NationStates Jolt Archive

I know what you're thinking, but hear me out...

I'm studying for an exam in International Macroeconomics tomorrow, and one topic we covered is the position of developing countries, including balance of payments crises (where a fixed exchange rate collapses), banking crises and default crises.

These are obviously related, and the biggest threat to growth and stability of developing countries. Basically they stem from the need to pay back debts. In theory debt isn't a bad thing for a country, because the inflowing money can be invested properly when savings aren't enough (which in poor countries they never really are). But poor countries can't get loans in their own currency, because those are really unstable. So the only way they can get money is by agreeing to borrow an amount of dollars or euros, and paying back interest in that currency. That can drastically increase interest payments from one day to the next, if the home currency falls. Furthermore, whenever things start looking a bit funny, investors tend to want to get the hell out of there, so any short-term debt where the principal can be demanded back early becomes a huge burden on the developing country.

There are only two ways of paying them: either the money comes straight out of the economy (by suddenly having to export a lot more just to service debts, which hurts especially the poor) or from the central bank's foreign currency reserves (which in turn leads to fears about the exchange rate and people rushing out even faster).

So basically a poor country needs financial inflows, but repaying debts is also the one biggest danger it faces.

So I'm thinking: how about equity?

If you buy a bond, you get some set amount of money both in good years and in bad. If the bondholder goes broke, you've got first claims on what is left.

If you buy a share however, you get some percentage of the profits for that year as a dividend. If it's a bad year, you might not get any dividends at all. And if the entity you're invested in goes belly-up, that's your loss.

So I think poor countries should sell shares. And the only thing they could sell shares in are their state-owned companies. If they privatise, say, their electricity provider, they'd get a one-off sum of money in the IPO. Then it will be up to the provider to "repay" - and one would expect it would be quite capable of doing so because the shareholders are probably smart people from overseas rather than the corrupt kleptocrats who run government departments in poor countries.

Of course you'll run out of state-owned companies to sell off eventually, but until that point there seems to be little justification for getting loans when privatisation is an option. So what do the various socialists, social democrats and Chavistas think of my* idea?

*"My" probably being an overstatement, I should give credit to Krugman and Obstfeld, who mentioned it very briefly in their textbook.

Good luck on the exam. ;)

Good luck on the exam. ;)
I don't think I'll be needing luck. I have never had such a terribly administered course. I stopped going to lectures half-way through and did all my studying on my own - plus all of the questions on the final will come from tutorials, so I already know them all. The only question is whether the guy will be able to mark them correctly, because we had to correct him after the midsemester on several things. :rolleyes:

Aaaanyways, back on topic.

Good luck anyway :-)

I do not approve of the idea personally. I wouldn't allow my nation's infrastructure to be controlled by an outside power, for several reasons.

1. Technology trasnfer. When a nation controls it's own infrastructure, it can develop it's own technology to maintain and adapt the infrastructure to it's local needs. For example, India has become a major power in rail transport systems due to having it's own rail network to maintain and develop. INdia now exports this expertise, and can do so indefinitely, bringing in much mroe economic benefit both directly and in "spin-off" industries than the one sum of an IPO. This provides a more secure economic future in the long term, and a route to a more diverse economy based on national expertise and the nations *own* indsutry, not direct foreign investment.

2. Future security. A profitable industry in the national hands is an assured income forever, and asset he nation always holds. You may not have money today, but you will have the annual profits of that enterprise for future generations. Feasting today and starving tomorrow is not sustainable and is irresponcible. You will take a one of payment of cash now and deprive the future generations of a regular, assured income.

3. Immediate security. National infrstructure is an inherent part of a state being truly soverign. If you do not have control of your own water, power, ports or railways, do you really control your state, or do the shareholders? What happens if national needs come into conflict with the priviatised corporate prioirities. Example: To cut down on fuel imports and congestion, the state decrees tht a high speed passenger rail service be introduced. The privatised railway corporation however does not wish to invest the money in upgrading the network, and wants to stick to keeping this a freight line, which is lucrative but does not service the interests of the nation as well. Or mroe ominously, a foreign corporation buys up national assets with malicious intent, i.e. the LA tramways.

I don't think I'll be needing luck. I have never had such a terribly administered course. I stopped going to lectures half-way through and did all my studying on my own - plus all of the questions on the final will come from tutorials, so I already know them all. The only question is whether the guy will be able to mark them correctly, because we had to correct him after the midsemester on several things. :rolleyes:

Aaaanyways, back on topic.

It reminds me of the useless lecturer that there was at my university that also taught Macroeconomics - there were four streams, 8am, 11am, 3pm and 5pm, and this useless lecturer taught the 3pm stream. Needless to say, the 11am stream was always very crowded; thankfully it was my stream and thankfully the guy was extremely experienced.

Well, seeing as how privitisation seriously fucked up the public transport here, i dont think its a good idea. Although your econimic aproach shows benefits, do consider the consequenses for the people using the services provided by gov owned companies.

So I think poor countries should sell shares. And the only thing they could sell shares in are their state-owned companies. If they privatise, say, their electricity provider, they'd get a one-off sum of money in the IPO. Then it will be up to the provider to "repay" - and one would expect it would be quite capable of doing so because the shareholders are probably smart people from overseas rather than the corrupt kleptocrats who run government departments in poor countries.

Of course you'll run out of state-owned companies to sell off eventually, but until that point there seems to be little justification for getting loans when privatisation is an option. So what do the various socialists, social democrats and Chavistas think of my* idea?


I see some problems here.

1.Poor countries often don't even have state-owned companies of any interest.
2.Anyway, a poor country should retain control, via a golden share (at least 50% +1 of ordinary shares) or a special law (see the Volkswagen law - nevermind that in the EU it's illegal now), over their key sectors, like energy, communications, transportation infrastructures, social and health services, education: else, those sectors, fundamental for the growth of an underdeveloped country, will not answer to the decisions of the local political power and will follow instead the profit of the shareholders, who are very likely to be foreign investor banks.

If you sell just up to the 50% -1 of the shares, then the poor country gets two things:
1.control over key sectors of the State
2.investors who are interested in the bettering of the general economy of the country, because that's how they will see the value of their shares rise


oh btw counterexample:
Italy after WW2 was reborn thanks to: state-like ERP ("Marshall" plan) and statalisation of key sectors, including energy (1960, Italy went into economic boom soon afterwards)

Well, it isn't as abominable as selling the companies outright to individuals, so I'll give you that.
I'd rather just see across-the-board Marshall Plans combined with international debt forgiveness.

I know what you're thinking, but hear me out...

The biggest problems...

1) Who wants to buy into a crap product? Seriously - the money in poor nations is needed in infrastructure, and it needs to be directly invested... and - not wishing to be harsh about it - investors aren't going to buy into poor infrastructure, make a big investment, in the hopes it will pay a dividend.

2) Assuming that some investors do buy into poor infrastructure, make a big investment, and it does pay a dividend - that dividend is being paid outside the poor economy. Even if you limit foreign investment, that's still a substantial proportion moving away from helping the poor nation, and in the process, making investors in the rich nation richer.

3) There is a problem with return-on-investment. There is either little to be seen by way of return, or there is one major spike as the infrastructure 'kicks in'. So - how do you stop all your investment from bailing? You either have to have very philanthropic investors, that don't mind getting no pay out... or you have to sweeten the deal. And the problem with sweetening the deal is that it basically mandates asset-stripping as an appeasement to investors.

4) Most of the things in a poor economy aren't going to be helped by investment of this kind. Supply of food, for example, would be a good industry to have state controlled... but why buy into it? The only way it can be profitable, is by increasing the price of food to the poor.

5) Last consideration... poor nations (like rich nations) are often riddled with corruption. How does the mechanism avoid creating an 'eminent domain for profit' economy?


Perhaps ironically, the best way to help poor nations out of the hole, might be to HELP them become rational communisms as an intermediary to an evolution into some kind of capitalist economy some years down the line.

Sounds good in theory, but I wonder what state-owned companies developed countries would want to buy... And I guess it is mainly those companies with exclusive rights to resources. Selling your oilfields and coppermines does not strike me as a good idea...

The biggest problems...

1) Who wants to buy into a crap product? Seriously - the money in poor nations is needed in infrastructure, and it needs to be directly invested... and - not wishing to be harsh about it - investors aren't going to buy into poor infrastructure, make a big investment, in the hopes it will pay a dividend.

2) Assuming that some investors do buy into poor infrastructure, make a big investment, and it does pay a dividend - that dividend is being paid outside the poor economy. Even if you limit foreign investment, that's still a substantial proportion moving away from helping the poor nation, and in the process, making investors in the rich nation richer.

3) There is a problem with return-on-investment. There is either little to be seen by way of return, or there is one major spike as the infrastructure 'kicks in'. So - how do you stop all your investment from bailing? You either have to have very philanthropic investors, that don't mind getting no pay out... or you have to sweeten the deal. And the problem with sweetening the deal is that it basically mandates asset-stripping as an appeasement to investors.

4) Most of the things in a poor economy aren't going to be helped by investment of this kind. Supply of food, for example, would be a good industry to have state controlled... but why buy into it? The only way it can be profitable, is by increasing the price of food to the poor.

5) Last consideration... poor nations (like rich nations) are often riddled with corruption. How does the mechanism avoid creating an 'eminent domain for profit' economy?
You're right up to here.


Perhaps ironically, the best way to help poor nations out of the hole, might be to HELP them become rational communisms as an intermediary to an evolution into some kind of capitalist economy some years down the line.

And here you fall apart. Unless you're suggesting some sort of super-oversight to ensure that the corruption you've already specified does not ruin this and make it take far longer to work to a capitalist economy, how would this work? You're practically giving the corrupt officials an excuse to abuse their country for however long they live.

You're right up to here.



And here you fall apart. Unless you're suggesting some sort of super-oversight to ensure that the corruption you've already specified does not ruin this and make it take far longer to work to a capitalist economy, how would this work? You're practically giving the corrupt officials an excuse to abuse their country for however long they live.

People talk about the failings of Russia's revolution... but overall, it did a lot to improve the lot of the population. Stalin's excesses, and the cyclic famines have hidden a lot of the good.

What communism is good at, is levelling playing fields... and it can be a good way of removing entrenched sociostructure. Centralised, authoritarian communism is also a pretty good way of combatting harsh realities like poor food supply, poor infrastructure, poor industrialisation, etc.

Make it transitional... evolving to less centralised, less authoritarian communism as it passes milestones. Make the external aid dependent on benchmarks. And offer assistance to the process. Help the process to be transparent and responsive. Make it worthwhile for people to participate. Nations that are heavily dependent on external aid can be made pretty receptive by replacing loans with this kind of linked-aid.

People talk about the failings of Russia's revolution... but overall, it did a lot to improve the lot of the population. Stalin's excesses, and the cyclic famines have hidden a lot of the good.

What communism is good at, is levelling playing fields... and it can be a good way of removing entrenched sociostructure. Centralised, authoritarian communism is also a pretty good way of combatting harsh realities like poor food supply, poor infrastructure, poor industrialisation, etc.

Make it transitional... evolving to less centralised, less authoritarian communism as it passes milestones. Make the external aid dependent on benchmarks. And offer assistance to the process. Help the process to be transparent and responsive. Make it worthwhile for people to participate. Nations that are heavily dependent on external aid can be made pretty receptive by replacing loans with this kind of linked-aid.
Alright. Fair enough. I don't doubt it could do well on the economic standpoint.

It's the potential abuses of people on the social level that I worry about, and that I would say needs to be added in on the list of requirements. That is, they cannot abuse their people and so on and so forth.

I always commend anyone who chooses to study economics (and not just because it validates my own choice) – you will find that the ability to think in economic terms will help you throughout life in more ways than you know.

On to my comments…
1. Technology trasnfer.
While I do not contest that it is theoretically possible for an impoverished nation to be world leaders in some area of technology, I find it highly unlikely. Foreign investment almost invariably does involve technology transfers; outside firms bring in the most advanced technology in the world to maximize the efficiency of their operations.

Outside investment boosts technological development – it does not retard it.

2. Future security. A profitable industry in the national hands is an assured income forever, and asset he nation always holds. You may not have money today, but you will have the annual profits of that enterprise for future generations. Feasting today and starving tomorrow is not sustainable and is irresponcible. You will take a one of payment of cash now and deprive the future generations of a regular, assured income.
A government monopoly may be seen as source of income, but do not think for a moment that it is a net bonus to the country. The dead weight loss involved more than outweighs any income from the government firm. Privatizing government firms and allowing competition will grow the economy as a whole, which will have far greater benefits in the long term than maintaining a government firm.

3. Immediate security.
Spurious argument – private control of companies does not equate to loss of control. Nearly every industrialized nation in the world has privately held utilities – are you saying that these countries have no sovereignty?

Example: To cut down on fuel imports and congestion, the state decrees tht a high speed passenger rail service be introduced. The privatised railway corporation however does not wish to invest the money in upgrading the network, and wants to stick to keeping this a freight line, which is lucrative but does not service the interests of the nation as well. Or mroe ominously, a foreign corporation buys up national assets with malicious intent, i.e. the LA tramways.

Ah yes, economic management by decree… I will refrain from giving a history lesson on central planning of economies, as I hope you are now suitably embarrassed by your (I hope) misstatement.

If a government resorts to brute force and expropriation to accomplish a goal, things are very bad indeed and go far beyond simple economic mismanagement. If the freight line is profitable, that means there is great demand for freight capacity – to remove this service would retard the economy. If passenger service is so woefully unprofitable that nobody wants to provide it, diverting resources to passenger service would result in a substantial loss to the economy as resources are misspent. If you want to argue that the externalities make it worthwhile, then why would a government subsidy equal to the value of those externalities not work? If there is not sufficient benefit to having such a passenger rail service, those resources are far better spent elsewhere.

How exactly does a foreign corporation buy assets with malicious intent? These arguments make no sense whatsoever. If an entity wants to buy an asset for some ‘malicious reason’… eliminating an alternative service for example, the government should laugh all the way to the bank while entrepreneurs jump in to fill the now open market niche. The only way this works is if the government is so corrupt that they will eliminate competition and keep anyone from replacing the now eliminated service (and they have that power because some foolish people still think central planning of economies is a good idea).


1) Who wants to buy into a crap product?
Because a crap product on the market means an under-serviced market – buy that crap product and bring in more advanced knowledge and experience to improve it so you can dominate that market segment and make a small fortune from realized efficiency gains.

2) Assuming that some investors do buy into poor infrastructure, make a big investment, and it does pay a dividend - that dividend is being paid outside the poor economy.
The original investment came from outside, it is even better than getting a loan because you only pay it back contingent upon the success of the project. Outside capital boosts employment in the host nation as well as improving service and efficiency in the market as a whole. If the investment is so wildly successful that the dividends become substantial, that means the host economy is growing so rapidly, the outflow of capital would be a very good thing to help cool down an overheating economy and reduce the pressure on a raising currency value.

3) There is a problem with return-on-investment. There is either little to be seen by way of return, or there is one major spike as the infrastructure 'kicks in'. So - how do you stop all your investment from bailing? You either have to have very philanthropic investors, that don't mind getting no pay out... or you have to sweeten the deal. And the problem with sweetening the deal is that it basically mandates asset-stripping as an appeasement to investors.
I don’t understand what you are getting at here… why would all investment suddenly leave the country? It makes no sense to anticipate capital flight. There are a lot of altruistic investors (national governments, huge philanthropic foundations, NGOs, etc). When it comes to rent seeking investors, why would they ‘bail’ and why is that a bad thing? If they abandon the investment, what they have invested has already gone into the economy and thus ‘bailing’ on the investment means that it was an inefficient use of funds in the first place.

4) Most of the things in a poor economy aren't going to be helped by investment of this kind. Supply of food, for example, would be a good industry to have state controlled... but why buy into it? The only way it can be profitable, is by increasing the price of food to the poor.
Why do you think government control of industry is a good thing? Zimbabwe was the breadbasket of Africa with private farms, now there is mass starvation. This has been played out time and time again – government intervention in an industry is almost never a good thing.

There are many ways to increase profits than by raising prices – there are countless ways to improve efficiency and reduce costs, which boosts profits while prices might even fall substantially.

5) Last consideration... poor nations (like rich nations) are often riddled with corruption. How does the mechanism avoid creating an 'eminent domain for profit' economy?
The proposal was to sell off nationalized industries… thus the government already owns these firms. If the government doesn’t respect property rights to the extent that it just seizes property and auctions it off, there will not be many buyers (at least not at any reasonable price). How can someone who thinks government is this horribly corrupt think that government control of the economy is a good thing?

Perhaps ironically, the best way to help poor nations out of the hole, might be to HELP them become rational communisms as an intermediary to an evolution into some kind of capitalist economy some years down the line.
Communism is not the answer. Development is spurred by better property rights – not by removing them. Perhaps someone else would like to explain this to you, I don’t have the patience at the moment.

People talk about the failings of Russia's revolution... but overall, it did a lot to improve the lot of the population. Stalin's excesses, and the cyclic famines have hidden a lot of the good.

What communism is good at, is levelling playing fields... and it can be a good way of removing entrenched sociostructure. Centralised, authoritarian communism is also a pretty good way of combatting harsh realities like poor food supply, poor infrastructure, poor industrialisation, etc.

Make it transitional... evolving to less centralised, less authoritarian communism as it passes milestones. Make the external aid dependent on benchmarks. And offer assistance to the process. Help the process to be transparent and responsive. Make it worthwhile for people to participate. Nations that are heavily dependent on external aid can be made pretty receptive by replacing loans with this kind of linked-aid.
Do people not learn basic economic history? Seriously… advocating Soviet style control of the economy? I’m also curious where you get the basis of the idea that authoritarian regimes voluntarily give up power like that. Tied aid is notoriously useless – history has shown it does not work as regimes do not voluntarily give up power but take the money and do not fulfill their promises to keep those freedoms.

If the government doesn’t respect property rights to the extent that it just seizes property and auctions it off, there will not be many buyers (at least not at any reasonable price).

I was going to respond to this post, but figured I'd read it first.

I got as far as this bit, and figured I'd wait until you got out of school, before I talk to you about anything that matters.

What communism is good at, is levelling playing fields... and it can be a good way of removing entrenched sociostructure. Centralised, authoritarian communism is also a pretty good way of combatting harsh realities like poor food supply, poor infrastructure, poor industrialisation, etc.

This is true, but it applies only to the post-Stalinist era. At the end of Stalin's reign, income inequality was worse in the USSR than in any developed capitalist nation of the time. However, Khrushchev and Malenkov brought it down to a pretty low level over the next decade and expanded living standards and development above and beyond anything that had happened before.

I've always wondered what might have happened had Khrushchev remained in power and passed it on to a successor rather than be replaced by Brezhnev.

This is true, but it applies only to the post-Stalinist era. At the end of Stalin's reign, income inequality was worse in the USSR than in any developed capitalist nation of the time. However, Khrushchev and Malenkov brought it down to a pretty low level over the next decade and expanded living standards and development above and beyond anything that had happened before.

I've always wondered what might have happened had Khrushchev remained in power and passed it on to a successor rather than be replaced by Brezhnev.

It's true all over, actually - if you ignore the obvious drag-factor of Stalinism. Compared to before communism, even Stalinist Russia was improved on a lot of fronts... it's just that Stalinism as a complete package is a little... unpalatable. Compared to some of the rest of the world, not so hot, maybe.. compared to what went before... not so bad.

The Khruschev era is an interesting chapter in the history of the USSR. It makes you wonder quite how much influence the US could muster...

You will take a one of payment of cash now and deprive the future generations of a regular, assured income.
Well, ideally the money would be well-invested where it could produce even more returns for future generations. But you get that issue regardless of whether you issue bonds or equity.

The problem for these countries is that they have lots of things where investment could do great things, but no money to do it. So they tend to borrow money, which leads them into trouble further down the track. But if you get some rich foreign consortium to buy infrastructure and other state-companies, you get two birds with one stone: you don't have the problem of having to repay debts when the economy is going down, and you have foreigners with a vested interest in building your infrastructure and economy up.

Yes, you may end up with services that are not quite as equitable or geographically stretched. A private telco is not going to make sure there is coverage in every tiny village. But it will make sure that the major commercial centres are connected as well as possible. It will make sure that everything it does returns a profit, in other words benefits people with the capacity to pay (ie the capacity to earn money). But that's surely better than no proper phone- or internet connections at all, right?

If you do not have control of your own water, power, ports or railways, do you really control your state, or do the shareholders? What happens if national needs come into conflict with the priviatised corporate prioirities.
I don't know, industrialised countries seem to manage just fine. If you translate sovereignty to control, that is the ability to cut off someone's power, maybe it's not even that bad if a government that thinks like that is cut down to size a little.

Look at the mobile phone industry in Africa: it's full of people buying a mobile and selling call time to people who otherwise would have no way of communicating beyond the horizon. Africa is full of entrepreneurs!

And in poor countries like that, entrepreneurs are the people who make the most immediate impact. They're the ones who create wealth in the first place, who introduce new technologies and new ways of life into the community. I can understand if you doubt this in the case of the US, but surely not for Mali or Senegal. But entrepreneurs need someone to work with. They need someone to provide internet access, loans, roads and so on and so forth. For 60 years now African governments have proven themselves incapable of doing it and have gotten themselves into debt in the process. I'm just saying that rather than the status quo, it might be a good idea to let businesspeople speak to businesspeople for a while without being too concerned about equality (which in Africa's case sits between $2 and $5 a day or so). Government can come back in once there actually is something to regulate.

Poor countries often don't even have state-owned companies of any interest.
Nigeria has something like 140 million potential customers. If you allow the investor to actually take advantage of this fact, without drowning them in regulations, that is a goldmine. Especially since the investments you actually do need aren't that big - one or two working powerplants could probably double the electricity actually produced by Nigeria's energy provider (there's a big industry in diesel power generators going there right now because the lines are broken or something), and there's cheap labour aplenty to help out. For companies that make deals in hundreds of billions, that's not that much work, but big potential payout if the economy actually starts growing properly.

But what is needed is freedom from corruption (meaning freedom from government) and crime, and some guarantee that the property rights will actually be protected in the future, so a strict "no" to nationalisations of any sort.

2.Anyway, a poor country should retain control, via a golden share (at least 50% +1 of ordinary shares) or a special law (see the Volkswagen law - nevermind that in the EU it's illegal now), over their key sectors, like energy, communications, transportation infrastructures, social and health services, education: else, those sectors, fundamental for the growth of an underdeveloped country, will not answer to the decisions of the local political power and will follow instead the profit of the shareholders, who are very likely to be foreign investor banks.
So the government is incompetent, and you propose they retain control? Part of the appeal of the plan is to make sure they can't stuff things up any further (though the main part is that it doesn't add to debt).

Italy after WW2 was reborn thanks to: state-like ERP ("Marshall" plan) and statalisation of key sectors, including energy (1960, Italy went into economic boom soon afterwards)
But Italy was already a developed country with lots of skilled and educated individuals, just like Germany and Japan. All they needed was a bit of money to get new machines, and they were off.

Put machines into Nigeria, and you'll have armed gangs fighting over them, followed by government officials nationalising them and auctioning them off to the guy who offers the most attractive daughter. Don't get me wrong, money is certainly needed, but if the way it is spent doesn't change, it'll do no good. Privatisations not only offer money, but also change the way the economy works.

Assuming that some investors do buy into poor infrastructure, make a big investment, and it does pay a dividend - that dividend is being paid outside the poor economy.
That's the idea. It's like interest payments, except these aren't paid by the taxpayer or the central bank's reserves, and they don't have to be paid if times are bad.

So - how do you stop all your investment from bailing? You either have to have very philanthropic investors, that don't mind getting no pay out... or you have to sweeten the deal.
If things turn pear-shaped and there is no return, people will sell the shares to someone else who thinks they can do it better. It doesn't affect the poor country all that much. And if the firm actually collapses, the government can still step back in.

And the problem with sweetening the deal is that it basically mandates asset-stripping as an appeasement to investors.
One thing you can be sure of is that no international investor is going to buy Nigeria's electricity company to strip its assets.

4) Most of the things in a poor economy aren't going to be helped by investment of this kind. Supply of food, for example, would be a good industry to have state controlled... but why buy into it? The only way it can be profitable, is by increasing the price of food to the poor.
Well, that's where the government can use the profits of the privatisation.

Perhaps ironically, the best way to help poor nations out of the hole, might be to HELP them become rational communisms as an intermediary to an evolution into some kind of capitalist economy some years down the line.
See what I said above about entrepreneurs. The last thing you need to do is to shut them out and put the warlord-come-president in charge of even more things.

The Soviet Union could make big capital investments because they didn't pay for them. They nationalised the few things that were there and commanded people to do the rest for virtually free, under penalty of gulag. If that is what you propose as a solution, be honest about it. You said Stalinism as a "complete package" - if you take the gulag part out, the whole thing collapses. People don't work for free on "electrification" out of the goodness of their hearts.

I know what you're thinking, but hear me out...

I'm studying for an exam in International Macroeconomics tomorrow, and one topic we covered is the position of developing countries, including balance of payments crises (where a fixed exchange rate collapses), banking crises and default crises.

These are obviously related, and the biggest threat to growth and stability of developing countries. Basically they stem from the need to pay back debts. In theory debt isn't a bad thing for a country, because the inflowing money can be invested properly when savings aren't enough (which in poor countries they never really are). But poor countries can't get loans in their own currency, because those are really unstable. So the only way they can get money is by agreeing to borrow an amount of dollars or euros, and paying back interest in that currency. That can drastically increase interest payments from one day to the next, if the home currency falls. Furthermore, whenever things start looking a bit funny, investors tend to want to get the hell out of there, so any short-term debt where the principal can be demanded back early becomes a huge burden on the developing country.

There are only two ways of paying them: either the money comes straight out of the economy (by suddenly having to export a lot more just to service debts, which hurts especially the poor) or from the central bank's foreign currency reserves (which in turn leads to fears about the exchange rate and people rushing out even faster).

So basically a poor country needs financial inflows, but repaying debts is also the one biggest danger it faces.

So I'm thinking: how about equity?

If you buy a bond, you get some set amount of money both in good years and in bad. If the bondholder goes broke, you've got first claims on what is left.

If you buy a share however, you get some percentage of the profits for that year as a dividend. If it's a bad year, you might not get any dividends at all. And if the entity you're invested in goes belly-up, that's your loss.

So I think poor countries should sell shares. And the only thing they could sell shares in are their state-owned companies. If they privatise, say, their electricity provider, they'd get a one-off sum of money in the IPO. Then it will be up to the provider to "repay" - and one would expect it would be quite capable of doing so because the shareholders are probably smart people from overseas rather than the corrupt kleptocrats who run government departments in poor countries.

Of course you'll run out of state-owned companies to sell off eventually, but until that point there seems to be little justification for getting loans when privatisation is an option. So what do the various socialists, social democrats and Chavistas think of my* idea?

*"My" probably being an overstatement, I should give credit to Krugman and Obstfeld, who mentioned it very briefly in their textbook.

What you're basically saying is that these countries take out loans backed by their own currency. It's the same as what they want to do now, but can't.

If you buy a government bond in the US you get back more than you paid, but it's backed by US currency.

What you're proposing is essentially that poor countries do the same. But it's not really an attractive venture because, as you said, their currencies are so unstable. If I buy a $50 US bond, I'll get $50 when I cash it in. If I buy a Zimbabwean bond for $50 US I might only get back $5, if I get back anything at all.

Calling a government bond a "share" doesn't make it anything different.

The Soviet Union could make big capital investments because they didn't pay for them. They nationalised the few things that were there and commanded people to do the rest for virtually free, under penalty of gulag. If that is what you propose as a solution, be honest about it. You said Stalinism as a "complete package" - if you take the gulag part out, the whole thing collapses. People don't work for free on "electrification" out of the goodness of their hearts.

A bit of a nitpick here, but the majority of the work involved in Soviet electrification happened prior to the Stalin era; Stalin mostly built upon what had been achieved under Lenin's GOLERO plan and the NEP rather than drive forward electrification. The bulk of his work involved using electrification to build up heavy industry through the use of the GULAG system.

Of course, the buildup of heavy industry is hardly enough to motivate somebody, especially when you really don't get a lot from it. Building machine tools plants and steel smelters are great and all, but they're much more useful when used to produce goods and services for the worker rather than just to build more steel smelters and machine tools plants ad infinitum. Later Soviet officials recognized this, of course, and that had a lot to do with the significant improvement in the quality of life in the USSR in such a short time following the end of WWII and the Stalinist era.

Calling a government bond a "share" doesn't make it anything different.

No, it does make it different. A share represents ownership of a piece of the company as well as entitlement to any dividends that are paid from retained earnings. If the company goes broke, the shareholders will receive some compensation in the form of proceeds from the sale of assets, and if it is sold the shareholders will either receive cash compensation for their shares or shares in the newly merged company.

A bond is a loan and a share is equity. There is a huge difference between the two, especially when applied to investing in foreign government-owned corporations.

I was going to respond to this post, but figured I'd read it first.

I got as far as this bit, and figured I'd wait until you got out of school, before I talk to you about anything that matters.

Baseless ad hominem attack and wholly irrelevant. Why do you feel the need to make hostile an embittered comments like this? If you have a problem with my statements, address the arguments rather than making immature assertions.

I take it by your rather outraged response that you believe that governments embarking on a policy of confiscating everything and auctioning it off will raise massive amounts of money? In that case, why don't all governments do that on a continual basis?

The reason is that without secure property rights, no rational entity will pay significant sums of money for assets when they have no confidence in their ability to retain those assets. If some government official can seize all your assets and auction them off whenever they feel like they want a bit more cash, the value of that asset is discounted based upon the likelihood of you retaining that assets long enough to earn a reasonable return.

Some will inevitably believe they can still make a profit if the sale price is low enough, and the rents high enough, so long as they can hold onto the asset for a short period of time. The problem is that the discount will probably be so high that significant investment is not possible (thus, no reasonable price will be gained by seizing and auctioning assets).

Any entity that makes a large investment, which could be lost at any moment without just compensation, must anticipate profits in excess of that initial investment immediately or go bankrupt following that investment strategy.

For example - better electrical transmission lines are very expensive to lay, but have a very low rate of return. Let us assume that were a company to run power lines to a village, it will take 25 years to recoup that investment.
Private companies will only invest substantial sums of money into developing a robust electrical grid if they have the reasonable expectation of holding those assets, and being able to collect the rents on them, for longer than it will take to recoup the investment with a reasonable level of profit. If there is no reasonable expectation that the company will have secure property rights on those power lines for at least 25 years, they will not invest the money to lay them.

Now do you understand why a lack of property rights discourages investment?

No, it does make it different. A share represents ownership of a piece of the company as well as entitlement to any dividends that are paid from retained earnings. If the company goes broke, the shareholders will receive some compensation in the form of proceeds from the sale of assets, and if it is sold the shareholders will either receive cash compensation for their shares or shares in the newly merged company.

A bond is a loan and a share is equity. There is a huge difference between the two, especially when applied to investing in foreign government-owned corporations.

Nonsense... there is no difference.
If an investment goes under, the investment can be liquidated and the shareholders receive a portion of the value. If a country goes under, the country can be liquidated and the bondholders get a portion of the value.

Unfortunately pricing the sale price of that land and its people has gotten to be a little tricky since the end of the colonial era ;)

"Privatization" in poor countries usually means doling out state-owned enterprises to toadies of the regime. Nothing changes; the same individuals will continue to milk said industries like a cow, while ordinary people continue to suffer.

What you're basically saying is that these countries take out loans backed by their own currency. It's the same as what they want to do now, but can't.
No, not at all. With a bond, you have to pay a certain amount of interest every period, and you end up paying a face value at the very end. Every period the amount of money you pay is the same, in whatever denomination you have the thing in. Of course, if you're Zimbabwe and your bond is denominated in US Dollars, the amount of Zimbabwe Dollars you pay changes. That's important.

But even if you sold the shares denominated in US Dollars, there'd be a vital difference: if the economy is in trouble, the company will make less profits, so there will be less of an outflow because it will pay less in dividends. With a bond, you'd end up paying the same amount with less total cash available to you, which is bad.

The real issue here is that bonds pay a fixed interest, shares a variable dividend.

"Privatization" in poor countries usually means doling out state-owned enterprises to toadies of the regime. Nothing changes; the same individuals will continue to milk said industries like a cow, while ordinary people continue to suffer.
The whole idea in this case is that you dole it out to foreign investors, not domestic ones.

I don't really agree with your idea, at all.

Selling off state property is like selling your country to another country or several countries.

You might not like this idea that I have, but here I go.

We should stay out of other countries businesses.
It's not our problem.
Let the countries develop themselves.

I know I'm sounding like a fascist-nationalist who doesn't give two craps about other countries.
And yes, I'm very much that kind of person.

I believe more in countries with equal culture and almost equal languages joining together into a large union or smelt together into one nation.
The larger the landmass and less rivals, the easier the development of the country/countries will be.

That requires competent rulers and politicans too and not "government kleptokrats" like you said.

Because a crap product on the market means an under-serviced market Couldn't it also mean an oversaturated market?

Selling off state property is like selling your country to another country or several countries.
It's no different to getting a loan from people in another country. Unless another government buys the shares (which may be an issue to be watched out for during the IPO and afterwards), you're making a deal with private investors. Where they come from is not really important, what matters is that they bring in the money and know what they're doing.

The whole idea in this case is that you dole it out to foreign investors, not domestic ones.

I know. I'm just saying, though, usually it doesn't happen that way.

What about going to the absolute extreme and privatize damn near everything. I know this sounds extreme but you could come up with a way to privatize almost everything. Have the nation hold 51% share in all companies that control key points of the nation.

List of items that I could see as a potential target for privatization:

Education
Health care
Major highways
Major railways
Energy generation
Telecoms

This is to name a few. You would have to keep control of the security forces of the nation. Basic government administration would have to be maintained. However I would think major costs to the nation would be avoided. Also you could conceivably farm out a major military with a defence pact with a large foreign force.

While I do not contest that it is theoretically possible for an impoverished nation to be world leaders in some area of technology, I find it highly unlikely. Foreign investment almost invariably does involve technology transfers; outside firms bring in the most advanced technology in the world to maximize the efficiency of their operations.

Outside investment boosts technological development – it does not retard it.


They would not have to be world leaders, merely to be self sufficient and not dependent on others basic industrial goods, reducing their need to deplete their financial reserves buying in things that they could, given time, develop the infrastructure to produce domestically. It should also be noted however that some developing nations have become major industrial powers


A government monopoly may be seen as source of income, but do not think for a moment that it is a net bonus to the country. The dead weight loss involved more than outweighs any income from the government firm. Privatizing government firms and allowing competition will grow the economy as a whole, which will have far greater benefits in the long term than maintaining a government firm.


The United Kingdom has pursued this approach and it has not led to greater benefits for most of our people. Rail Privatisation has led to fragmented infrastructure and higher fares. Utilities privatisation has led to a confused and fragmented market and falling levels of investment and technical competence in management of key systems, particularly water and nuclear power. The private companies are unable to renew key infrastructure, and we in the UK are now facing a major problem because of this, where private companies cannot command the resources necessary to decommission our older reactors and bring on line new ones. In the end the "big, evil" state has to intervene and pick up the expense of capital investments for the infrastructure, but without picking up the profit. The UK government now spends several times more propping up our efficient, competitive (as if) railways than it did when it owned them directly. The same will soon become true of BNFL (nuclear power). Meanwhile the technical competence of these private companies leaves much to be desired.

Economic growth hasn't boomed, and what growth we have enjoyed cannot be pinned down to the privatisation of state assets. The United Kingdom's quality of life was in fact higher in the 1970's than at present, when most key assets belonged to the state and were managed as national assets.

An interesting side note to this is that the Malaysian government recently re-privatised IWK (Indah Water Konsortium) following rising bills and falling standards. A good way to bring prosperity to your people is to increase the prices of their most basic services?

Spurious argument – private control of companies does not equate to loss of control. Nearly every industrialized nation in the world has privately held utilities – are you saying that these countries have no sovereignty?

Then why the hoo-haa about DPW (Owned by the government of Dubai)buying the holding company that owns some American sea ports? And why laws concerning sale of certain companies to foreign buyers in most western countries? Ownership is ownership. If MacroHard buys Frankonia's state software R&D division, then those assets and technologies AREN'T Frankonia's any more, they are MicroHard's. If MicroHard wants to shut down work there are move it to a new site, they can. If they think there is more future in designing the all new 3D pacman than encryption software, they can, regardless of the needs of Frankonia.


Ah yes, economic management by decree… I will refrain from giving a history lesson on central planning of economies, as I hope you are now suitably embarrassed by your (I hope) misstatement.

Refrain as you wish, but at the end of the day what use is a state without the power to do what needs to be done? Look at Somalia. The Economy is there to serve the nation, not vice versa. And before you say that people are not subservient to their nations, you are a part of your nation. A nation is made of people. Economies are made of assets. Assets serve people, economies serve nations.


If a government resorts to brute force and expropriation to accomplish a goal, things are very bad indeed and go far beyond simple economic mismanagement.


It is not expropriation if it already belongs to them... Expropriation I feel is only necessary in cases of tax evasion and where large scale hoarding of nationally significant assets is taking place.


If the freight line is profitable, that means there is great demand for freight capacity – to remove this service would retard the economy. If passenger service is so woefully unprofitable that nobody wants to provide it, diverting resources to passenger service would result in a substantial loss to the economy as resources are misspent. If you want to argue that the externalities make it worthwhile, then why would a government subsidy equal to the value of those externalities not work? If there is not sufficient benefit to having such a passenger rail service, those resources are far better spent elsewhere.


In the hypothetical situation above we are talking of upgrading the line, not replacing one service with another, but the upgrade needed to equipment would be expensive. Most privateers have been shown to be unwilling to invest in long term infrastructure projects except when forced, better to make a quick profit from existing investment than run, if the UK's experience is anything to go buy.

The passenger service may well be unprofitable, but it is still a necessary service. Something can be essential without being profitable. In the example above the rail would reduce congestion and pollution, so even if unprofitable would improve the quality of life in the corridor and aid mobility for the population etc. These are not economically quantifiable (easily) but affect the well being of the people.

why would a government subsidy equal to the value of those externalities not work?

Because you would have to pay the privateers profit margin in addition to the costs needed. If the nation owned the whole system, this would not be necessary and the profits from other parts of the system would also be returned to the nation, so it would be financially in a better position all round. Depending on needs the system could be maintained revenue neutral, using internal cross subsidy, managed to return a profit, or subsidised from other incomes, as priorities and needs change over time. Why pay someone from outside to do what you can do yourself? Also Bear in mind these subsidies would be being paid to a foreign entity, your suggestion would also mean money is one again heading out of the nation, not in, defeating the original purpose.


How exactly does a foreign corporation buy assets with malicious intent? These arguments make no sense whatsoever. If an entity wants to buy an asset for some ‘malicious reason’… eliminating an alternative service for example, the government should laugh all the way to the bank while entrepreneurs jump in to fill the now open market niche.


This didn't happen in LA.


The only way this works is if the government is so corrupt that they will eliminate competition and keep anyone from replacing the now eliminated service (and they have that power because some foolish people still think central planning of economies is a good idea).


And this could never happen in a nation that doesn't use central

Not if you want the national treasury - and hence bedrock of the economy - to survive.

Governments get income in three ways, only two of which are real. Firstly, taxation. In poor countries, this doesn't equate to much, because not many are wealthy enough to pay much tax. Or it could be the reason why the country is poor to begin with - if tax levels are too high, nobody has any incentive to earn more money. In either case, taxation is not the main source of revenue.
Secondly - government run companies. These are usually the essential utilities - electricity, water, gas, fuel supply, transport, mail delivery, healthcare. Not all of these can (or are supposed to) make a profit. But most (except for healthcare) provide a source of income for the government.

Thirdly - and this is where developing countries run into trouble - issuing government bonds - aka treasury bills. For a government with a secure annual revenue, like most western nations, this is not a problem - the bonds will be paid off in the course of time. But without much revenue, as in developing countries, governments often make the mistake of issuing more bonds than they are capable of repaying.

Thats when the trouble starts. Either the government defaults on it's debt - which generally leads to economic collapse. Or an outside body steps in to make sure that doesn't happen, by issuing loans to the government so that bondholders can be paid off. Sort of like a personal credit consolidation, except on a much larger scale.
The institution that most commonly does this is the IMF (and the World Bank) - which usually dictates that all government run companies must be privatised before loans are handed over. This results in a near total loss of all government revenue - meaning it has no way of paying back the loan.
Of course, if the industries behave themselves and start employing more people (who pay income tax) and generating profits (which are taxed) then the government might get some revenue back.
But this has historically not occured - and there's no natural law to say that it ever will. What usually happens is that private firms lay off most of the utility workforce and cut down on maintenance spending (both of which pad their bottom line out in the very short term), and refuse to pay taxes. The government is usually powerless to enforce the taxation law - because even this takes money, which they haven't got.
The worst case scenario is private firms stripping assets and moving the resulting capital out of the country (as happened in Russia and most of latin america). This is made possible by the elimination of the same capital controls (another IMF loan condition) which made foreign investment possible in the first place.

Even developed countries have suffered in the hands of privatisation. The British experienced price increases of several hundred percent in water ,gas and electricity bills. The national transport network was screwed with, and is only now recovering, thanks largely to renationalisation of the track maintenance. Our economy has suffered due to this, but we survive, because our employment market is strong enough, and our healthcare is still government run and hence free at the point of use (if we all had to pay private health insurance in addition to everything else, we'd be fucked).

An even better example was the privatisation of gas / electricity in California about five years ago. Prices there jumped by a thousand percent in some places, supply was restricted, causing rolling blackouts (and big profits for generators). The market was rigged by private firms. It was this sort of behaviour that led to utilities being nationalised and heavily regulated in the first place.

So no - privatisation doesn't do the economy any favours.

Baseless ad hominem attack and wholly irrelevant.

I assume you are still in school, because your comment sounds like textbook wishful thinking, rather than observation of the real world.

It's only an ad hominem as much as you think it is. I thought it was a charitable assumption.

If you really think you're talking about the realworld when you make a comment like that, we simply have no common frame of reference.

If things turn pear-shaped and there is no return, people will sell the shares to someone else who thinks they can do it better.


Why would someone buy them? Why would someone buy them with improvement in mind?


It doesn't affect the poor country all that much. And if the firm actually collapses, the government can still step back in.


How?

You know what happens to companies that bankrupt themselves, right?


One thing you can be sure of is that no international investor is going to buy Nigeria's electricity company to strip its assets.


Why? If I pay $8 for the company, and can sell it's assets for $10 as scrap...


See what I said above about entrepreneurs. The last thing you need to do is to shut them out and put the warlord-come-president in charge of even more things.


Why? If he can't 'get rich', is monitored, and has experience as boss... why not?


The Soviet Union could make big capital investments because they didn't pay for them. They nationalised the few things that were there and commanded people to do the rest for virtually free, under penalty of gulag. If that is what you propose as a solution, be honest about it. You said Stalinism as a "complete package" - if you take the gulag part out, the whole thing collapses. People don't work for free on "electrification" out of the goodness of their hearts.

You have heard of The New Deal, I assume?

Well, ideally the money would be well-invested where it could produce even more returns for future generations. But you get that issue regardless of whether you issue bonds or equity.

The problem for these countries is that they have lots of things where investment could do great things, but no money to do it. So they tend to borrow money, which leads them into trouble further down the track. But if you get some rich foreign consortium to buy infrastructure and other state-companies, you get two birds with one stone: you don't have the problem of having to repay debts when the economy is going down, and you have foreigners with a vested interest in building your infrastructure and economy up.

Yes, you may end up with services that are not quite as equitable or geographically stretched. A private telco is not going to make sure there is coverage in every tiny village. But it will make sure that the major commercial centres are connected as well as possible. It will make sure that everything it does returns a profit, in other words benefits people with the capacity to pay (i.e. the capacity to earn money). But that's surely better than no proper phone- or internet connections at all, right?


Only that on the ground I very much doubt most investors would pour money into building up infrastructure. As I said before, the harsh light of day shows that usually they will take what is already there and screw as much money from it as they can, then bail when the going gets tough.

Also for social stability it is important that everyone benefits. To let the profit motive have sole reign, as you say the benefits will reach only a few. This will lead to more anger and frustration, and ergo greater instability. Ultimately if that follows through to it's logical conclusion, the only growth industry in the nation will be the local clone manufacturing of Kalashnikovs

If you were unfortunate enough to live in a small village and didn't have large amounts of cash, would you be understanding when told that only people in the luxury compounds around the capital can have tap water and electric lighting, because the foreign owners of your nations water has determined you are an unprofitable proposition?


I don't know, industrialised countries seem to manage just fine. If you translate sovereignty to control, that is the ability to cut off someone's power, maybe it's not even that bad if a government that thinks like that is cut down to size a little.


Is it bad if that power is also having the ability to extend electrical power to every village? To bring irrigation system to places where the land is barren? There is two sides to every coin. Perhaps the focus shouldn't be on reducing the power of the rulers, and hading it out to individuals the people have no recourse to, but on ensuring we have good rulers, so that power is used to the fullest extent for the most benefit. A privateer is responsible ONLY to deliver a profit. A government is responsible for the nation. This is abused, often. But introducing a cultural change in the way we regard the nation and the responsibilities of those granted the power to rule them is, in my view, a more productive path than dismembering the most fundamental keystone of civilization.


Look at the mobile phone industry in Africa: it's full of people buying a mobile and selling call time to people who otherwise would have no way of communicating beyond the horizon. Africa is full of entrepreneurs!


The whole world is full of entrepreneurs. That doesn't make it any more sensible to sell the family gold to them when it can be used to provide security for ourselves and our decedents.


And in poor countries like that, entrepreneurs are the people who make the most immediate impact. They're the ones who create wealth in the first place...

But these entrepreneurs have not brought wealth and not ended corruption, and neither are they foreign billionaires. Entrepreneurs do have a part to play, but it isn't in the role of foreign banks and companies controlling a nations key systems.


But what is needed is freedom from corruption (meaning freedom from government) and crime, and some guarantee that the property rights will actually be protected in the future, so a strict "no" to nationalisations of any sort.

Corruption needs two parties, usually one private and one state. To pretend private companies don't have a problem with corruption every bit as much as government is naive in the extreme. We do need less corruption, and this corruption should be driven out wherever it's found. What we then should *NOT* do, once the corrupt are removed from the power they abused, is the destruction of that power, but applying it properly, and building our culture around a fundamental view where productive, not abusive, use of state power is considered the norm, not the exception.

Will it be a perfect world? No. Will it be anything like perfect? No. But it would be a damn sight better than what we have now.

Why would someone buy them? Why would someone buy them with improvement in mind?
Because that's how takeovers work. Even the most questionable form of takeover (and LBO) is about buying the company, borrowing against it and then raising its profits to pay back the loans early.

Let's face it, the sellers of a company are not going to sell it for a price so low that one could make a profit by simply selling its assets on the market. If the government can't get takers at a decent price, there is no law that says they need to sell it below that.

You know what happens to companies that bankrupt themselves, right?
That depends entirely on the law of the country in question. Whether there will be some sort of debt restructuring, whether the government pays back parts of the company's debt as part of a deal to retake control, or whether it just marches in there and takes over debt and all - don't ever fall into the trap of thinking a government of even the poorest country isn't infinitely more powerful than the largest multinational corporation within its own borders.

The only thing they probably shouldn't do is not give any guarantees of any kind on debt rapayments, because then the company won't be able to take on any debt in the first place.

Why? If I pay $8 for the company, and can sell it's assets for $10 as scrap...
Then you seriously need to wonder about the sanity of the seller.

Why? If he can't 'get rich', is monitored, and has experience as boss... why not?
How can he not get rich? How can he be monitored? Which warlord has experience in economic management?

Let's be realistic here: can you think of a single politician in Africa who you think would be capable of running a command economy even remotely adequately?

You have heard of The New Deal, I assume?
I don't have any figures here, but how much do you think those programs cost? Do you have any idea how Mali is going to pay for that?

The USSR didn't have to pay for it, the US could.

Only that on the ground I very much doubt most investors would pour money into building up infrastructure. As I said before, the harsh light of day shows that usually they will take what is already there and screw as much money from it as they can, then bail when the going gets tough.
Any examples?

Also for social stability it is important that everyone benefits. To let the profit motive have sole reign, as you say the benefits will reach only a few.
I think you're not doing anyone any favours by comparing my idea with utopia. Compare it to what exists right now: huge wealth inequalities (generally between friends of the government and those who aren't) are already a fact of life there. They can't really get that much worse, and at least if a free market were allowed to play a part people could see where the money comes from and aspire to it themselves.

Right now every child in Africa wants to be a doctor. That is because doctors are respected people - the idea of money doesn't really enter into their thinking. I propose we make it, and have kids who want to become businessmen, lawyers, bankers and millionaires. Make it possible for people's money to be due to their education and their work, not the fact that their third cousin is the minister for special holiday taxes.

Is it bad if that power is also having the ability to extend electrical power to every village? To bring irrigation system to places where the land is barren? There is two sides to every coin. Perhaps the focus shouldn't be on reducing the power of the rulers, and hading it out to individuals the people have no recourse to, but on ensuring we have good rulers, so that power is used to the fullest extent for the most benefit.
And how do you propose we do that? In theory I'm not against a sort of benevolent neo-colonialism (provided the US government stays well away, they're only mildly more competent than monkeys), but you better be sure you want to pay the price. There's a bunch of governments to overthrow, rebel groups to crush and angry demonstrators to detain.

But these entrepreneurs have not brought wealth and not ended corruption, and neither are they foreign billionaires. Entrepreneurs do have a part to play, but it isn't in the role of foreign banks and companies controlling a nations key systems.
It's not. But they need soil to grow, and these foreigners are the only ones who can realistically provide it. Developing countries (especially in Africa) lack the ethical underpinnings that are needed for a market to function even a little bit. Only foreigners can introduce them.

But that's not really my point, you're right. My question to you is though: if it comes down to a choice of debt or equity, what would you go with?

Corruption needs two parties, usually one private and one state. To pretend private companies don't have a problem with corruption every bit as much as government is naive in the extreme. We do need less corruption, and this corruption should be driven out wherever it's found.
The private party, as you said, is responsible only to its own interests. The government is supposed to be responsible to the public. By bribing an official, the privateer is not violating his or her responsibilities whatsoever. The official is.

The privateer does not get up in the morning thinking "hey, let's hand my money to unproductive people". He or she is forced to do it because the official has the threat to destroy the privateer with state power to back him or her up. A bribe is protection money, no more and no less. You wouldn't blame the shopkeeper for paying up when the Cosa Nostra drops by - so why blame Exxon for handing a few bucks to the governor of the Niger Delta?

Not if you want the national treasury - and hence bedrock of the economy - to survive.
It's not surviving at the moment.

Governments get income in three ways, only two of which are real. Firstly, taxation.
I see no grounds for your assertion that a utility company once acquired by a foreign group of investors will stop paying taxes. Indeed, since the investors want as little trouble with the government as possible, it would be in their interest not to attract attention.

Secondly - government run companies. These are usually the essential utilities - electricity, water, gas, fuel supply, transport, mail delivery, healthcare. Not all of these can (or are supposed to) make a profit. But most (except for healthcare) provide a source of income for the government.
I have none of the figures with me, but I would dare say that the only government-owned and -operated firms in developing countries turning significant profits are oil firms. And they'd be mad to privatise them, you're right.

I wanted to throw in some African government's budget here to get some feel for where their income is coming from, but they're hard to find. Maybe they don't quite know themselves.

But without much revenue, as in developing countries, governments often make the mistake of issuing more bonds than they are capable of repaying.
Their problem is that they can't predict the repayment schedule, even if they were completely responsible with their borrowing. Hence the idea that issuing equity is a more predictable way to get to where they want to be.

So no - privatisation doesn't do the economy any favours.
And what do you have to say about my real point, which is that it seems to me like a superior way of getting money into the country than borrowing?

Neu Leonstein you're knowledge, or should I say lack of knowledge, about Stalin is stark, I suggest you read this: http://www.plp.org/books/Stalin/book.html

Neu Leonstein you're knowledge, or should I say lack of knowledge, about Stalin is stark, I suggest you read this: http://www.plp.org/books/Stalin/book.html
I had a look last time you posted it. Let's just say killing somewhere upwards of 10 million people overshadows things in my mind.

But you go ahead. Stalinism suits you.

Any examples?


Water privatisation, Kenya. Tramways, Los Angeles, USA. Inter-Island ferry services, UK. Sewerage, Malaysia.

Note in Keyna that the number of households served by tap water actually fell following privatisation. IWK (Malaysian sewer system) is now re-nationalised.

As an additional note, rail privatisation in the UK should also be in the list. It was only after the government passed a law making it a legal obligation (and many years later) that the privateers even began to replace old rolling stock, which was the "sweetener" given to the public to justify carving up the network. Parts of the system have now been renationalised after the system approached a state of near collapse and a string of lethal disasters, most due to decayed infrastructure that had been subject to Efficiency Savings (neglected maintenance to cut costs)


I think you're not doing anyone any favours by comparing my idea with utopia. Compare it to what exists right now: huge wealth inequalities (generally between friends of the government and those who aren't) are already a fact of life there. They can't really get that much worse, and at least if a free market were allowed to play a part people could see where the money comes from and aspire to it themselves.


I can't speak for Africa in particular as I don't live there. But I did live through the crisis in Indonesia, and found out that things CAN get worse, and often do, usually as a result of asset stripping. If a nation is poor, selling off what assets it does have doesn't seem to make any sense compared to making those assets work for you.

There is no reason why the population cannot "aspire" to having some of this money stuff. I am not advocating having no private sector at all, simply that the most strategically and nationally important industries remain under direct state control.


Right now every child in Africa wants to be a doctor. That is because doctors are respected people - the idea of money doesn't really enter into their thinking. I propose we make it, and have kids who want to become businessmen, lawyers, bankers and millionaires. Make it possible for people's money to be due to their education and their work, not the fact that their third cousin is the minister for special holiday taxes.


I'm not convinced that aiming to have our decedents worship the Great God Kash is a noble aim, but I agree that work and education should be rewarded, and people feel their efforts to be notice3d, which of course really comes back to the issue of tackling corruption more than privatisation.


And how do you propose we do that? In theory I'm not against a sort of benevolent neo-colonialism (provided the US government stays well away, they're only mildly more competent than monkeys), but you better be sure you want to pay the price. There's a bunch of governments to overthrow, rebel groups to crush and angry demonstrators to detain.


Colonialism, benevolent or otherwise is not the solution. Ultimately, it's up to these countries to look after their own interests. Foreign intervention is almost always a mistake, as recent history and current events clearly shows us. The people of nations permit their rulers to run the nation badly. They themselves have the understanding of their own situation to correct that, as they see fit. Every nation has it's own problems and must address them, as each nation deems best. I would only wish for the United Kingdom to be involved in any colonial manner if the people of the United Kingdom stood also to benefit, either materially or diplomatically, or if our help were specifically requested by the nation in question.


It's not. But they need soil to grow, and these foreigners are the only ones who can realistically provide it. Developing countries (especially in Africa) lack the ethical underpinnings that are needed for a market to function even a little bit. Only foreigners can introduce them.


Foreign Direct Investment has no generally brought about cultural change. FDI is highest in places like Indonesia, China, Bangladesh and Mexico. None of these countries has effectively tackled corruption. Academic and diplomatic exchange and actual trade between two nations is a more tried and tested way of deepening understandings between cultures, and the gradual adoption of the favourable aspects of each by the other. One good tool is dealing with corruption would be for the assisting state to decree that none of it's corporations may themselves engage in any corrupt practices overseas and actually strictly enforce this rule. Thus the developing nation would be forced to "come clean" in order to trade with the assisting nation. Direct assistance such as aid, technical assistance etc. would also be provided subject to the same rule.


The private party, as you said, is responsible only to its own interests. The government is supposed to be responsible to the public. By bribing an official, the privateer is not violating his or her responsibilities whatsoever. The official is.


A good point. However, in a case of corruption I believe both parties are considered responsible, at least in the UK (see the case about the Al Yammamah deal, where BAe is alleged to have bribed a Saudi Arabian prince)


You wouldn't blame the shopkeeper for paying up when the Cosa Nostra drops by - so why blame Exxon for handing a few bucks to the governor of the Niger Delta?


Because the dynamics of power are different. The shopkeeper risks being destroyed and has no real hope of recourse. Exxon, Shell et al are hardly powerless, due to the resources at their disposal, which are in many cases larger than that of the nations they deal with. In addition their home nations will also often pressure smaller nations on behalf of the company.