Monday, June 29, 2009

The Benefits of Privatization in Sweden

Some things seem obvious to me. And then I realize that what is obvious to me is most definitely not obvious to the average Swede. So much of that has to do with having grown up in the US. Maybe a little has to do with me being somewhat conservative and somewhat stubborn. Some might argue that those two are one and the same. Those people would be wrong though. Because I am always right.

The current Swedish administration, Moderaterna, the Moderates, are one of the more conservative parties in Sweden. During their run they have begun selling off certain previously state-owned assets (as a quick aside, privatization has been going on under all kinds of administrations since about the 1980s). The reaction to this seems to have been a mixed bag. Plenty of people don’t really mind. And plenty of people are quite opposed to this. I don’t mind at all, for whatever that is worth.

A recent study looked into the profitability of companies that were once state-run and then privatized. The results, to someone who grew up in the US and studied business, weren’t all that surprising. These companies became more profitable when they were privatized.

As I said, this seemed obvious to me. Privatization, in my mind, always seems to be a better idea in terms of profitability than the government running things. There is so much more incentive to succeed. And people respond to incentives. Especially monetary ones. In the end I would just prefer not having the government running businesses.

What caught my eye about this study was not so much the opportunity to claim that privatization is good or that government owned organizations are bad or even the article itself. Instead it was a subsequent article. “Increase state bank ownership: Left Party.”

So, a study comes out saying that privatization is beneficial in terms of profitability and competition and the Left Party says that the banks should go in the opposite direction and be bought up by the state. Lars Ohly is stating that the current economic crisis is the result of an “unregulated capitalist market.” Despite the obvious fact that the markets are far from being unregulated. In the face of evidence the Left Party stands pat. I suppose there is something to be said for that.

It seems that the average Swede doesn’t really mind the government owned enterprises. It is a system that they have grown accustomed to. A system that they believe in. But it is a system that I just can’t support wholeheartedly. Even if I am living in Sweden.

Welcome to Sweden. Where privatization works.

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  1. Hairy - I have seen first hand the effects of government-owned anything and for the most part they end up doing what they darn well please. Just look at the situation with the LCBO (Liquor Control Board of Ontario, our version of Systembolaget), they were sent to go on strike and then at the last minute, after people, restaurant and bar owners had cleaned them out and they posted record sales days, they changed their mind. Coincidence? I think not.

  2. It seems there are loads of people in the US who would love nothing more than to shift everything they possibly can under government control...despite overwhelming evidence that the government is a pretty poor steward. So I guess it isn't obvious anywhere. It's frustrating, but I don't think what works best or is best for the country is always topmost in the reasoning of some leaders. Sometimes they have other reasons for doing what they do.

  3. Funny how different you can read these reports.
    "I rapporten konstateras att det finns få studier som belyser effekterna av de privatiseringar som gjorts i Sverige." -

  4. On the left, it doesn't have be logical if it feels right. Government has replaced religion, as well. it's a belief system. No logic.

  5. "Some things seem obvious to me. And then I realize that what is obvious to me is most definitely not obvious to the average Swede."

    Perhaps you should get off your high horse for a while... smart boy!

    "A recent study looked into the profitability of companies that were once state-run and then privatized. The results, to someone who grew up in the US and studied business, weren’t all that surprising. These companies became more profitable when they were privatized."

    And why shouldn't that be surprising? There's nothing that says privatization will lead to increased profitibility. In fact, it's not even desirable. The whole idea of privatization is to increase competition which, in turn, will lower prices to consumers. Not increase profitibility of the new private enterprises. The increased profitibilty might actually be due to a disfunctional or uncompetetive market.

    Welcome to Sweden. Where modesty is a virtue.

  6. Easy there Anders! Modesty is NOT a virtue, but in fact quite unattractive in this circumstance.
    (Oh, and Hairy - funny you should say you're always right; me too!!!)

  7. @Néstor – That’s my impression to. Just kind of a free for all.

    @E – Yeah, I’ve been noticing that too. It’s almost as if it has been romanticized to some extent. A shame really.

    @Anonymous – that was actually one of my points. That what seems obvious to me because of my American background is different for others. But you’re right, they did report that there were few studies. But the studies done have shown that privatization increases profitability.

    @pavellas – Well the lefties who chimed in on the god post say that there is no god. So maybe they are just looking for something to take Gods place.

    @Anders – Perhaps you should learn to read into what is being written. Had you contined reading you would have seen the following sentence: “So much of that has to do with having grown up in the US.”

    Plus, I’m a sarcastic person. Something that you obviously struggle with. It’s not easy, I know.

    What is obvious to me is not obvious to the average Swede. That is because the average Swede didn’t grow up in the US. I did. My beliefs and opinions are very much influenced by my American background.

    You’re right, but looking at the track records of private companies would suggest that to be true. You seem to leave out the part that while privatization does lead to lower more competition and lower costs to the consumers, those companies that are competitive and offer low costs tend to be more and more profitable as more and more people purchase those products. That’s kind of the way business works. Because those companies that decide to be so competitive that they aren’t profitable might be able to offer very low costs. But they won’t be around next year to continue providing those costs.

    Welcome to Sweden. Where the focus on modesty leads to a group of opinionless and characterless drones.

    @terander – Anders struggles a bit.

    But clearly we are awesome. Because very few people are always right.

  8. Romanticism. Yeah. Or, reckless idealism.

  9. It's far from certain that a private company will be more profitable than a state-owned company. In fact many state-owned companies tend to be very profitable, because they take advantage of not having any competition. That's not a good thing... it doesn't lower consumer prices and it doesn't make them efficient. There are also cases where ownership doesn't really matter. The Swedish government has a 20% stake in Nordea which they plan to sell. This will probably not affect Nordea much because they already operate on a competitive market. Apoteket and Systembolaget, on the other hand, are likely to be much less profitable if they would have to face competition.

    Hmm... so because I pointed out some flaws of your reasoning, Swedes are opinionless and characterless drones. What would you say if I'd write anything remotely offensive about Americans? You'd probably be quick to cry anti-americanism... and then write a new blog post on how spiteful and rude all Europeans are.

    Welcome to Sweden. Where characterless drones have an opinion.

  10. @E – I hear that’s always good though right? Reckless idealism is healthy.

    @Anders – oh Anders. The funny thing is, you have yet to point out any decent flaws in my reasoning. You are right though, it is far from certain that a private company will be more profitable than state-run. But it is nearly certain that they will be more profitable.

    There have been studies done for years that have shown it, for the most part, to be true. In fact, the very study this article was based on discusses a number of those very studies.

    The point of the whole post was to demonstrate the difference in thinking when it comes to things like privatization due to different backgrounds. Like growing up in the US as opposed to Sweden. Unfortunately, you have yet to grasp that. It’s not easy… I know.

    And the anti-Americanism. Come on Anders. I listen to that nonsense every day. Unless it is just too far out there, or if I’m feeling particularly annoyed, in which case I obviously write about it. It’s amazing what a part anti-Americanism actually plays in my life in Sweden. And seeing as how this blog is about experiencing Sweden from an outsiders inside view, anti-Americanism does get discussed. Feel free to browse through and comment. I’m sure there is something else I have written that will chap your ass.

    Welcome to Sweden. Where privatization really does work. Even if public opinion says otherwise.

  11. Making money does not equal good service. Look at the power market. De-regulation meant that we now pay more and get significantly less service for our money.

    Goverment enterprises are not something to be afraid of, just because the US goverment is unable to run companies properly.

  12. Henrik -

    You do have a point with energy. Basically everyone in my family work in energy (in the US). All agree that deregulation was a pretty bad idea for the most part...though some of them (energy traders) did make a shitload off the whole ill conceived scheme. I believe in the free market though, so I think it could have been done well.

    You acknowledge the US government is unable to run companies properly but in the same sentence claim government enterprises aren't something to be afraid of. That doesn't make sense. Why shouldn't we be afraid of the US government running companies if we all agree that they can't do it properly? Or, are you saying not to condemn government run companies in Sweden just because the US can't do it right? Either way, evidence seems stacked against governments running businesses as a general rule.

  13. It seems pretty clear that privatisation will lead to increase profits, but whether this is the same as "success" is another question. This is an issue in Australia with the banks and telephone companies for example, where it is not profitable to provide services to customers and rural and remote areas. Is access to banking and telephones a "right" that should be guaranteed by the government, which is what the issue of regulation and government ownership comes down to?

  14. I think it's better we agree that privatization works when it's done correctly ;-) Otherwise, we can debate this forever, and as Henrik and E points out, there are examples of privatization that didn't work out well. The privatization of the English railway system in 60s is another one. Today England has one of the most run-down and expensive railway systems you can find.

    I don't mind your Swede-bashing. I'm content just being a characterless drone. It could've been worse... I could've been a fat, stupid, arrogant loudmouth ;-)

    I know there is extensive anti-americanism throughout the world, and often it's well-founded. A country that constantly goes to war and show little consideration for non-american lives won't win any popularity contests. Don't get me wrong, I've been to the US several times and I think Americans are in general nice people... not better nor worse than elsewhere. However, one thing I do have a problem with is the level of narcissism in American society. You know, many Americans like to tell Europeans that they would be speaking German if it wasn't for them. In the next breath they tell you not to blame American people for Bush's war. Well fine, but if you want to take part in your country's glory, a glory you never earned yourself, then you also have to take responsibility for the less honorable moments of your country. To me it seems like some Americans cry anti-Americanism as soon as someone do not acknowledge the greatness of the USA. Any criticism is construed as anti-Americanism. If you don't like Bush (or US foreign policy in general), it's anti-Americanism. If you think that there are many poor and dirty areas in the US, it's just your anti-American imagination playing tricks on you. And if you actually prefer your home (Sweden or anywhere else in Europe) over the US, it's just because you're a brainwashed, totalitarian-minded, freedom-hating commie. A bit generalizing... but oh so true!

    BTW, I actually think your blog is good. You're a good writer, not very smart, but talented with words ;-)

    Welcome to Sweden. Hell for American narcissists.

  15. Personaly im both against and for the subject at hand.

    Im against privatising the railway, roads, schools/uni's, hospitals, airports, banks, energy market, police/fire departments, water procesing plants and in swedens case Systembolaget and the steel industry.

    This is because im a firm believer these should not be run with profit as a 1st goal. They should be run with the main goal being to as flawlesy as posible simply work, with the profit being a 2ndary goal, or maybe 3rd. And in the case of these specific branches there is proof that privatisation is NOT generaly a good idea.

    Im for privatisation in pretty much all other areas - but wouldnt mind the goverment owning parts of privatisied companies. Aslong as the goverment is not a majority owner it can still benefit from the profit those companies make.

  16. I thought I'd give my 50 cents to this discussion.

    I'm not going to pretend like I know what's best - the system of the US (or should I say, the previous system), with no state ownership, or the Swedish system with various state owned businesses. Partly, because there are many definitions of "best" (best for who, for what purpose, in what situation etc.) and partly, because all I know about business, finance or economics can be summed up with the words "100 cents is equal to one dollar" (gosh, did that one take a long time to wrap my head around).

    But I have to say, I think some things should be owned and controlled by the state - like hospitals, for example, mostly because some systems where they're not state owned scare me. And by "some systems" I mean "the American system". Around 1/6 of the population with no health insurance? Uhmmm... I have to pass on that one.

    I think that, generally, there's a ill-founded overbelief in the American system and an equally ill-founded underbelief (?) in systems like that of Sweden, where we have some state ownership. It's an overbelief and an underbelief that's founded in nothing but belief. Sentences like "I just don't believe in state ownership" or "State ownership just doesn't work" are not unusual from an American mouth but explanations as to why, however, are.

    As I said, I'm not gonna pretend like I know what's best. I just wish most Americans could say the same thing and mean it, as well.

  17. @Robban: Actually, there are quite a few state-owned companies in the US. Amtrak, US Postal Service, etc.

  18. The same trend goes on in Finland. It's true that privatization increases efficiency, but not always quality. In fact, in Finland they are talking about taking the road construction back under government control. Maybe because of recent bribery scandals. And, Hairy, would you feel safe if 90% of the US (or Sweden for that matter) were practically owned by, let's say the Russians?

  19. Anders - Oh... It seems I shouldn't even pretend like I know what I'm talking about...

    Well, that makes the Americans' cries about "turning into Sweden" because of the increased state ownership after the financial crisis not only ridiculous but also very exaggerated.

    Smek this! - Actually, the efficiency is believed to be higher in most state owned companies than private owned ones. The profitability, though, is higher in most private owned companies.

    However, profitability isn't really the most important thing in state owned companies, as I see it. I just don't think it's a good argument for privatization. I mean, why would a private owned and more profitable Systembolaget be better for Sweden than a less profitable state owned one? If you use increased profitability as an argument for privatization I think you've missed the whole point of state ownership.

  20. I love how some of you use an example to "prove" your generalized point about a whole area.

    "Look at how crappy Canada's state run liquor board is! Thus the Swedish government should not run anything." I've heard similar arguments from people who've been robbed once by someone of another ethnicity.

    Do yourself a favor and take a statistics course and learn the concepts of correlation, causation and how to prove either of them.

    As to the debate about Swedish privatization. My opinion is too look at the opportunity cost. One could summarize it as "don't fix what ain't broken". In my opinion there are a lot of issues in Sweden that are of greater importance than making sure the pharmacies aren't government run.

    As for my trust in this administration and it's abilities to distribute the gains from sales of government industry... well what can I say. 2008 saw lowered taxes, that (I'd presume) was invested in the market (either via hedge funds, or by the banks people deposited their money into). The market then crashed to about 60% of its former value. Money well spent indeed.


  21. wht's going on someone thinks of quitting!? or lost his sense of humer!

  22. @Henrik – E did a good job of responding on this one. I defer to her response.

    @E – well said.

    @anonymous – and that is a damn good discussion to have. Because you’re absolutely right. In those cases it does get tricky. But booze, for example in Sweden being state run, doesn’t seem like it needs to be a government run entity because it is a right of the people.

    Also, I feel like Australia might have to deal with these sorts of issues a lot more than Sweden, or even the US, solely because of the sheer size of the country.

    @Anders – I can agree to that.

    @Johan – interesting, of course what you just listed makes up a very good portion of what people deal with on an everyday basis. And the one that really gets me is the systembolaget. I still don’t get it. I have had Swedes explain it to me so many times why they like it. But I just can’t wrap my head around it.

    As Anders said though, I’m not very smart.

    @Robban – some good points. At least worth 50 cents. Maybe even 75.

    And I will definitely agree with wanting to see more backing up of statements. From Americans. From Swedes. From lots of people. Hell, I need to back up my statements more too Im sure.

    Anyway, I wanted to point out one thing with the health care in the US. Or at least in Colorado, not sure how it is in other places. But we have a large Hispanic immigrant population in my hometown. We’re an agricultural town and so there are lots of migrant workers. Many of whom tend to fall in that uninsured category. However, in Colorado, anyone who goes to an ER at a hospital must be treated. Regardless of insurance. Knowing a surprising number of people who work in the ER, apparently this is exactly what many of the uninsured do.

    An interesting little way of getting uninsured people health care.

    @Anders - It’s true. GM, Chrysler. And I am none too thrilled about it.

    @Smek – I actually didn’t know that road construction was privatized in Finland.

    In regards to your other question. It’s a good one. And one that is actually pretty relevant right now. Some people were starting to get a little nervous from all of the foreign investment when oil prices were really high and the dollar was really weak.

    But to answer it, 90% yeah, I might be a little nervous.

    @Robban – Well, there aren’t that many. Anders basically listed all of them. Lotteries are often time government run. The banks that were taken over and the car companies are now to an extent government run. But theres not much else.

    @anonymous – there are lies, damned lies, and statistics. Oh Benjamin Disraeli and Mark Twain, well said.

    What I find interesting though is that you don’t want people using one example or event to prove a generalization and yet, you do just that with your indictment of the government investing money from the sell-off of government owned entities.

    @Mike – nope. Vacation. Less fun to write about Sweden when Im not in Sweden.

  23. Hairy, I disagree.

    My example was to express my view point, that if the proceeds of privatization is ill spent (and in my opinion, spending it on tax breaks during an economic boom is money ill spent) then privatization might not be a good idea. I.e that one shouldn't just say "privatization is good/bad" but think "What will we do with the money from the sales?".

    Rushing into this due to ideology doesn't give me the impression that the government is being very thorough in their thought process. It rather rings of "let's sell as much as possible before the next election, just in case we lose".

    But as to statistics... you wont see me saying "Hey, Sweden's bureaucracy is very efficient, hence all every country should have their government run a lot of business."

    In fact, people use that concept to argue the opposite position:


  24. Also, to add to the US health care debate (though that is a whole 'nother can of worms). The health care in the most expensive (per person) in the developed world. US citizens pay more for their health care than Europeans or Canadians or the Japanese, yet their mortality rates are higher.


  25. fair enough, although, I think you can make an argument that by giving tax breaks to the people, you are, in a round about way, giving some of the proceeds of the sales back to the people. but I will definitely agree with you that figuring out what the money will go to before just selling wouldn't be a bad idea.

    and youre right about the health care. it is a whole nother can of worms. One that Ive written about a couple of times It usually gets some reactions. It is going to be interesting how the current debate plays out back home

  26. Having witnessed the extensive privatisation of many industries, agencies and services in the UK from the 80s to the 90s, common threads seem to appear:

    (a) Privatisation sometimes leads to lower costs, but not always so. Where the business relates to key infrastructure where competition is difficult (railways and power distribution are good examples) costs actually increase as the taxpayer finds themselves funding the company profits.

    (b) The need to maximize profits often leads to cost-cutting that in turn leads to reduced service or a decline in the quality of service.

    (c) Some agencies do not serve the public good effectively when they are run as profit-making enterprises. Healthcare is a good example of this.

    (d) Privatisation may increase costs in areas that a government run service does not need to worry about. Where governments don't compete they don't require large marketing departments, for example. Costs may not decrease but simply shift away from delivery of service to other areas.

    In short, it's not a given that privatisation is a good thing. Frequently it has led to a decline in service and an increase in cost to the consumer.

  27. Fair enough, although some of your examples seem to focus more on the exceptions than the general experience of privatization. I’d like to respond to your comments point by point.

    (a) you bring up the oligopolies such as power distribution. You are absolutely right that such an industry is incredibly difficult to break into meaning that costs could potentially rise. However, I think an argument could also be made, especially now, that as new power sources are developed (wind, water, solar) privatized companies will be the ones leading the charge.

    (b) Cost cutting to maximize profits does occur. Ryanair comes to mind. But at the same time, everyone knows exactly what they are getting when they fly ryanair. You don’t pay for service. You pay, essentially, to arrive at your destination on time an without crashing. And that’s it. But for many companies, in order to maximize profit, customer service is key. Customers are fickle. I have stopped going places because of customer service. I am willing to pay just a bit more if the person at the counter smiles and says hello to me rather than treating me like cattle.

    (c) The healthcare example is one that could be argued and discussed on both sides of the spectrum. I believe that some privatization in health care is a good thing. It seems Sweden is starting to agree as the trend in Sweden is to move more towards privatized health care, from their current their very socialized system. I imagine some sort of hybrid system will emerge which will most likely be very effective.

    (d) Agreed

    In the end, I really do believe that privatization is beneficial. Of course there are exceptions, but generally speaking, I believe privatization benefits the consumer.

  28. Tjena Hairy Swede :)

    Jag skriver på svenska, är så jävla trött i huvudet orkar inte skriva på engelska...

    Hursomhelst så håller jag med den personen som skrev att sjukvården, polisen, skolor, banker osv. inte borde privatiseras.

    Fördelarna med att staten äger dessa inrättningar tycker jag överväger nackdelarna.

    1. Vinsten har inte högsta prioritet, regeringen vill i första hand att folk ska vara nöjda, eventuell vinst är mer en bonus.

    2. Om det skulle upptäckas att allt inte går rätt till, så är det lättare att byta ut en regering än en bolagsstyrelse, vilket gör att sittande regering skulle göra allt för att rätta till problemet.

    3. Regeringen kontrollerar vissa områden som t.ex spritförsäljning, men det är också dom som har ansvaret för att ta hand om alla alkolister som har tappat kontrollen plus alla andra problem som alkoholen bidrar till. Försäljningen av alkohol i Sverige ger inte staten mer en nån miljard kr per år, dock kostar alla sociala avgifter 10-11ggr mer.

    Jag tycker även att påståendet om att privatisering är billigare och mer effektivt och att det ger bättre service till människor är rent nonsens.
    Det kan stämma i vissa fall, men många rapporter visar att det är tvärtom.

    Jag tar USA's sjukvård som exempel (som någon annan också skrivit om).
    USA har som enda I-land (som jag känner till i alla fall) en privatiserad sjukvård och USA har också den högsta sjukvårds kostnaden per invånare. Undersökningar av amerikanska forskare har visat att om staten skulle ta över sjukvården (som i Sverige) skulle kostnaderna sjunka avsevärt och alla (ALLA) skulle vara garanterade gratis sjukvård.

    Detta är bara ett exempel men det är ju ganska uppenbart när man tänker efter.
    Dom amerikanska försäkringsbolagen tjänar miljarder på att inte betala ut försäkringspengar till folk, i Sverige är det hus & bil försäkringar folk kan få problem med. Men sjukvården är det aldrig några problem med just för att det är statligt ägt.

    Och Hairy som Amerikan/Svensk är du mer expert på kapitalism än vad jag är, men även jag förstår att ett företag måste gå med vinst för att kunna överleva. Och det är det som är det fina med statligt ägda företag, dom kan gå med enorma förluster... men det gör inget :) Så statliga bolag kan fokusera på service istället för vinst.

    Jag antar att du Hairy tycker att vi svenskar är lite konstiga, och jag skulle säkert tycka likadant om jag flyttade till USA.

    Different cultures...

    Även om du ur ett svenskt perpektiv tycker "fel" så är din blogg jäkligt kul att läsa :)

    Keep up the good work!


  29. thanks Martin, I think you made some good points, some of which I agree with, some of which I don't.

    One thing that I do think you asbolutely nailed was the fact that some things shouldn't be private. Certain things should be state run. Certain things need to be state run. They end up forming the infrastructure that helps a country (city, state, whatever) run smoothly.

    Of course, what those services are can probably be discussed, but as you said... different cultures.