Sunday, January 04, 2009

Government Ownership is Dangerous

Russia's embargo on gas shipments through Ukraine demonstrate the danger of a state-owned enterprise, namely that the enterprise will be used to further a national rather than business interest. No sane private business would disrupt its customers over a dispute with one of them. A private business would be extremely reluctant to cut off its revenues in that way. A state-owned business has the luxury, especially when the business involves a vital energy resource, of forgoing receipts in favor of state interests.

Russia is playing a very good hand in an energy scarce era as a way of recapturing its previous glory, not just the Soviet Union but also the Empire of Czarist Russia. Russians have always had a high opinion of their nation and culture; it's no surprise to me that they seek recognition of that fact. If their gas monopoly loses revenue because of the embargo, the sacrifice is tolerable and for a good cause. Don't expect Russians to behave as capitalists, expect them to behave as Russians.

Private owners are unwilling to take those losses unless they have no other choice. These days globalization has weakened the leverage national governments can exercise over private capital. Certainly that's the case in the US of A where government regulation of or influence over enterprise is anathema. Unlike government-owned enterprise, market forces and profit will prevent private enterprise from slavishly serving state interests or posing any threat to society.


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