Ross Gittins has published a sensible and pragmatic take on the privatisation debate, whereby he argues that asset sales should be assessed on a case-by-case basis dependent on three criteria:
…the first test of whether a proposed privatisation is in the public interest: it ought to involve an increase in competition within the relevant market and certainly shouldn’t lessen competition. Governments should resist the temptation to enhance the sale price of a business by adding to its pricing power, or sell off a natural monopoly without adequate regulation of its prices…
This raises the second test to be passed. The stream of dividends governments receive from the businesses they own (and are about to forgo) could easily exceed the saving in interest payments to be made from using the sale proceeds to repay government debt, unless the sale price is sufficiently high... To sell assets for less than that value is to put ideology ahead of the public interest.
…one last test to be passed to make such deals good economics: the new infrastructure’s social benefits have to exceed its social costs. And public transport projects are more likely to do that than yet more motorways.
Gittin’s views on privatisation broadly correspond to my own.
Whether privatisations are beneficial to taxpayers depends on whether the upfront funds received from the asset sales will outweigh the expected net present value of future profits. If not, then the sale is likely to be detrimental to long-term budget finances.
Absent mitigating regulation (which reduces sale proceeds), there is also generally a stronger case to keep natural monopolies, such as essential utilities, in public hands in order to prevent a private player from price-gouging and/or to stop inefficient duplication of the infrastructure. The government can also better ensure access to poorer members of the community, thereby improving social outcomes.
Conversely, there is generally a better case to privatise government-owned assets (businesses) that compete directly with private players, since the degree of market power is lower, consumers have choice, and the opportunities to price gouge are minimised.
The inclusion of social costs and benefits is also sensible, otherwise many worthwhile projects would never get off the ground if assessed purely on financial grounds.
Overall, the issues surrounding whether privatisation is good from a financial, efficiency, and equity perspective are complex, and a case-by-case approach is required.
