Who Should Own What

Current Problems

Beliefs about public versus private ownership often depend upon one’s position in society. In other words, the class to which ones belongs, depending of course if one is conscious of this fact. Ideology also plays a big role, but material conditions can motivate a person’s ideology. Poor people do not have as much disposable income as their income mostly pays for basic needs like housing, water, and electricity. When these sectors are privatized their retail prices increase because the companies managing them must extract profits. This affects the poor disproportionally more than the wealthy because they cannot absorb the additional costs as easily. The greater costs are a smaller portion of wealthy household budgets, so they are not as concerned when they are privatized.

The privatization of sectors benefits the wealthy relative to the poor. For example, when healthcare and education is privatized, the wealthy can receive priority medical care and send their children to elite schools. Public ownership helps the poor because it makes necessities cheaper while removing inequities that exclude them from receiving improved services.

The wealthy use their disposable incomes to buy infrastructure and public assets as investments. They then collect the excess profits from these investments. They earn income but are not adding any new value, true wealth, or contributing to the real economy. They are extracting wealth without working from poorer working citizens that use and maintain the infrastructure but now do not own these privatized sectors. It is thus easy to see why wealthy people would favor private ownership while poorer people would favor public ownership.

Ideology is influenced by your material conditions. Everyone lives in their own social bubbles alongside people like themselves. Ideological beliefs reinforce themselves within your social circles. But we must think outside our lived experience to imagine a society that is better for everyone. Because a society that only serves one group of people is not stable and will eventually collapse. It is just a matter of time.

Wealthy people have enough disposable income to spend on discretionary goods and luxuries like jewellery, art, and hospitality services. When these sectors are publicly owned the number of choices and options decreases because publicly owned firms try to provide enough for everyone. This affects wealthy people more because they have the disposable income to spend on discretionary goods that are not as luxurious when publicly owned. The decreased choice and options do not affect poor people as much because they do not have the disposable income to buy these expensive discretionary goods in the first place, so they are not as concerned when they become publicly owned. Private ownership helps wealthy people because it gives them more options to improve their quality of life, but it introduces inequities for services that everyone uses.

Another reason for diverging beliefs regarding public or private ownership is that it depends on which sector of the economy we are talking about. For sectors that form natural monopolies and provide something that everyone needs for physical survival, private ownership produces exploitative and harmful outcomes. For sectors that can be highly competitive and provide discretionary goods for people, public ownership would reduce freedom of choice. We can make invalid but convincing arguments for different ownership in the overall economy by focusing on specific sectors while ignoring the consequences in other sectors. For example, we can point to water infrastructure and argue that public ownership is best for the economy, or we can point to jewellery and argue that private ownership is best for the economy. However, the most appropriate type of ownership depends on the sector, and we should not apply one model to the entire economy.

Principles for Decision Making

Natural Monopoly

First, we must determine if the sector entails a natural monopoly. These are sectors where infrastructure costs and barriers to entry are so high that the most efficient arrangement is to have one enterprise in control. However, private enterprises exploit monopolies to maximize profits at the expense of consumers monopolies. Therefore, if a sector involves a natural monopoly, it favors making that sector publicly owned. If a sector is more competitive with low infrastructure costs and low barriers to entry, then it favors having enterprises be privately owned.

Physical Survival

Second, we must determine if people need the outputs from a sector to physically survive. When private enterprises produce something with inelastic demand like drinking water or crucial medicines, they exploit this fact to maximize profits at the expense of consumers who cannot survive with these goods. If the outputs provided by a particular sector are necessary for physical survival it favors having enterprises be publicly owned. If the sector’s outputs are discretionary and fulfil desires or wants rather than needs, then it favors having enterprises be privately owned.

Percentage of Population

Third, we must determine what percentage of a population uses a sector’s outputs. If everyone uses something it favors having publicly owned enterprises controlling that sector. However, if a limited number of people use a product or service, then it favors having privately owned enterprises control that sector. The higher the percentage of a population that uses a sector’s outputs, the greater the argument in favor of public ownership.

Inequity Risk

Fourth, we must determine if substantial inequity results from having certain ownership structures. Inequity refers to unfair or unjust circumstances that result from avoidable differences, poor governance, corruption, or the exclusion of certain groups. If having private enterprises operate in a sector produces inequitable outcomes, then it favors having publicly owned enterprises control that sector. Conversely, if having public enterprises control a sector produces inequitable outcomes, then it favors having private enterprises in that sector. Inequity is different than inequality. Inequality means there are differences between individuals, which is unavoidable and necessary. Inequity refers to differences that are not only avoidable and unnecessary, but also unfair and unjust. Not all inequalities are inequities.

Non-Economic Benefits

Fifth, we must determine the extent to which the sector provides non-economic benefits to society. These abstract benefits are hard to value or measure in precise financial terms because their value is often not related to money. They are often an indirect result of more easily measured economic goods or services provided by a sector. Private enterprises are incentivized to maximize economic returns and therefore are not well suited to providing these goods and services in ways that maximize their non-economic benefits to society.

Desired Homogeneity

Sixth, we must determine the degree to which the sector provides goods or services that should be homogeneous. What matters is the degree to which the desired output is homogeneous, not whether the current outputs are homogeneous. In other words, how consistent or how similar the output should be between different sources or producers. If there is little variation in the desired output, regardless of what kind of firm or which firm produces the output, then this favors the sector being publicly owned. However, if there are many desirable types or ways of providing a good or service, this favors private ownership. Another aspect of this principle that can help deciding on ownership is the degree to which differences are superfluous, superficial, or materially inconsequential. The more that differences matter for avoiding materially negative consequences, the greater the argument in favor of public ownership. The less important the differences are in terms of material consequences of those differences, the more it favors private ownership.

Examples of Determining Appropriate Ownership

Deciding between public and private ownership is easy if all principles are fulfilled or unfulfilled. For example, sectors should be publicly owned if they involve natural monopolies producing things needed by everyone for physical survival and severe inequitable outcomes result from private ownership. Sectors should be privately owned if they are highly competitive, produce discretionary goods or services used by few people, and trivial inequitable outcomes result from private ownership.

For certain pairs of fulfilled or unfulfilled principles it is also relatively easy to decide between public and private ownership. For example, sectors entailing natural monopolies producing things needed for survival should be controlled by public enterprises even if only some people use the outputs. Similarly, sectors producing things needed for physical survival that cannot be easily measured in financial terms should be publicly owned, even if they do not entail natural monopolies. Conversely, sectors that are highly competitive producing discretionary outputs should be privately owned, even if everyone uses those things. Similarly, sectors producing discretionary items without any risk of inequitable outcomes should be privately owned even if everyone uses the outputs.

Sectors where principles are partially fulfilled are suitable for a mix of ownership types. For example, sectors that are almost natural monopolies, produce outputs that are crucial but not strictly needed for physical survival, are used by most people but not everyone, create some but not severe inequity, and include both economic and non-economic benefits. These types of sectors are best served by having at least one publicly owned enterprise operate alongside private and cooperative enterprises. Having publicly owned enterprises helps control price gouging to keep the sector competitive while including private and cooperative enterprises increases options and customer service.

The degree to which different ownership types control a sector should be determined by the degree to which the principles are fulfilled. The closer a sector is to a natural monopoly, the more its outputs are needed for physical survival, the higher the proportion of people using the outputs, the greater the risk of inequity, the more the benefits are non-economic, and the more desirable it is to have a homogeneous output, the stronger the argument in favor of having public ownership. Conversely, the more competitive a sector, the more discretionary it outputs, the fewer people that use its outputs, the lower the risk of inequity, the easier it is for outputs to be financially measured, and the more desirable it is to have heterogeneous outputs, the stronger the argument in favor of having more private ownership.

Infrastructure

Infrastructure includes things like roads, bridges, rail lines, airports, train stations, shipping ports, electrical grids, water systems, sewage systems, and internet cable networks. These are all examples of natural monopolies because it would be extremely inefficient to have multiple parallel but competing sets of these physical infrastructure systems. They require huge investments that entail enormous barriers to entry. Infrastructure such as transportation networks, water systems, and electrical grids are necessary for physical survival because they move our food supplies, drinking water, and power our hospitals.

Infrastructure systems are used by everyone either directly or indirectly. They serve basically everyone in society.

Enormous non-economic benefits come from having well-functioning essential infrastructure, from facilitating family visits and community connections to maintaining physical health and enabling the pursuit of personal interests. These types of infrastructure are also essential for national defense, which means it is hard to calculate their value in purely economic terms.

Privatizing essential infrastructure introduces inequity because they effectively relegate poor citizens to slower, busier, less well-maintained infrastructure. For example, toll roads force poor citizens to take longer and often less safe public road detours. Having privatized infrastructure means that areas with wealthy residents are more likely to end up with faster internet speeds, better maintained roads, and better access to key infrastructure.

When publicly built infrastructure is sold off to private interests, their motivation is to maximize economic profit. They avoid maintaining the infrastructure to maximize the non-economic benefits such as clean drinking water, safe bridges, and easy access to mass transit. Privatization increases the likelihood of monopoly price gouging that disproportionately harms lower income households.

The desired output of most infrastructure is a near homogeneous product or service. For example, there is little flexibility in what constitutes clean and safe drinking water. The desired levels of power that needs to be delivered to end users by an electrical grid must stay within narrow margins for safety and proper functioning of alliances using electricity.

Based on fulfilling the ownership principles, essential infrastructure should be publicly owned for the benefit of all citizens and private essential infrastructure must not be permitted.

Healthcare

Healthcare is needed for physical survival, to maintain physical health, and it is used by everyone. Healthcare is not a natural monopoly, but local monopolies are possible. For example, many regions cannot support two hospitals and building them is expensive, signifying a high barrier to entry. Certain treatments have no substitutes, and the production of specialized medical equipment or patented pharmaceuticals can be monopolized. Having private enterprises control the healthcare sector results in more expensive and less efficient healthcare. This is because profits paid to shareholders are not available to improve healthcare and having multiple parallel bureaucracies introduces additional expenses. Competition eventually produces monopolies that raise prices to maximize shareholder value at the expense of patient health. Having private enterprises introduces inequity because it enables wealthy people to get superior and priority treatment while the poor often cannot afford needed care. The maximization of economic profit reduces the focus on non-economic benefits to society, such as keeping people healthy by pursuing preventative medicine rather than waiting for them to get sick and then profiting from curing symptoms while disregarding causes. Forcing healthcare to be publicly funded and removing the possibility of privatization also gradually incentivizes society to address root causes of disease such as homelessness and poverty, providing substantial non-economic benefits to society. Private healthcare produces worse outcomes for public health at greater cost, so there is a convincing argument in favor of having the entire healthcare system be publicly owned.

Education

Education is needed by everyone who wants to fully participate in modern societies and supports physical health when it covers relevant topics. Various levels and types of education can result in systematic inequities, especially when split between expensive private schools and free public schools. Wealthy parents send their children to private schools, where they gain social networks that give them substantial advantages in the economy. Inequities also arise when education, especially tertiary education, is expensive and students must take on large debts to get their education. Education produces non-economic benefits to society beyond training for specific jobs and making employees more productive. Education reduces racism, bigotry, and extremism by exposing people to different ideas, cultures, and perspectives. This makes people more tolerant of others and produces a more harmonious society. Educated people have increased community engagement, improved child health, and are more likely to look after the natural environment. Education also provides indirect but financially measurable benefits to society. For example, educated people tend to adopt healthy behaviors and put less burden on the healthcare system and are less likely to engage in crime and will cost the criminal justice system less money. Private education loads students with debt burdens and produces inequitable outcomes when wealthy students attend elite schools.

Insurance

The insurance sector is not a natural monopoly, but there can be high barriers to entry for insuring expensive items such as buildings and infrastructure. People do not need insurance for physical survival, but it is quite an important sector for protecting assets and livelihoods. For example, life insurance for parents protects the livelihoods of their children, and house insurance enables people to rebuild homes if destroyed. Not everyone uses insurance, but most people will use some kind of insurance during their lifetimes. There is a risk of inequity since poor people may not take advantage of insurance as often because they cannot afford the cost, putting them at greater risk. There is some degree of desired core homogeneity between insurance products, but there is also room for considerable variability to tailor to individual and different business needs. The insurance sector should have a mix of ownership types with at least one major publicly owned insurer to protect against decreased competition and raise premiums due to corporate mergers.

Food

Everyone needs food for physical survival, but unlike medical treatments without substitutes or the inelastic demand for drinking water, there are diverse types of foods that we can substitute for one another. This makes the sector less prone to a natural monopoly and more competitive because anyone with fertile land can produce food. Farmers can switch to growing the most profitable crops and people can change the foods they eat if certain types become too expensive. There are inequity risks, for example if ownership concentration gets too high or sub-sectors become locally monopolized. If prices rise high enough it excludes the poor from meeting their basic nutritional requirements. The food sector can therefore be controlled by private and cooperative enterprises, but only if antitrust laws are enforced to ensure competition. Another approach to avoiding market failure is to have publicly owned enterprises operate within the sector to help control the prices of key food staples so all members of society can afford their nutritional requirements.

Jewellery

Jewellery production does not represent a natural monopoly, but firms can form cartels and monopolies within sub-sectors, such as diamonds. This implies the need for monitoring ownership concentration, but not for public ownership of enterprises operating in this sector. There should be no public ownership of enterprises in the jewellery sector because it is competitive with low barriers to entry in most areas, its products are not needed for physical survival and are purely discretionary, only a portion of the population uses jewellery, and the inequity risk is low. The role of government is simply to prevent cartel behavior and break up monopolies. There is no good argument for having public ownership in the jewellery sector. Innovation and choice are much better served by having private enterprises compete within this sector.

The above examples show how the principles can help determine the most appropriate ownership structures for different sectors. There are compelling arguments for public ownership of water, sewerage, fire, police, electricity grids, defense, and education. There are equally compelling arguments for private ownership of hospitality, retail, luxury goods, construction, and clothing. Cooperative ownership is appropriate in smaller markets where there is a possibility of a local monopoly arising, or where an industry is geographically dispersed and not well served by private enterprises. Cooperative enterprises should be encouraged in every industry with private ownership because their workers are usually better paid, receive greater benefits, and have more job security.

Considerations

Antitrust Laws

Any sector that includes a mixture of ownership types needs strong antitrust laws and robust enforcement of those laws. These must be accompanied by an independent body to monitor and enforce those laws, a secure funding mechanism to ensure its continued operation, and structures to ensure the independence of its decisions. These must all be defined within national constitutions to protect them from private interests influencing government to change the laws. Funding for the body must be defined as a fixed portion of the government budget to ensure the body cannot be rendered toothless. Staff appointments must not be made by politicians or industry, and they cannot come from the private sector.

Education

Education curriculum must include repeated lessons regarding the justifications and consequences of diverse types of ownership in different economic sectors. They must include historic examples of market failures and contemporary case studies to explain why different sectors must be publicly or privately owned. This education is essential to avoid repeating the same mistakes and to safeguard the economy from private interests seeking to establish monopolies or extract profits at the expense of public wellbeing.