Privatisation Is Not What You Think It Is

Privatisation doesn’t have to mean the rise of oligarchs or the destruction of our green spaces. Rather, it can lead to increased control over our spaces, and economic prosperity for all...

Photo by Jakub Żerdzicki on Unsplash

The root concern that many opponents of privatisation seem to hold is that privatising land or utilities will lead to less access. This can’t be further from the truth however. Privatisation is the true democratisation of public goods, where they are finagled from the often incompetent and monopolistic arms of the state and are allowed to enter the market.

Privatisation leads to more efficient businesses, less burden on taxpayers, less corruption as politicians lose access to enterprise, and the decentralisation of goods. Yet, privatising disastrously managed parastatals like Eskom, Transnet and the Post Office is typically met with rage and threats of mass protest action.

Much of this anger is fuelled by flawed ideology. Our government and trade unions adhere to the much-discredited Marxist doctrine that everything should be state-owned, and that this control by a handful of elites somehow magically makes it more publicly accessible.

But, it’s not only Marxists who oppose privatisation. Many middle-class suburbanites have also protested against the privatisation of public spaces like parks and green belts. Their view is that privatisation will inevitably lead to the destruction of these natural spaces and the creation of, Heaven forbid, low-cost housing.

Of course, homeowners don’t want to mar their speculative housing prices with cheap residential alternatives in their area. I, admittedly, would also not want my local park to be replaced with a skyscraper. But these “Not In My Backyard” (NIMBY) types misunderstand some crucial realities about the privatisation of public spaces.

Parks will be Parks

Firstly, there is a fundamental reason why these parks and green belts exist and haven’t been developed. They aren’t undeveloped because the state is virtuous and wonderful. If the government saw a political or economic reason to develop your local park, they would do so. And they would likely it at your expense.

Rather, these parks exist and thrive because they are meant to do so. There is a social market, geographical or structural reason why that park exists. Many parks exist on land that cannot be built on. The soil is not good enough, or it just isn’t cost efficient to build there. Parks also exist because people want there to be a park. It is used and supported by a community.

Good parks, like many that exist in the Southern Suburbs of Cape Town, aren’t good because of the government. They’re good because the local community enjoys it and volunteers to maintain the space. In fact, many public spaces that you may walk on and enjoy are likely private, but the owner has allowed the use of their land for public use out of the goodness of their heart.

Low-cost or no-cost?

Fear of low-cost housing development, while also steeped in invalid selfishness, is also irrelevant. As my colleague, Martin van Staden, has said, when you don’t have low-cost housing on private land, you’ll get no-cost housing on public land.

Public land has little to no security or barriers, and borderline no enforcement when that land is invaded. Parks which aren’t protected by volunteer civic associations, backed by private security, will be inhabited by homeless people, who will erect shacks. And, with the existence of the PIE act, which actively protects land invaders and squatters, these people are there to stay. Indefinitely.

NIMBYists need to choose if they’d rather have low-cost and dignified housing, or a shanty town. I know which will hit their property prices more.

Public land will suffer the tragedy of the commons. No one will protect it. No one will develop it. It will become a target for land invasions and fall into disrepair.

Privatisation doesn’t need to be a shock

Many opponents of privatisation point to the end of the Soviet Union, where public enterprises were sold to oligarchs, pushing Russia to become a corrupt and unequal society. Firstly, modern Russia today is far from perfect, but it is already far more prosperous, freer and better than it was under Soviet Communism.

Even then, privatisation was handled appallingly in Russia. It doesn’t have to be handled the same way in South Africa. We have an existing market economy, a multitude of responsible and well-capitalised companies, and the foundations of a free society that can fight corruption.

To avoid the jolt of shock therapy, privatisation can and must be transparent. It must follow a strict liberalisation process in which regulations that lead to monopolisation are abolished. A private monopoly built on regulations is not private. It’s an outsourced state enterprise. So, markets like electricity, railways, the post and other current state monopolies must be liberalised and allow private competition.

Further, regulations like Black Economic Empowerment (BEE), and other laws that enable corrupt individuals to have preferential control over state deals, must be abolished.

The privatisation process must have multiple steps. First, what is being privatised must be assessed. In the case of Eskom, this cannot be its monopoly position. It must only be its physical assets. As much as possible, these assets must be de-bundled so they can be sold to many different competitors to avoid the rise of oligarchs.

Second, stakeholders must be assessed. Privatisation won’t be a mere auction to the highest bidder. First dibs should be given to stakeholders. In the case of parks, resident associations can be given a chance to purchase the park at a low price, with guarantees of zero-rates if it remains a non-profit park.

If no stakeholders can be found, then merit comes into play. Independent assessors will judge bidders based on their abilities to run whatever they are purchasing. A pre-existing power company, or an investor with a sound business plan to hire experts, will get preference to purchase a powerplant over a politically connected crony.

Lastly, an open and transparent auction of remaining public goods will occur. Bids and bidders will be completely open to the public, so that anyone can scrutinise the process and intervene in the case of criminality or corruption.

Privatisation doesn’t have to mean the rise of oligarchs or the destruction of our green spaces. Rather, it can lead to increased control over our spaces, and economic prosperity for all South Africans.

Nicholas Woode-Smith is the Managing Editor of the Rational Standard. He is an author, economic historian and a senior associate at the Free Market Foundation. He writes in his personal capacity.