Friday, 22 February 2008

"Public ownership" (updated)

Madsen Pirie at the Adam Smith Institute blog has a nice posting on the topic of public ownership being a misnomer. As Pirie puts it
The state sector may have the name of the public filled in on the dotted line, but the public do not own it in any meaningful sense of the word. All of the attributes of ownership, such as control, the right to determine what use is made of it and under what conditions, is determined by the bureaucracy in command of it.
This is an important point, without control you don't have ownership. As Oliver Wendell Holmes Jr. put it,
But what are the rights of ownership? They are substantially the same as those incident to possession. Within the limits prescribed by policy, the owner is allowed to exercise his natural powers over the subject-matter uninterfered with, and is more or less protected in excluding other people from such interference. The owner is allowed to exclude all, and is accountable to no one. (The Common Law, p193, (1963 edn.))
Clearly the "public" does not have the rights Holmes refers to. The government (or its bureaucracy) has these rights. Following Grossman and Hart ("The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration", 'Journal of Political Economy', 94:691-719) economist's tend to define the owner of an asset as the one who has residual rights of control over the asset; that is whoever can determine what is done with the asset, how it is used, by whom it is used, when they can use it etc - note that ownership is not defined in terms of income rights. Under "public" ownership it isn't the "public" who has the control rights, its the government. The "public" can not determine what use is made of a "public" asset, rather its use is determined by the politicians and managers in command of it.
Because the public has no choice over whether to pay for state services, or to choose what quality of service is appropriate for them, they have no power over them. In their absence it is the managers and workforce who increasingly direct the services to meet their needs and convenience instead of those of the public.
Just think of the "public" universities in New Zealand, there are no private ones, what control does the "public" have over them? Control rests with either the government or a complex system of academic and non-academic staff, executives, outside trustees and current and past students of the university. The university's "owners", the "public", have the least say of anyone in their running.

In fact as Pirie points out, paradoxically,
The public actually has more influence, via its choices and purchasing decisions, on private sector businesses than it can ever have over state industries and services.
So private is more public.

Update: At Not PC they ask, What does "the public" actually own?

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