Strategic infrastructure means projects that develop commonly utilized assets that provide an advantage to one or more private sector entities or that create necessary physical infrastructure in the state, and such projects are not adequately provided by the public or private sectors. Such projects may include vertical improvement developments, facilities and equipment upgrades, or the redevelopment or repurposing of underutilized property or other assets, provided that each project is intended to attract additional public or private sector investment and result in broad-based prosperity in this state.
Governments often establish business enterprises to provide
goods and services—usually when there is a market failure. These are often
termed State-Owned Enterprises (SOEs), writes Kesh Anand.
Typically, these relate to one of five categories:
Natural monopolies such as telecommunications, water and
energy utilities. It is impractical to have more than one provider of each
service in a given area due to the physical assets and infrastructure that must
be deployed.
Civil Infrastructure including highways and bridges, mass transit
systems, seaports and airports. They are typically too big for individuals or
even corporations to finance — unless there is a directly correlated source of
revenue from day 1.
Public goods are services that are can be used by anyone in
the country and don’t get “used up” when there are an increasing number of
customers. Things like a postal system or airline to service both metro and
regional areas, or the armed forces.
Protected Industries: Some businesses are not competitive
due to a reliance on a nascent technology that is not yet commercially viable
(like solar power today), or strong competition from other countries (like
vehicle manufacturers). Others may be profitable (e.g. arms industries, or oil
exploration and refinement) but are of significance to national security.
Governmental support functions: such as tax collection
services; land titles offices; registries of births, deaths and marriages;
social security services; police and prisons. They support and enable the
business and apparatus of “being a government” as a going concern (not just to
make the market).
Every so often, a government tries to privatise these SOEs
(i.e. selling them off to another company). They hope to raise funds which can
be ploughed into delivering their next big ticket electoral promises.
Resistance then comes from other market actors such as unions and consumer
groups who cite potential job cuts, and increased costs for services.
The role of the state in operating an SOE is to provide
goods and services where there is a market failure, or when it is a matter of
national security. So long as the enterprise can continue to operate without
sliding back into said market failure (be it through a decline in the quality
or accessibility of services) or pose a risk to national security, then there
is no reason why privatisation should not be considered an option.
What sort of things should and should not be considered for
privatisation?
Natural monopolies: These should not be privatised in my
view for two reasons:
They pose an issue around national security. If a foreign
government‘s SOE or faceless corporation has control over your
telecommunications or electricity grid — they cannot only control whether or
not it functions but also perform various types of spying and espionage.
There is limited opportunity to introduce further
competition to the market, and thus innovation and modernisation efforts will
focus less on trying to secure more customers through an improved value
proposition, but rather around cost cutting.
It is possible to run these at a reasonable profit (Japanese
and Amtrak are profitable railways for instance), and the ability to institute
“user pays” business models with these items make them inherently fairer.
Public goods: These are good candidates for privatisation.
They typically have avenues through which they can make profits (postal systems
can charge for courier services, and airlines can run the major routes at a
profit), but parts of their business should be subsidised to enable them to
provide these services to an otherwise unprofitable customer segment (e.g.
regional areas). The obvious exception here is the military which you’d
definitely keep nationalised in the interest of national security.
Protected industries: These typically are not good
candidates for privatisation. As alluded to above — they are not often not
commercially viable due to high costs of underlying technology, materials and
skills, or not competitive in a global context without tariffs, subsidies or
other protection mechanisms in place. For those that are commercially viable —
such as arms manufacturing or oil, it would be advisable to keep a base set of
knowledge and assets within government control so that these cannot be denied
during times of war or sanctions.
Government support functions: Because of the nature of the
information they use (income, asset, health and other sensitive data about
individuals), the vulnerable people they often deal with (welfare recipients
and prisoners), the possibility of abuse, and the essentially monopolistic
nature of their activities — these should not be privatised.
In addition to the above, I believe there are a class of
non-monopolistic “essential service industries” in which the government should
have a presence, alongside the private sector. These include hospitals,
schools, and banks. The government presence ensures that there is an offering
all citizens and residents of a country, and also help to keep private sector
players competitive (if not in price, then at least service).
Conclusion: SOEs form an important part of any economy. That
said, the core job of a government is to govern, not run a multitude of
businesses. As such, unless there are concerns around national security or a
market failure — the state should look to privatise where possible, and in some
cases — provide a public sector option alongside it.
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