17 ms·

Infrastructure is a natural monopoly [1]. The cost to enter the market is unfavourable, and the incumbent has all the margins. Privatizing it is always a bad m

Infrastructure is a natural monopoly [1]. The cost to enter the market is unfavourable, and the incumbent has all the margins. Privatizing it is always a bad move for the citizens, and a good move for the private company. At worst, countries should keep one publicly owned company that owns the infrastructure and rents it to others, and also keeps the playing field leveled with low prices for the customers (this is the case in some countries but not all..). [1]: https://en.m.wikipedia.org/wiki/Natural_monopoly https://en.m.wikipedia.org/wiki/Natural_monopoly

mikkergp 4y ago
Why are politicians so eager to do this? Is it because politicians get bribes, or because they represent the investors some how?
- danielmarkbruce 4y ago
  Because they get a truckload of money to spend. There is also the reasonable argument that government run entities are wasteful. So, it's not a simple thing.
  - Gustomaximus 4y ago
    I've thought a good policy would be govt asset sale profit gets held in trust for ~12 years. This way it cant be a balance the budget act, and the cash might benifit your opponent 3 election cycles down the track. It probably wont stop overselling of assets but would definitely take away a short term incentive.
    - danielmarkbruce 4y ago
      It's probably a good idea. Or, if they can't run deficits (many US states have this) and asset sales don't count as revenue you'd probably be in a similar situation.
- moralestapia 4y ago
  Yes.
- Invictus0 4y ago
  They get short term funds for their agenda.
- Latty 4y ago
  If it is anything like the UK, it's a simple cycle of: - Under-fund the public service because it "costs too much" (ignore the value it generates for the public). - Service performs poorly when underfunded, so you can manufacture consent to sell it, argue that private ownership will be more efficient. - Sell it, creating short-term income you can use to spend on stuff people (and your mates) like (often tax cuts), making your government seem effective. You can also sell it to your mates who then get easy profit milking a natural monopoly for profit, probably kicking some back to you in the form of a cushy "advisor" gig when you retire. - Inevitably end up making the unprofitable parts of it public again when the private providers simply stop doing it, or go under trying to. You then have these expensive bits of public service with no income-generating bits to offset them you can point to and say public services are inefficient. Private profits, public losses. - Hey look, public services cost too much! We should under-fund some other ones...
AmericanChopper 4y ago
A majority of the telecom infrastructure in New Zealand is privately owned, and the service there is generally very good and not especially expensive. This level of service was established by government giving interest free loans to private companies to build the fiber infrastructure (with one company getting about 70% of it). So you might want to revise your use of the word “always”.
- deleted 4y ago
  [deleted]
- limpbizkitfan 4y ago
  So you would prefer a monopoly that serves a small family and investors vs. a monopoly that has revenue go back into the government?
  - AmericanChopper 4y ago
    I only care about price and quality of service. I don’t have any ideological axe to grind about where the profits go. When I was in NZ, their privately owned telco infrastructure serviced my needs very much to my satisfaction.
- ccooffee 4y ago
  Interesting. I was unaware of the state of telcos in NZ. I found this wikipedia article to have some additional content: https://en.wikipedia.org/wiki/Telecommunications_in_New_Zealand#History https://en.wikipedia.org/wiki/Telecommunications_in_New_Zeal... Using only that article as a resource (lazy, sorry), it seems that the telco infrastructure improved because of competition. It doesn't really seem to be a private/public issue, but that multiple companies got into the action. All of Iceland's infrastructure was sold off in one huge chunk, forming a private monopoly. This may become a decent test case for whether government-operation or private-operation makes a difference. (In contrast to the wiki article, which suggests that competition is the thing that matters.) Like the grandparent comment, I expect very little from the private operation of Iceland's telco infrastructure, but I'd love to be surprised.
danielmarkbruce 4y ago
This is overly simplistic. And pieces are just flat wrong. How are you defining infrastructure? Why is there an assumption it's good for the company buying it? There is virtually always a bidding competition, these assets don't go for cheap.
- Retric 4y ago
  There are few bidders, and no bid is going to be high enough to make the acquisition unappealing let alone unprofitable. So it’s generally just a question of how screwed the public gets.
  - danielmarkbruce 4y ago
    What makes you say there are few bidders?
  - onionisafruit 4y ago
    The winning bid will be high enough to make the acquisition unappealing to all but on bidder.
    - Retric 4y ago
      Not quite, there are two basic strategies either make a high but profitable bid to try and win or make a low bid on the off chance nobody does the first strategy.
      - danielmarkbruce 4y ago
        This is some nice theory. In practice there are dozens of players bidding on infrastructure assets globally. The assets tend to be easy to model, easy to finance and hence finance types (like all the PEs, pension funds etc) love them. Here is a starting point: https://pitchbook.com/news/articles/pe-most-active-investors-infrastructure https://pitchbook.com/news/articles/pe-most-active-investors... https://www.peievents.com/en/wp-content/uploads/2019/10/30_10_2019_IIGS-Whitepaper.pdf https://www.peievents.com/en/wp-content/uploads/2019/10/30_1... https://docs.preqin.com/newsletters/ra/Preqin-RASL-August-16-Feature-One-Billion-Club-Infrastructure.pdf https://docs.preqin.com/newsletters/ra/Preqin-RASL-August-16... No one bidding on these assets is giggling about how much money they are going to make. They are thinking "we are bidding a lot here, these returns don't look so hot, how can we justify this??" and then praying their projections aren't off on the downside. At least, in the first world. There does appear to have been some shady dealings in Russia, Mexico etc in the 90's.
deleted 4y ago
[deleted]
snidane 4y ago
The outcome for citizens is the same as in soviet style communism, except in communism the state enterprises were supposed to serve the commons. In this case they don't even have to pretend to.

mikkergp 4y ago

Why are politicians so eager to do this? Is it because politicians get bribes, or because they represent the investors some how?

danielmarkbruce 4y ago
Because they get a truckload of money to spend. There is also the reasonable argument that government run entities are wasteful. So, it's not a simple thing.
- Gustomaximus 4y ago
  I've thought a good policy would be govt asset sale profit gets held in trust for ~12 years. This way it cant be a balance the budget act, and the cash might benifit your opponent 3 election cycles down the track. It probably wont stop overselling of assets but would definitely take away a short term incentive.
  - danielmarkbruce 4y ago
    It's probably a good idea. Or, if they can't run deficits (many US states have this) and asset sales don't count as revenue you'd probably be in a similar situation.
moralestapia 4y ago
Yes.
Invictus0 4y ago
They get short term funds for their agenda.
Latty 4y ago
If it is anything like the UK, it's a simple cycle of: - Under-fund the public service because it "costs too much" (ignore the value it generates for the public). - Service performs poorly when underfunded, so you can manufacture consent to sell it, argue that private ownership will be more efficient. - Sell it, creating short-term income you can use to spend on stuff people (and your mates) like (often tax cuts), making your government seem effective. You can also sell it to your mates who then get easy profit milking a natural monopoly for profit, probably kicking some back to you in the form of a cushy "advisor" gig when you retire. - Inevitably end up making the unprofitable parts of it public again when the private providers simply stop doing it, or go under trying to. You then have these expensive bits of public service with no income-generating bits to offset them you can point to and say public services are inefficient. Private profits, public losses. - Hey look, public services cost too much! We should under-fund some other ones...

AmericanChopper 4y ago

A majority of the telecom infrastructure in New Zealand is privately owned, and the service there is generally very good and not especially expensive. This level of service was established by government giving interest free loans to private companies to build the fiber infrastructure (with one company getting about 70% of it). So you might want to revise your use of the word “always”.

deleted 4y ago
[deleted]
limpbizkitfan 4y ago
So you would prefer a monopoly that serves a small family and investors vs. a monopoly that has revenue go back into the government?
- AmericanChopper 4y ago
  I only care about price and quality of service. I don’t have any ideological axe to grind about where the profits go. When I was in NZ, their privately owned telco infrastructure serviced my needs very much to my satisfaction.
ccooffee 4y ago
Interesting. I was unaware of the state of telcos in NZ. I found this wikipedia article to have some additional content: https://en.wikipedia.org/wiki/Telecommunications_in_New_Zealand#History https://en.wikipedia.org/wiki/Telecommunications_in_New_Zeal... Using only that article as a resource (lazy, sorry), it seems that the telco infrastructure improved because of competition. It doesn't really seem to be a private/public issue, but that multiple companies got into the action. All of Iceland's infrastructure was sold off in one huge chunk, forming a private monopoly. This may become a decent test case for whether government-operation or private-operation makes a difference. (In contrast to the wiki article, which suggests that competition is the thing that matters.) Like the grandparent comment, I expect very little from the private operation of Iceland's telco infrastructure, but I'd love to be surprised.

danielmarkbruce 4y ago

This is overly simplistic. And pieces are just flat wrong. How are you defining infrastructure? Why is there an assumption it's good for the company buying it? There is virtually always a bidding competition, these assets don't go for cheap.

Retric 4y ago
There are few bidders, and no bid is going to be high enough to make the acquisition unappealing let alone unprofitable. So it’s generally just a question of how screwed the public gets.
- danielmarkbruce 4y ago
  What makes you say there are few bidders?
- onionisafruit 4y ago
  The winning bid will be high enough to make the acquisition unappealing to all but on bidder.
  - Retric 4y ago
    Not quite, there are two basic strategies either make a high but profitable bid to try and win or make a low bid on the off chance nobody does the first strategy.
    - danielmarkbruce 4y ago
      This is some nice theory. In practice there are dozens of players bidding on infrastructure assets globally. The assets tend to be easy to model, easy to finance and hence finance types (like all the PEs, pension funds etc) love them. Here is a starting point: https://pitchbook.com/news/articles/pe-most-active-investors-infrastructure https://pitchbook.com/news/articles/pe-most-active-investors... https://www.peievents.com/en/wp-content/uploads/2019/10/30_10_2019_IIGS-Whitepaper.pdf https://www.peievents.com/en/wp-content/uploads/2019/10/30_1... https://docs.preqin.com/newsletters/ra/Preqin-RASL-August-16-Feature-One-Billion-Club-Infrastructure.pdf https://docs.preqin.com/newsletters/ra/Preqin-RASL-August-16... No one bidding on these assets is giggling about how much money they are going to make. They are thinking "we are bidding a lot here, these returns don't look so hot, how can we justify this??" and then praying their projections aren't off on the downside. At least, in the first world. There does appear to have been some shady dealings in Russia, Mexico etc in the 90's.

deleted 4y ago

[deleted]

snidane 4y ago

The outcome for citizens is the same as in soviet style communism, except in communism the state enterprises were supposed to serve the commons. In this case they don't even have to pretend to.