Review “The public wealth of nations”
This book starts off with a nice, catchy title. But it also takes a very serious subject, namely the management of publicly owned assets and points out the size and importance of such assets, which range from commercial enterprises to service companies to real estate and unused land. It offers a mass of information, both in terms of aggregate data and also specific examples which, unlike many public management books, are taken from countries all over the world.
The book offers a series of well-written and clear arguments. It claims that political management of public assets leads to a series of serious difficulties. Public assets are not used productively and can even lead to financial economic crisis. Politicians use them corruptly. Unelected officials are unsuited to maximising benefits from assets and, in any case, have no incentives to do so, facing conflicts of interests and the temptations of clientelism.
To safeguard against these dangers, public wealth should be put into a separate “national wealth fund”, professionally managed on commercial grounds and well protected from “interference” by politicians. It need not be privatised, but often this may be a good solution. Politicians can focus on acting in the interests of consumers, notably through regulation.
Several examples of the benefits of hands-off governments are given, notably in Scandinavian countries, while failed attempts, such as in Greece, are set out as contrasts.
The book’s highly readable style, relevant examples and straightforward prescriptions make it an attractive read. But as an academic text or as a source of serious policy making, its argument faces some serious obstacles. For a start, it takes a simplistic view of the private sector, which is regarded as inherently more efficient than the politicised public sector. But private companies suffer from their own difficulties of capture, clientelism, corruption and incompetence.
The rather simple linkages made between public sector inefficiency and economic problems are highly contestable because they ignore many other factors. Indeed, in large measure, the economic crisis after 2007 has revealed that the sources of instability were private companies, especially in the financial sector, more than public ones.
A second problem is the treatment of politics. All political action is treated as some kind of interference in commercial relations, which are seen as entirely separate. Yet modern markets are constructed through political decisions such as providing zero-interest loans or regulating certain tariffs, or planning for long-term energy. All are highly political. Large companies, the dominant force in modern economies, are equally political, obtaining many of their profits thanks to lobbying and state regulation. Direct political management of assets represents simply a different form of state economic policies to regulation of privately owned companies.
The third and related issue is the simplicity of the proposed reforms. The book is often unclear as to whether it proposes a national wealth fund or, in fact, is really discussing the private ownership of state-owned enterprises. Yet the latter has been shown to have many defects, including the socialisation of losses and inability to transfer risks to the private sector, while transferring large profits and high salaries and bonuses to the lucky few in major sectors.
More generally, the idea that state assets can be removed from politics is superficially appealing to some but impossible in practice. Politics pervades economic policy, regardless of whether companies are privately or publicly owned. Equally, “commercial objectives” cannot simply be defined and often are highly political, being related to values. The hope that regulation would remove politics from markets has been dashed in the past 20 years, as decisions about industries ranging from aviation, energy or genetically modified foods have been clearly shown to be linked to values, and hence contestable, making them political.
The book offers valuable data and a provocatively uncomplicated set of claims and remedies. But a “one size fits all” approach to managing state assets is far too simple. Analysts need to engage in detailed comparisons of the benefits, disadvantages and outcomes of different forms of ownership and management, which may well vary across sector, country and time. This book offers a first step for such an endeavour.