Friday, October 5, 2007

Public vs private (5)

"Fifth, governments will want to help the poorest of the poor not only by providing infrastructure and social investments, but also by providing productive inputs into private business if that, too, is required to help impoverished households get started in market-based activities. Thus government might want to provide subsidized fertilizers to subsistence farmers so that they can produce enough to eat or microcredits to rural women so that they can start microbusinesses. Once these households successfully raise their incomes above subsistence, and begin to accumulate savings on their own, the government subsidies can be gradually withdrawn.
At the same time, except in the case of the poorest households, governments generally should not provide the capital for private businesses. Experience has shown that private entrepreneurs do a much better job of running businesses than governments. When governments run businesses, they tend to do so for political rather than economic reasons. State enterprises tend to overstaff their operations, since jobs equal votes for politicians, and layoffs can cost a politician the next election. State-owned banks tend to make loans for political reasons, rather than on the basis of expected returns. Factories are likely to be built in the districts of powerful politicians, not where they can best serve the broader population. Moreover, governments rarely have the in-house expertise to manage complex technologies, and they shouldn't, aside from sectors where the government's role is central, such as in defense, infrastructure, health, and education."


Fran├žois Ascani said...

Too-large companies can also have the same disadvantages as state-companies. Once they get too big, political rather that economical-minded decisions tend to be the case. The oil companies are a perfect example. Thus, rather than a divide between state and private, I would divide on this point between small-moderate size and large size, is not it?

Cedric said...

yes, I agree, and this is one of the topics of "Small is Beautiful", by Schumacher.