The speed with which bank nationalisation has risen to the top of the policy agenda has found the economics profession largely unprepared. The literature on property rights that developed in the 1970s produced a range of arguments in favour of private as opposed to public ownership which had at least some influence on the widespread adoption of privatisation policies in the 1980s and 1990s. Although subsequent theoretical and empirical developments, such as the discovery of the equity premium puzzle and developments in agency theory cast doubt on the claims of the original literature, the profession had moved on, and showed little interest in revisiting the issues. As Joshua Gans observes,
the main contributions have come from Australian economists who did this research a decade ago only to be told by international journals that as privatisation had occurred everywhere by then, no one was interested in the conditions under which government ownership would be preferable.
and notes “I guess that view is wrong.” Unsurprisingly, I was among those who tried, with limited success, to interest the international profession in this question.
Looking at the history of the issue, it’s also not all that surprising that such debate as there was took place mainly in Australia. Until very recently, the economics profession has been dominated by the US, where public ownership is rarely part of policy debate, and by the UK, where the advocates of privatisation were dominant from the start. Australia is typically among the primary export markets for UK policy ideas, and this was certainly the case with privatisation. In Australia proposals for privatisation ran into serious political difficulties which created room for a critical analysis of central elements of the case for privatisation.
It rapidly became evident that the idea that privatisation was a method by which governments could raise money was not, in general, true – the earnings foregone through privatisation were often worth more than the sale price. And simplistic claims about improved efficiency only worked well for firms operating in competitive markets with little needed for regulation. Unsurprisingly, perhaps, public ownership was concentrated in industries with a high degree of natural monopoly and other problems that necessitated continuing government involvement.
Australia has made some notable contributions to economic thought, particularly the work of Trevor Swan (arguably the most significant economist never to win a Nobel prize), Colin Clark on national accounting, and before that the “Australian case for protection” developed by the Brigden Commission and later formalised as the Stolper-Samuelson theorem. In the 1970s, the “Gregory thesis” was an independent analysis of what became known internationally as “Dutch disease”. As these examples suggest, we tend to suffer a bit from being on the far side of the planet from the main centres of activity in the profession. It will be interesting to see if the Australian case for nationalisation gets any recognition now that the idea is in vogue in the Northern hemisphere.
I’ll try to post a list of useful references on this topic before too long.