Days of Privatizing Over as Government Takes Charge


In the newspapers there is much discussion of what General Motors should do. This discussion has gone on for many years. Until now, it was a conversation carried on by serious analysts and auto industry experts. They all said the same thing: GM needed to clear out its management, dump much of its expensive, “legacy” overhead, and produce better cars. Why didn’t it do so?

And now, it’s broke. And even politicians think they know how to run an auto company. Just read the papers. “Obama insists on changes,” says one headline.

Normally, the politicos should hold their tongues…and let an industry’s owners run their businesses. Alas, as of a few days ago, the politicians ARE the owners.

Here’s a question:

When the government takes a majority stake in the auto business you know you are:

A) In a bad dream

B) In a bad way

C) In a bad country

D) In France

Correct answer: well, we we’re not in France. But as for the rest, it could be any of them…or all of the above.

Here’s an easier question. Who will the U.S. government put on the board of directors of General Motors?

A) A political hack

B) An industry hack

C) A far-sighted maverick who will shake up the business and put it on the road to growth and prosperity

If you answered “C” – you are from another planet. There is a reason neither governments, nor workers should own businesses. In the following, roundabout way, we explain why…

But first, a bit of news. As far as we can tell, the bear market rally is still on. The Dow rose 44 points on Friday. Oil closed at $53. The dollar is still sinking. And gold lost $3 to end the day’s trading at $888.

Thirty-two banks have shut down so far this year in the United States. Little, mismanaged banks go broke. But big, mismanaged banks get federal money. With these subsidies and bailouts, the big banks get larger…and live to foul-up another day.

Poor Warren Buffett seemed a little discouraged at his annual shareholders’ fest in Omaha. He must be nearing the end of his career. And consumers just aren’t buying as much furniture, cola, and candy as they used to, he told the faithful. Berkshire Hathaway’s profits were 10% below those of last year.

Swine flu seems to be disappearing from the front pages. Has it gone the way of Y2K and terrorism? Has another great disaster been averted? Might be too early to tell…

Oh you doomers and gloomers, cheer up! There’s always some other disaster waiting for a headline. How about this? The Seattle Times looks at Las Vegas and sees what it calls “the next global crisis.” After 10 years of drought, Las Vegas is running out of water.

The city fathers are thinking of all sorts of solutions – except, of course, for the obvious and effective one. They’re planning on huge pipelines…hundreds of miles long…and sucking water out of aquifers millions of years old. But, according to the paper, Las Vegas charges only about a tenth as much for its water as Atlanta does. The simple solution is to let free enterprise provide water…so that it could be priced correctly.

Colleague Chris Mayer has been following the water crisis story since the introduction of his newsletter, Mayer’s Special Situations, in 2006.

“Water is not just a problem in Las Vegas. The lack of sources for fresh water is a problem facing much of the American West, though the problem is particularly acute there and in the state of Nevada generally. Nevada is the most arid state in the union,” says Chris.

“The tight water supply has implications all over the West. In Arizona, you can’t build a residential development unless you find a ‘designated assured water supply’ that can sustain that development for 100 years. I could go on and on about this kind of thing. Suffice it to say, the American West faces a water crisis.”

Maybe the increase in water prices would discourage people from planting Georgia-style grass lawns in the Nevada desert. Or maybe it would discourage people from moving to Las Vegas in the first place. But that’s the thing with capitalism; it doesn’t take people where they want to go…it takes them where they ought to be. That’s also why people hate free enterprise so much. Where they ought to be is, often, where they least want to go. In the present example, people think they have a right to water – practically for free. They think there’s a ‘water clause’ in the Constitution that says government is supposed to provide them as much water as they want at a price they can afford.

Most things work better when they are run by private enterprises. Too bad. Free enterprise is out of style. The days of privatizing are over. Now, everyone wants the government to take charge.

What a turnaround from a few years ago – when people thought they could solve practically every problem by privatizing it. And then, the voters would buy shares in the newly privatized companies…and we’d all get rich!

“For water, the really bad stuff hasn’t happened – yet,” says Chris. “As investors, it’s a good place to be for a long time.”

Bill Bonner
for The Daily Reckoning Australia

Bill Bonner

Bill Bonner

Best-selling investment author Bill Bonner is the founder and president of Agora Publishing, one of the world's most successful consumer newsletter companies. Owner of both Fleet Street Publications and MoneyWeek magazine in the UK, he is also author of the free daily e-mail The Daily Reckoning.
Bill Bonner

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3 Comments on "Days of Privatizing Over as Government Takes Charge"

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Bill Rich
Bill Rich
7 years 5 months ago

I am a long time reader – first time poster. I must voice my disagreement over your suggestion to privatize the fresh water supply in the US and let the free market set pricing. After what we have seen of the free market lately, and the unregulated gluttony of greed, there is no way I want to give control of my access to tap water to wall street. Some public utilities should never be privatized.

7 years 5 months ago
Bill, I think you missed the point. The point is that water as a resource is becoming more and more scarce. If governments continue to subsidise it we’ll eventually run-out in areas or the cost to subsidise it will grow exponentially as it becomes even more scarce. People should pay the real price of the things they consume. Subsidies, just create false markets and demands, if there isn’t enough water to support a city in the desert or if people aren’t willing to pay the real price of getting water into the desert then maybe you shouldn’t have a city… Read more »
7 years 5 months ago

I agree Joe. I am living in Sth East QLD where water is scarce. I would be more than willing to pay for water infrastructure to secure the towns future. I chose to live here, I pay for the priviledge and not expect government hand outs to bail me or the town out. The local council is too scared to suggest that the user pay in fear of being voted out.

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