Sunday, October 13, 2013

World of Finance: Nationalization vs. Privatization-4

Why the workers have no incentive to work is because they know that there are unions and they can exert pressure on the government to keep pumping money into these loss making industries and also blackmail them at the time of election. Furthermore, the government have no incentive to sell it back to private hands because they have to provide jobs to their party workers and so they fill these industries with so many inefficient workers that it becomes a loss making industry but at the same time it becomes a part of the patronage that the government gives to its party employees. And with this patronage, other opportunities come in and make sure that the nationalized industries are never sold back to private hands. Inefficient and rampant corruption destroys these companies but the government cannot do anything about it because of the fear of loss of jobs if they sold it to private hands not to mention loss of votes and sometimes violence. The intentions initially of the government nationalizing some industries maybe sincere but it ultimately hampers competition and innovation since all the jobs are secure and people are getting paid for only showing up. And the exercise of just pumping more money into industries begins and whenever government wakes up to the fact that they have to get rid of these money gobbling institutions, they face resistance not only from workers but also the opportunistic politicians who want to do politics on these institutions and strikes and riots result which just delays the inevitable that these industries have to be sold to private investors and government has to get out of the way.

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