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WRITTEN GUARANTEES

People ask us if we can guarantee that free market–style privatization will bring all the benefits we advocate for, while creating robust free market–based private enterprises. Our answer is always the same: Sure! Absolutely! Positively! Unquestionably! Without any doubt! Oh… and if you believe this one, we can tell you another one!

We hate these types of questions not because they are difficult but because they are totally unreasonable. We are providing a mechanism that optimizes standards of living and chances of financial self–sustainability to replace a system that we know with absolute certainty (just look at the past) that provided lower standards of living while requiring constant increases in payments. Alas, all these benefits do not seem to be enough! Preposterous! Ridiculous! What is it that these people want? A written guarantee? If it is so, they should by an appliance. There are no guarantees in a free market, just best efforts… which are usually sufficient.

PAST HISTORY

Yet another question that we face frequently, but particularly in this topic is: how do you know your process will work? Simple, because it has been tried before. There are not that many examples, but where there are to be found they almost always exhibit remarkable proficiency and robustness. And why would it be otherwise? Remember, the customers are the owners! People try very hard not to sabotage themselves. Why should this be any different?

OTHER EXPERIMENTS

In addition, we need to ask ourselves a searching question: are these two methods the only ones possible? And the answer is: of course not!

That's the beauty of truly free markets. Solutions to problems are as diverse as people providing them. The truth is that whichever path privatization may take, it will be messy. A few examples:

Argentina: almost all "socially–oriented" companies were sold-out to private groups and most of these companies followed "the cycle" previously described.

USSR: many "socially–oriented" companies were…ejem!…"gifted"…ejem! to the merry band of Commies–Were–Us through the so–called "voucher" process. However awful this robbery was, one thing is certain: commies are good organizers and therefore good free market participants. Many such companies struggled in the beginning (and received subsidies) but today they are actually financially viable. The largest problem is that ownership is in the hands of a few un–deserving oligarchs.

East Germany: they sold viable government enterprises to –mostly– German companies and closed–down non–viable ones. Eventually, surviving companies became self–sustainable.

Czechoslovakia: they use the so–called "voucher" method, whereby people are either given or can purchase cheap vouchers that can be used to pay for services provided by government enterprises.

UK: privatization started in 1979 and continues to today. Most government enterprises were privatized by selling them to investors. Most sold companies are self–sustainable and financially viable. Arguably, standards of living have increased.

And so on and on.

REAL LIFE CONSEQUENCES

If we study the many privatization efforts throughout the world, we can classify them in three:

  1. Companies in "the cycle" which were re–sold to the government
  2. Companies which are more–or–less financially viable and sustainable
  3. Companies that are widely successful

It is quite difficult to find accurate statistics to indicate which group is the biggest, but some data suggest that it is the second group. If this is correct, this would indicate that in general terms, privatization was a success despite government continuous intervention. We must never forget that although companies were privatized, many are still operating within "regulatory" frameworks, which is bureaucratese for irrational rules and regulations. In the end, however, all countries are rushing towards hyperinflation which will throw all these privatized companies into "the cycle"; this much is inevitable. It won't happen today; it won't happen tomorrow, but it will happen.

THE SOCIAL SIDE

Many privatized companies provide essential services such as water and natural gas. It is clear that under managed market conditions (i.e. current conditions) a segment of the population won't be able to afford them. In order to purchase their votes, politicians introduce so–called "social" rules and limitations forcing privatized companies to deliver services essentially for free. Governments may do this by regulation or subsidy, but they do it.

The problem with this issue is that it is un–soluble for as long as we lack a true free market. In the current market and throughout the world, standards of living are constantly decreasing. Therefore the segment of population unable to afford basic services is constantly growing. Which leads to the inevitable conclusion that although government enterprises may have been privatized (ending irrational subsidies) other subsidies must now be enacted to support the population unable to support themselves!

In other words, privatization in current markets only replaces one type of subsidy with another!

In a truly free market, standards of living constantly increase thereby decreasing the amount of population unable to afford basic services. Furthermore, even for this people, other free market solutions appear. Again, this is not political science–fiction. To see this in action all we need to do is to watch impoverished countries at work, where government intervention is at its minimum for lack of enforcement. People always find solutions they can afford… unless there is government intervention.

FAILURES

What happens if a privatized mini–monopoly providing social services fails in the market? Simple. The government steps–in to "correct" so–called free market "failures". In essence, they typically buy the company out and re–nationalize. All this in the name of protecting society.

In reality what they should be doing is essentially nothing. The issue is not that there is no market for the product, but that the company was financially non–viable. If a company goes under, a different company will simply buy out its assets and begin operating under different rules… to ensure financial viability. This is not only a matter of Austro–Libertarian principle, but a matter of increasing standards of living. If a company is unable to provide a product at a price that people can afford, the next one will do it simply because there are profits to be had.

The real question is not if a different company can make a profit, but if the government will step out and let the nature of free markets take its course. Sustainable products can only be achieved through painful market lessons. As soon as governments step in, the free market stops working.

FUTILITY

We previously mentioned that even if by some sort of miracle a government privatizes the free market way, this effort would be futile. The reason is simple. Politicians are vote maximizers. Privatization creates pain. There is only so much pain that voters can endure and continue voting for the bringer of suffering. As the amount of pain increases, politicians are compelled to step into the privatization arena and begin to impose irrational rules. This is typically the beginning of the end. As governments swing back from right to left, privatization is reversed and nationalization embraced… and these are the good news.

The bad news is that as governments continue with their spiral towards total bankruptcy riding on an orgy of fiat money, they inevitably trigger inflation to high inflation to hyperinflation. Prices rise. People can't afford basic necessities. People complain. Politicians see their votes evaporating. Politicians impose price caps on privatized goods and services. Privatized companies go broke.

What makes privatization so futile –even when done correctly– is the sword of Damocles the government is holding over privatized companies. The government can and will change their mind in a second. Whereas a free market is robust, stable and resilient; governments are fragile, un–stable and weak. Eventually, they all succumb to the temptation. It truly is pointless. For as long as governments exist and however well–intentioned privatizations may be, they will eventually fail due to government interventions.

CONCLUSION

Privatization is the only way we have to re–establish free market principles and take back what is ours from government's hands. However, even when privatization is done following free market principles, they are guaranteed to eventually fail due to government intervention.

The only real solution to the problem is to get the government out of the way. Not strangely enough, just by removing the government from the equation, the privatization problem solves itself.… which seems to be a repetitive conclusion.

This is the true story of privatizations. If you look at this process from a common sense point of view, you will notice that we are not irrational, they are. This makes all the difference. Suddenly, what they are doing can be understood and with this understanding come the realization of their defects. This realization leaves you with two privatization options: support the government or support the free market. There is no third option and as usual, the option is fully yours.

Note: please see the Glossary if you are unfamiliar with certain words.

 

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