationalisation: How governments control you, Publ by Free Market Books in 1994.)
To promote freedom and the higher standard of living that comes with it, we must not only stop nationalisation but reverse it. In terms of policy action, this means denationalisation and deregulation -- or, more positively put, privatisation and liberalisation.
In plain and simple terms, the goal of these twin processes is a reduction in political power. The hostility directed at so-called "economic power" is badly off the mark (Mises 1966). We have nothing to fear from private traders and producers who "mind their own business" -- they are ultimately subordinate to their customers. But we have everything to fear from power-hungry politicians. Anyone who is truly interested in ending exploitation must also be interested in limiting the size of the political sphere.
Vested interests will continue to dream up reasons why some assets should not be released to the private sector. These reasons are never defensible on economic grounds although they are presented as such. The real motivation is invariably political, to benefit a narrow interest group at everyone else's expense.
There is no good reason to delay privatisation. The common suggestion that a company remain nationalised until it can be made profitable is just silly. Certainly a process of commercialisation is a step in the right direction, but it is no substitute for private ownership. The main reason for privatising a state-owned company is that it can't be run as efficiently as a private company. Whatever price it can be sold for now is the best that can be gotten for it. Private ownership will bring the company to profitability far more surely and speedily than any government appointee could.
Even a loss-making enterprise has a market price; that price reflects the expected future losses it will suffer before any profit is made, as well as the future expenditures of effort and capital needed to achieve that profit. Thus, although the company may very well be "commercialised" and made profitable -- which is less likely under government management -- the government will have still made the same loss (Powell 1972).
A common -- and foolish -- statement about a loss-making state-owned company is that "no one will buy it in its present state." But if it shows any promise at all, then it has a market price. What is really meant (or should be meant) by the statement is that no one will buy it at the price demanded by the government. Thus, such a belief is not an argument against immediate privatisation. As previously shown, any delay in privatisation is socially expensive.
Contrary to common belief, the maintenance of nationalised industries does not preserve jobs. The overall effect of nationalisation in the past has been to destroy jobs. The bureaucratic ownership and management structures of government-owned enterprises cause them to lag behind the real world. Service declines and customers become a "nuisance". The employees are generally underemployed and are maintained at the expense of both taxpayers and customers. Eventually the contradictions are too glaring to ignore, and the only way to stop further losses is to open up the industry to free competition in the private sector.
The choices ahead
There are no guarantees that our politicians will make the best choices, or that we, as citizens, will be in a position to set them right. But at the end of the day, peace and prosperity can come only with economic liberty. And without economic liberty, political freedom is nothing more than a cynical charade. When the state controls the economy, it also controls the people. And when a democratic state controls the people, democracy is not a force for the good but a tool to legitimise enslavement.
When good people treat democracy as a god that can do no wrong, freedom will soon disappear. Only when they recognise that democracy is a double-edged sword, a tool that is no better than the people who use it, will they face the responsibility of using it properly. But when they use state power to appropriate and redistribute wealth, they show themselves to have more in common with muggers than with statesmen. They will have shown themselves, as Lord Acton predicted, to be unworthy of power. Unchecked democracy gives absolute power to a mob, and that power corrupts voters absolutely.
We must constantly guard against the temptation to use democracy as a cloak of legitimacy for actions that are, by any standard, crimes. When the state punishes a murderer, it quite rightly punishes evil. When it nationalises private business, it punishes the good. It hurts all those who are willing to take responsibility for their own lives and actions.
A combination of privatisation and liberalisation is the most powerful and reliable force that exists for material upliftment and the conservation of our most cherished values.
Source: This policy bulletin may be republished without prior consent but with acknowledgement to the author. The views expressed in the article are the author’s and are not necessarily shared by the members of the Foundation.