Sunday, November 04, 2007

The Case for Privatization

The world of business is fashioned by freedom. Each part is inspired by the incentive to make money: money that people trade in exchange for food, clothing, shelter or anything in their individual pursuits of happiness.

One needs capital to start a business, and in a free world, one has to offer incentives to attract that capital from his neighbors. One established way is to offer ownership in a company through stocks, which investors make money by obtaining dividends through their stocks or selling their stocks later on after stocks have gained more market value. Some investors prefer bigger dividends from companies while others prefer companies to retain earnings in order to grow the business, leading to higher stock prices.

The other established way is to take out a loan, which creditors make money by lending capital people are not using (savings) for an interest rate. People expect a certain rate of return over a certain period of time for lending their money, and they plan accordingly. That is why paying off a loan too early incurs costs to lenders, and they recoup such costs through prepayment penalties.

In a free world, any business can offer stock and any group of savers can lend money. So things such as what interest rates lenders offer or what dividend payments companies pay out are set in an environment where companies are competing for a desired level of capital and investors are competing with each other to offer that capital. All of this in an effort to find the best way to make money according to our own individual circumstances.

While investors and creditors provide much needed capital, their roles go beyond mere financing. Because it’s their money, investors and creditors review a company’s financial statements more carefully than those who don’t have a personal financial stake. Oversight by shareholders (who vote for the board of directors and thus have a voice in corporate governance), creditors and regulators provides a level of transparency that is virtually nonexistent in our government and semi-autonomous agencies.

The capital is available in the free market for private entities to take over such agencies as ASPA, ASTCA, LBJ, and the rest of the alphabet soup group. We would want that capital to come from the market and not local or federal governments, because they don’t have to tax the people or raid the retirement fund to obtain such capital. Also investors, creditors and regulators do a better job together at keeping such activities transparent and accountable, whereas our government has shown such a dismal record in regulating itself.

With ASTCA failing to connect our cell phone calls to Public Works failing to drain floods in Utulei to antennas falling off of KVZK-TV to ASPA failing to lower electricity rates to the ASG failing to make good on employees’ paychecks, our people rightfully demand solutions.

We need an honest discussion about what the costs are (frivolous regulations, excise taxes on fuel, unjustifiable spending), what incentives or disincentives exist to encourage investment and competition, and what we have to do to change the status quo in order to get from point A to point B.

Point B being a higher standard of living for all.

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