The stunning level of private sector incompetence that was exposed in the last year may call into question certain assumptions about private vs. public efficiency. Of course our elected officials and appointed bureaucracy weren’t so hot either, so maybe it was a wash.
One strong point for private industry: Private energy conglomerates, which outperformed their state-owned peers. Megan McArdle offers some insightful points:
State oil companies are lovely cash cows when gas prices are rising. But they tend, on the whole, to be very badly run as companies. One often hears that government planning lets companies invest for the very long term, unlike the psychotic short-termism of the stock market. But at least in the case of oil, this often seems to be reversed. The government’s priority is maximizing the size of the benefits available for its politicians to distribute now, not 10 years ago when they’ll be dead or out of office. The private oil companies planned for the strong possibility that the price of oil would drop dramatically. Meanwhile, other state-owned companies let the money run out as fast as it came in. Venezuela and Iran notoriously diverted desperately needed investment funds into social spending, while Gazprom and Rosneft went on a buying binge, snapping up assets that now look overpriced even though the government leaned on the private sellers to offer them at steep discounts. Now investors are fleeing the Russian firms, and I imagine that Hugo Chavez, whose chronic underinvestment caused Venezuela’s output to fall in absolute terms, is wondering how to tell the Venezuelan people that there’s no money for all their favourite programs. At least he doesn’t have nukes.
So the big energy companies did the right thing by not spending like crazy, and keeping their assumptions conservative. Unlike financial firms, they didn’t assume the good times would last forever. Yet it was the oil companies who chastised and hauled before congress and threatened with windfall profit taxes. Pundits scolded them for not investing enough in new exploration. The financials have only been rebuked ex-post facto. Wonder if the majors will get letters of apology.
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