Should we nationalise?

2011-11-03 00:00

WOULD you or your company buy a product or service from a government-owned or run entity if you could choose alternatives from the private sector?

The debate in South Africa around nationalisation has raged for some time now, but the essence of the debate lies with the track record of the government and its subsidiaries in the delivery of goods and services to the public.

Globally, the issue hovers just beneath the surface of public debate. BlackRock, the world’s largest money manager, recently warned that resource nationalism is on the rise globally, “undermining investment” in countries like Zimbabwe, Venezuela and even Australia.

I recall an esteemed economist once explaining that it is necessary for some sectors to remain nationalised, depending on their strategic importance to a country. He argued that this would, among other things, ensure regular supply of the product or service (think of water and electricity as examples). Mind you, the government of the late nineties clearly missed that boat when it failed to heed Eskom’s infrastructure needs.

It is critical that we examine the track record of the government and its state-owned enterprises (SOEs) in this regard.

Perhaps I should use the example of the Msunduzi Municipality (or other municipalities for that matter) or SOEs like Transnet, which has long been criticised for inefficiencies that push up the cost of transportation, seeking exorbitant port and rail tariff hikes. Just ask the food, coal and timber industries for their views on how this SOE is run. Or what about serial-bailout case SAA?

In the book Nationalisation, published by the Free Market Foundation (FMF), Richard J. Grant, professor of finance and economics (at Lipscomb University in Tennessee in the United States), argues that nationalised industries also reduce the competitiveness of industries that depend on their goods and services. Just ask timber producers who are forced to rely on truck operators rather than being left at the mercy of the inefficient rail networks. He points out that “the tendency of nationalised companies to underperform their private counterparts is consistent and well recognised”.

In the same book, FMF economist Jasson Urbach points out that a study of privatised industries in the United Kingdom revealed myriad problems associated with nationalisation, including political interference, higher prices, demotivated workforce and the politicisation of industrial relations. Other case studies of interest include Zambia’s copper mines, Venezuela’s oil industry and the Democratic Republic of Congo’s mining industry.

The failures in good governance of public health and education institutions, government departments and municipalities are well documented. They are also tracked by key financial and service delivery indicators, as well as the ongoing service-delivery protests — which all bear testimony to the challenges faced by the government.

I doubt whether the perceived dividends of nationalisation will ever accrue to ordinary citizens. Perhaps the money and resources that would have been devoted to the nationalisation of a sector or sub-sector of the economy could be utilised for the benefit of all South Africans in a more direct and cost-effective manner.

All indications are that it is not an efficient and competitive way of producing and distributing goods and services in an economy that must inevitably wrestle with the challenges of globalisation.

All things being equal, I would choose the private sector alternative over the government alternative most times.

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