March 16, 2005

The Fundamental Problem with Privatization

Privatizing government activities makes lots of sense in theory, but it often fails to work out so hot in practice. A friend explained why recently by noting that while companies can make modest profits by fulfilling the terms of rigorous contracts drawn up by government officials, a more profitable strategy is often for the private firm simply to corrupt those government officials who hand out the contracts.

This doesn't mean that privatization can never work, it just means that it's best carried out by politicians who don't trust private firms and thus are particularly clever about drawing up systems to prevent corruption. Libertarian ideologues are particularly ill-suited for managing the privatization programs they advocate since they tend to be suckers.

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