SMRT – A Study in the perils of runaway train privatization

December 20, 2011

I have only fifteen minutes, so let’s dive into the deep end pronto. Why are the trains in the doldrums? Was it as good idea to privatize the trains in the first place? The mini skirt answer is, in an age of budgetary constraints, privatization makes a compelling argument that’s hard set aside. Consider this: if the state owns an inefficient and expensive public service –it makes perfect sense to offload it onto private buyers. For starters the sale piques the interest of the exchequer. And since the private sector is driven primarily by the profit motive everyone it seems benefits: the service improves, the state rids itself of a millstone, investors profit and the state gets a booty from the one time sale.

Makes perfect sense right?

Well not all the time it seems. You can only buy into that logic if you believe privatization resembles penicillin – now don’t get me wrong. I am not suggesting ALL state assets would never benefit from privatization. Most do as historical accounts seems to support the contention flabby state owned steel mills, coal mines, car factories et al do benefit dramatically from privatization – but where theory lags behind reality is when privatization is directed to public services. As since they cost more to provide and maintain than they could ever hope to attract in revenue, public services and utilities make pretty lousy business models – for starters (without a single exception) they all seem to suffer from the paradox of capitalism i.e for a public service to remain relevant, it needs to be inefficient. This I understand may stand diametrically opposed to those who are well versed in standard accounting only let us be clear, they also happen to be the same people who are mesmerized by the cult of privatization – but consider this: if the goal of a public service such as trains is to serve efficiently, then why not just convert every station that has the lowest user frequency into a food court cum bumper car ride theme park and keep only the short inner city routes which have the highest frequency of commuters? My point this evening is to highlight succinctly public services are inherently flawed business models that should never be earmarked for privatization in the first instance – not even the French, Swiss, Japanese or for that matter the Americans have been able to accomplish this feat without provoking grief.
The second argument against the privatization of trains is it creates a moral hazard. The only reason that private investors are willing to purchase apparently inefficient public services is because the government stands as the de factor guarantor to eliminate the exposure of the operator from risk (now you understand why whenever price hikes are rolled out that’s really the only time you see ministers preparing speeches, the rest of the time, they are playing Soduku). In the case of the SMRT, for example, the operator were assured that whatever happened they would be protected against serious lost – thereby undermining the classic capitalist case that justifies the intent of privatization i.e that by injecting the profit motive into businesses this can only encourages efficiency. The “hazard” in question is that the operator, under such privileged conditions, will prove at least as inefficient as its public counterpart – since it now suffers from schizophrenia of having to deliver value to private share holders while trying in vain to sustain a business model that cannot possibly turn a profit without the complicity of the state to help it push through price hikes –end result: private services are usually no better than what they used to be when they were run by the state.

And last but not least and perhaps the strongest case that militates against any attempt to privatize public services is they simply cannot be left to the vagaries of the market without running the risk of deterioration. Public services are inherently the sort of activity that someone has to regulate. When the state privatizes a public service by default it embarks on a process of eviscerating its responsibilities to a taxpaying public by outsourcing what should and can only be performed by government – the case of this is best illustrated when the US government strained by crippling defense cuts and budgetary constrains outsourced many of its security functions to private enterprises such as Blackwater – what transpired thereafter hardly requires any elaboration to the perceptive reader, in short the public standing of government diminishes – as whenever things go wrong; not only is the government caught in a bind where it should not intervene too forcefully for fear diluting the independence of private agencies – but even if they plumb to do nothing, then overtime public perception will reach such as crescendo that it can only discredit the state and create a cachet of disgruntled taxpayers who believe the government should do more besides divesting themselves of all responsibilities in the way camphor gives itself to the atmosphere only to disappear into oblivion.

Wonder no more why we are such a bind.

Darkness 2011

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“Yes, after the cho cho train blues. We know that they are not very good at communication. I think this is a limitation that we need to take very seriously and even factor into the worst case scenario, if we decide to go into nuclear power. We should built in the grounds of the istana. That way when the PM starts growing another head and glowing like a light bulb, then all of us will know that its time to pack our bags and head for the hills.”

Darkness 2011

Conversation captured in a thread in Ekunaba recently – The Brotherhood Press 2011

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