Privatization in State Capitalism

This piece is from an anonymous guest writer. 

 Privatization in state-capitalism is a basic principle. Placing the means of production in the hands of private capital is one of the main tenets in the philosophy of capitalism. It leads to competition, producing increasingly improved quality in commodities. It increases efficiency and opens the floodgate to entrepreneurship.

            This is all in theory, of course. If we want to observe the results of privatization in state-capitalism in practice, we need only take a cursory glance at existing institutions.  I shall use two examples: transportation and financial institutions.

            Transportation, which is essentially a public service that is most often offered by the state for the benefit of the public, has largely been privatized in many the industrial nations of the first world. These services are initially set up as social powers, funded by taxes collected from public sector. In the conservative fervor of the 1980’s, many of these social powers were turned over to the private sector. Now, how does this occur? It’s essentially a very simple process. The state defunds the service, and, in effect, causes the social power to begin to fail. In reaction to this, the social power is sold off to the private sector and placed into the hands of private capital. The service is now subjected to the ‘free market’ of state-capitalism. It undergoes drastic cuts in what private company deems ‘unnecessary’. This entails everything that will obstruct profit (especially short-term profit) for the company. The social service is now placed at the whims of profit, and in result the benefit of the public is now irrelevant.

            Financial institutions are a particular case of interest. When financial institutions are in the hands of the private sector, their goal is to generate profit. How do they generate profit? By utilizing reserve funds (banking accounts) to make investments. The goal of corporations is to generate as much short-term profit as possible. One is legally obliged to do this when in the corporate system. To generate massive amounts of short-term profits, financial institutions make incredibly risky investments, in order to receive incredibly high returns. And, naturally, these investments do not always bring returns. It’s improbable for them to even bring returns on half of the investments. When these financial institutions lose in this gamble, it directly affects the market. Over-time, these bad investments can lead to a downfall in the market, and eventually the institutions begin to fail. But, of course, these institutions are ‘too big to fail’, as it’s put. Now, this is where the ‘state’ in state-capitalism comes into play. The state is lobbied by the corporations and provides a ‘stimulus’ to them, which, essentially, is an enormous subsidy funded by revenue generated by taxes from the public.

            Privatization, in theory, is the pursuit of profits in the market. In practice, it leads to inefficient services and an irrelevant public. Should the public allow this system to produce poor services? Should the public ‘bail out’ the private sector? 

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