Don't Be Afraid of Privatization

The cost of the inefficiency of state-owned companies is borne by the public. Therefore privatization is not a dirty word. It is a correct and essential process that improves the standard of living for us all.

Privatization has recently become a dirty word. MKs are attacking it, social organizations are condemning it, and columnists are beating up on it. It has become the root of all evil. This week MK Shelly Yachimovich said at the founding conference of the social-economic caucus of the Labor Party: "Our ambition is for the voters to know that it doesn't pay for them to support privatization," and the entire hall thundered with applause.

That was also the spirit of the words of MK Yoram Marciano when two weeks ago he explained his opposition to reform and privatization in the Israel Electric Corporation (IEC). "The Labor Party is opposed to privatization," Marciano said. And the patron of both of them, Amir Peretz, expressed the same sentiments this week when in the cabinet he vehemently opposed the privatization of Israel Military Industries, even though the company is in a very bad state. And they are not the only ones.

Opponents of privatization believe the government knows better what is good for the people, so management of state-owned companies should not be taken out of its hands. But those social welfare groups are also the greatest critics of the government. They call it a corrupt government that does not know how to manage anything. They claim it failed in the conduct of the war, that it abandoned the home front, that Arcadi Gaydamak was more effective, that its only interest is political survival, that it is failing in the administration of the health and education systems. In that case, how is it that the same people will be able to run businesses better?

In fact, most state-owned companies are badly managed. Their directors have no interest in making a profit. If they make a profit the government will try to take it away via a dividend. So instead of becoming more efficient, accumulating profits and using them for growth and development, profits are used to increase the number of workers and improve salaries and working conditions until the major collapse arrives.

. Senior appointments at these firms are determined on the basis of connections rather than ability, and the epitome of the process took place at the Sharon family's "Ranch Forum." The chair of the labor union is the person who controls the state-owned companies. See for example what is happening in the IEC.

The result is an incorrect allocation of resources and a lack of efficiency. For example, El Al as a government corporation dared to buy only Boeing aircraft because of a government directive. But now that it is private it is considering the purchase of Airbus planes.

Another example is the privatization of Bezeq that started 20 years ago and finished only recently. During this long journey Bezeq underwent an impressive process of streamlining and trimming excess fat. Service improved beyond recognition. In the past a person would wait seven years for a land-line phone on a waiting list of 200,000 people, and today Bezeq supplies a telephone on demand within 24 hours.

Another advantage of privatization is the decentralization of power in the economy. Twenty years ago only three bodies controlled the economy: the government, the Histadrut labor federation and the Recannati family. Everything was in their hands. The privatization process introduced new factors into the market and led to a decentralization of power. Privatization removed the following companies from government hands: Paz, Israel Chemicals, the Oil Refineries, Arkia, El Al, Bank Hapoalim, Discount Bank, Bank Mizrahi, Bezeq and Israel Shipyards. When they were state-owned, these companies were in constant trouble and endured endless strikes, whereas now they are successful private bodies that want to build a private seaport to compete with the existing ports.

The cost of the inefficiency of state-owned companies is borne by the public. Therefore privatization is not a dirty word. It is a correct and essential process that improves the standard of living for us all.