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Turning private has its pitfalls

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Harold Macmillan, one of the most interesting British prime ministers, was quoted accusing Margaret Thatcher of 'selling the family silver' when she embarked on large-scale privatisation of the country's state-owned industries. (His actual quote was more nuanced*.)

Today, other European governments, the European Central Bank and the International Monetary Fund are ganging up to demand that Greece sell its government-owned industries to raise Euro50 billion (HK$550.83 billion) by 2015 to help pay down its massive debts and get the economy back on an even keel.

Conventional wisdom, except in China with its plethora of state-owned enterprises, has become that private enterprise always does things best and that the state should get out of business. Business knows best how to run things efficiently and to make money, while governments tend to tie up enterprise in bureaucratic red tape, or so the pro-privatisation supporters claim, whereas socialists argue that the market and profit motive do not protect the poor or the security of the state.

Dr Manmohan Singh, when he was India's finance minister with barely enough foreign exchange reserves for two weeks of imports, was reluctant to privatise profitable state-owned companies. He told me: 'If they are profitable, why shouldn't the profits go to the people?'

Similarly, the 1945 Labour government in Britain believed the 'commanding heights of the economy', including energy, coal, railways and transport, and iron and steel, should be under government control, which would prevent rich owners from exploiting monopoly profits.

The British experience was that new forms of monopoly, inefficiency and exploitation replaced the old under government control: red tape and union power meant services were inefficient or expensive or both; managers' freedom to run their industries was curbed by political intervention; and crippling strikes were threatened if managers tried to trim staff or benefits or governments intervened.

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