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State ownership of General Motors will be a total failure
Gerard Jackson
To own a good is to exercise control over it. This includes the right to decide how it will be used or whether it will be used at all. Moreover, the ultimate measure of ownership is disposability. If I am not allowed, for example, to sell goods in my possession then it cannot be said that I own them. If some politician can tell me who can drive my car and who cannot or even if I can sell it or not then he in effect has asserted ownership over it.
Note that ownership by the state need not involve direct control or the holding of shares in a company. It merely requires the exercise or threat of brute force, the sort of thing that Obama and his cronies brought with them from Chicago. And this is exactly what Americans got with Chrysler and the dealership scandal that America's corrupt mainstream media is trying to bury. Painful as this will be to Obamatrons the methods that Obama applied to General Motors and Chrysler are not much different from those used by Mussolini. In plain English — they are out and out fascist.
Like the fascists of yesteryear Obama and his galere of 'political advisors' don't care much for private ownership, thinking that what really matters is not entrepreneurship but the right political attitude. But ownership is the critical factor. Without it economic progress is impossible. Some years ago Deborah Brewster from Murdoch's Australian revealed how impaired intellectual standards are at that paper — and they haven't improved any — when she seriously asserted "that there is little evidence that privately owned companies are more efficient than government-owned ones".
She used state-owned Renault to support this assertion, which was apparently based on the alleged views of Professor Greg Bamber, Griffith University Graduate School of Management. (I say alleged because I have no knowledge of Bamber's work). To these commentators and those like them competition and entrepreneurship can by some mysterious means be divorced from ownership. This certainly appears to be the prevailing view among Obama's political inner circle who seem to think that their corrupt shenanigans in Chicago has given them unique insights into how businesses actually operate.
According to Brewster's logic ownership doesn't matter so long as competition prevails. It thus follows that state-owned companies do not have to be privatised because competition makes them efficient. This line of thinking leads to the conclusion that it doesn't matter if the government runs companies like General Motors, Chrysler and AIG so long as there is competition. It completely eludes the likes of Brewster that competition can only exist where markets prevail and the essence of the market is private ownership.
The only alternative to private ownership is central planning, that is, socialism. But as von Mises pointed out, without markets there can be no rational allocation of resources with the result that economic chaos emerges followed by collapse. This is what really happened to the Soviet Union.
It should take very little insight to realise that any degree of economic efficiency found in state-owned companies like Renault before it was privatized, especially when operating in competitive conditions, is entirely due to the existence of private companies and the existence of markets for factors of production. Without markets state-owned companies would be unable to make rational economic calculations. Without the presence of private companies striving to make profits the state companies would not be able to make the kind of commercial decisions that their entrepreneurial competitors have to make each day of their existence. This is why East Germans ended up with the ghastly Trabant.
In reality, then, the state-owned companies try to ape their competitors' entrepreneurial successes. For example, the Japanese car companies never demanded protection from Renault. One is therefore driven to wonder why state-owned companies were not more successful against private companies given their privileged position as industrial wards of the state.
The answer is that even when operating in a competitive environment state companies are not presented with the range of opportunities that private companies face as well as create. This is because the decision-making scope of state managers is not only more limited than that of managers in private companies it is also operates on different levels. It is ownership that makes this difference because it is ownership that affects choice.
When making a choice the owner, or one acting for the owner, has to think in terms of displaced revenue. Without the ability of being able to freely dispose of property in any way they see fit their range of choice is clearly limited. It means alternative opportunities of using the firm's property (in the form, for example, of shares) to acquire or dispose of income are denied to state managers.
The absence of ownership denies state manages the means to make the kind of market calculations and decisions that made, for instance, Ford a pioneer in car production, Sony an electronics manufacturing giant and Microsoft a software production colossus. Without individual ownership the entrepreneurs who founded these companies could never have emerged and their products would never have been born. In other words, entrepreneurial talent cannot materialise in the absence of private ownership.
Basically, all the accounting approach can do — which is the about best one can expect from the inexperienced 31-year-old that Obama put in charge of GM — is measure the monetary value of inputs and outputs and compare rates of return. It cannot take into account the lost opportunities caused by state ownership. Therefore it cannot measure market efficiency. The accountant who considers otherwise is deluding himself as well as revealing his ignorance of the nature of markets, entrepreneurship and the vital role of ownership.
Clearly ownership not only matters it is the key to the competitive process. It is a great pity that our economic commentators have no understanding of this vital fact. Do these unthinking critics of private ownership really imagine that if politicians had been in control of technological development we would have the range and multitude of PCs, television, cell phones and other fantastic electronic devices that now exist? I think not.
Gerard Jackson is Brookesnews' economics editor
BrookesNews.Com
Monday 15 June 2009