Let Iraqis Decide What to Privatize
By Moshe Adler
Tuesday, August 5, 2003; Page A15
The plan of L. Paul Bremer, chief U.S. administrator in Iraq, to sell government-owned companies to private investors assumes two things: that privatization is what free people anywhere prefer, and that it's what's good for them. Neither assumption is true.
In fact, when it comes to government ownership, highly developed democracies have made very different choices. Its 10 million American customers may be surprised to learn that the German government owns 44 percent of T-Mobile, the cellular phone service provider. In France the government owns 54 percent of Air France, 21 percent of the company that owns RCA and 27 percent of the car manufacturer Renault, which in turn owns 37 percent of Nissan and 70 percent of Samsung. The British government owns 100 percent of the BBC. In Finland the government is the owner of all the liquor stores and 60 percent of an energy company that owns retail gas stations. In Sweden the government is the owner of all pharmacies and several iron mines. It is clear that no assumption can be made regarding what the people of Iraq would want to do with the companies they own. The answer will be known only when Iraq has a fully functioning democracy.
Bremer is also wrong to assert that subjecting government-owned companies to the forces of the free market is necessarily in the best interest of Iraq's people. Democratically elected governments the world over own companies precisely in order to shield them from the market and the profit motive. In some cases this is because other social goals have been deemed more important than profits. In others the purpose is to create a healthy economy that creates good jobs.
When a government owns liquor stores, for example, it is because it wants to control the consumption of liquor. The fear, perhaps, is that a private store owner might be tempted to sell liquor to the young or intoxicated. When a democratic government owns a broadcasting service it is likely that its people are fearful that private broadcasters will replace news with entertainment. When the profit motive clashes with social goals a choice must be made. The Swedish government, for one, has made it explicit: "Companies with special societal goals should create value firstly through accomplishing those goals, and secondly by using their resources efficiently," its policy states.
Yet democratically elected governments also own companies in many other industries, among them airlines, gas stations, mines and automobile manufacturing. In these cases the clash is not as much between the profit motive and consumers as it is between the profit motive and labor. Private employers generally wish, of course, to pay their employees as little as possible. When the government is a large-scale employer in an industry, however, the wages and benefits it pays its own workers help set the standard for the rest of that industry. Furthermore, government ownership permits long-term economic planning of the sort that is typically not available in the private market. When Airbus was first formed, for example, not one private airline company ordered airplanes from it. But government-owned Air France and Lufthansa both did. Why? First, because being governmental monopolies, they faced no risk. More important, though, they ordered the planes because their owners -- the governments of Germany and France -- had a direct interest in the creation of good jobs in their respective countries, even if these jobs had nothing to do with the airlines (and everything to do with maintaining their country's economic health and well-being).
If it is impossible to know whether the people of Iraq want to privatize the companies they own, it is equally impossible to know what their definition of a private company will be. In Germany, for example, fully half of a company's directors must be workers. In some democracies laying off workers is very difficult, while in others corporations have more "flexibility." These are just a few of the decisions that the people of a democratic Iraq should have the right to make.
As the current debate about Social Security or drug plans for Medicare makes clear, the issue of privatization is far from settled even in the United States. It's far from clear that even a majority of Americans, let alone Iraqis, are in support of the privatization policies currently being imposed on Iraq. Selling Iraqi-owned companies to private investors subverts the main goal of the war, which is to bring democracy to Iraq.
The writer is an adjunct associate professor of economics at Columbia University.