7 reasons why privatization does not pay off in the long run
1. PROFITS ARE PRIVATIZED, LOSSES ARE SOCIALIZED
After a company is privatized, it is usually trimmed exclusively to generate the highest possible profits. After privatization, the profits go exclusively to the private shareholders instead of benefitting the public in general. However, if the private company makes losses or even has to file for bankruptcy, the public sector is asked to intervene again in a manner, that is most of the times pretty pricy, to save the day - because water supply or energy supply e. g. cannot simply be dispensed with.
2. INTERESTED IN SHORT-TERM PROFITS ONLY
In many cases, private companies only focus on maximizing profits in a short period of time in order to pursue their economic interests. Investments with a lasting positive impact however are often not made. If the service is transferred back to the public sector, hence repurchased by a municipality or a municipally owned company, the public hand has to make up for the missed investments retrospectively, which in turn results in very high costs for the general public.
3. LOSS OF DEMOCRATIC CONTROL
Affordable housing, climate protection, social justice - companies providing services of general interest can make an important contribution to achieving these political goals. Once these services and companies are privatized, democratic influence is lost.
4. LESS SOCIAL RESPONSIBILITY
Private companies tend to take socially disadvantaged people less into consideration when setting their rates. Private companies, striving to maximize their profits have little incentive to pay attention to socially disadvantaged members of society after all. A socially fair wage structure in the form of social tariffs is therefore rarely found in private companies, whereas it is very common in public companies. In addition to that, privatization of services of general interest often leads to job losses and a deterioration of existing working conditions.
5. INCREASE IN PRICES
Developments over the last decades show that privatization has often led to dramatic increases in costumer prices. For low-income households in particular, this poses a serious problem when it comes to essential services such as water supply or housing, to name just a few.
6. LOSS OF QUALITY
Many privatizations of services of general interest ought to be considered a failure nowadays. Once privatized, the quality of the services provided decreased significantly in many cases. Services have been either provided inadequately or the infrastructure, necessary for high quality services to get delivered, has been neglected. A lack in investments as well as a lack in maintaining the existing infrastructure have led to drastic quality losses in many cases.
7. DIFFICULT TO REVERSE
When getting repurchased by either a municipality or a municipally owned company, previously privatized companies tend to have to go a long way before turning into cost-efficient providers of high-quality services of general interest again. The price for the repurchase usually exceeds the sum, which the municipality had generated by selling it in the first place by far.