Way back in 1969, the late, great Peter Drucker predicted that the next big thing in global economic development would be the "reprivatization" of state-owned industries. It took a while, but Mr. Drucker was right as usual and the privatization revolution that was launched a decade later has transformed national economies and produced a remarkable surge in new wealth.
This week Robert Poole and other scholars at the Reason Foundation released the 20th Anniversary Edition of their annual global privatization report. It chronicles this sweeping economic trend that began in Margaret Thatcher's England, spread to the U.S. under Ronald Reagan, then to China and the former communist nations of Eastern Europe. A 2005 World Bank report also finds that, from 1990-2003, governments around the globe have generated $410 billion in privatization proceeds.
In her Reason essay, Mrs. Thatcher notes that government has a natural "temptation . . . to concentrate power in its own hands." So by the mid-1970s nearly every commercial activity in Britain was operated by the public sector — in most cases poorly and at high cost to consumers and taxpayers. Mrs. Thatcher acted swiftly as Prime Minister to reverse 30 years of this creeping socialism, privatizing steel plants, coal mines, Rolls Royce, oil companies, the telephone system and a major airline.
She built a political constituency for this policy in part by selling the shares to the unionized work force, as well as by turning over some 600,000 public housing units to middle-class tenants. It's a testament to the resilience of her reforms that to this day the Labour Government hasn't reversed a single privatization. By the way, under Lady Thatcher Britain climbed to second from 19th among OECD nations in economic growth.
China's first experiment with privatization may be the most celebrated economic success of modern times. In the early 1980s, the Communists allowed peasant farmers to grow and sell their own crops and keep the profits. Food production nearly doubled in a decade. Private farm production has converted China into a food exporter, and by now roughly two-thirds of China's state-owned enterprises are partly or mostly private.
The U.S. never went as far down the socialist path as these nations, but privatization has also yielded gains here. Corporate subsidies and regulations in banking, energy and financial services were rolled back in the 1980s, and the freight railroad Conrail was sold. Under Bill Clinton, government-owned oil fields, large sections of the electromagnetic spectrum for broadcasting and the U.S. uranium-enrichment facility were sold, yielding billions of dollars in each case for the federal Treasury.
The biggest U.S. revolution, however, has been at the state and local level. Cities once did everything "in house," but they have learned under budget pressure to cut costs by contracting out more than one-third of their operations — from garbage collection to payroll processing and municipal golf-course operations.
GOP Governors Jeb Bush of Florida and Mitch Daniels of Indiana have shifted hundreds of millions of dollars of government operations into the private sector. So have such big-city Democratic mayors as Richard Daley of Chicago and Jerry Brown of Oakland. Mr. Daley, who has outsourced 40 city services and recently sold the Chicago Skyway for $1.8 billion, has often said that relying on the private sector is not about ideology but about getting value for tax dollars.
Both in the U.S. and abroad, there is still much more privatization that could be done. In this digital age, it's inexplicable to have government deliver the mail or burn $1.2 billion a year for Amtrak's passenger-train service. But these are trivial wastes compared with the public monopoly over the vital social service of education. It is no accident that education is one of the only modern services that has experienced a steady erosion of productivity. The advancement of charter schools, vouchers and private scholarship programs has been much too slow for the well-being of our poorest children.
Looking ahead, the Reason editors see much more private investments in roads, water systems and airports. More than a dozen nations have privatized air-traffic operations — including Britain and Canada — though not the U.S. The main obstacle in all of these cases is entrenched interests, such as unions and public employees, that intimidate politicians into opposing competition. Building a political strategy to overcome this opposition is one of the main challenges of our time.
All in all, however, the story over the last 30 years is one of remarkable progress. "All great ideas go through three stages. In the first stage they are ridiculed. In the second stage, they are strongly opposed. And in the third stage they are considered to be self-evident," the philosopher Schopenhauer once observed. Privatization may not have reached stage three, but it's getting there.
