The Nation (Thailand)
August 25, 2012 Saturday
Now that the dust has settled on the spectacular closing ceremony of an extremely successful London Olympics, described by IOC President Jacques Rogge as “a happy Olympics”, the chaotic build-up is a fading memory. This is extremely fortunate for the beleaguered UK coalition government’s weakest link, Home Secretary Theresa May. She is undoubtedly desperate to put behind her the fiasco of the security arrangements for the games (just before the opening, May had to admit that G4S, the government-appointed private security contractor, couldn’t deliver and that British soldiers, recently returned from active service in war zones, would have to be drafted in to do the job).
Much discussion has focused on the failings of either G4S (understandably, but anyone who has ever had to work with May has failed to deliver, so let’s not be too hasty to pull that trigger) or the failings of May herself (I’ve no hesitation whatsoever in pulling that trigger). The phenomenal success of the games highlights what private organisations can achieve when they’re able to deliver their full potential. The failure of May shows just how badly things can go wrong when governments get involved. But before libertarian factions get too carried away, the real lesson should be how blurred the lines become if governments act irresponsibly in the devolution of responsibility.
Would even the most devout libertarians be able to sleep at night if a private company replaced the army, navy and air force and was given responsibility for guarding national borders? At least government-outsourced contracts are typically for a fixed term; if the security company screwed up so badly that anyone from al-Qaeda to Zimbabwe invaded, the company could be replaced by another private company in five years time. They’d also presumably have to pay penalties for their failure to perform (though ironically it would probably be their new terrorist/Zimbabwean overlords who would get to collect on this performance penalty clause).
If every country devolved its national security arrangements to private companies, the free market in militarisation would probably have even more interesting and unexpected consequences â€“ imagine a G4S private army under contract to Malaysia being given orders to invade a G4S-defended Singapore. Investor participation via security companies’ share prices would be determined by league tables of potential invasions repelled, square kilometres of territory successfully defended, or invaded, and ultimately the escalation of these conflicts (and conflicts of interest) into the Third World War.
These are just some of the reasons why essential utilities like national security and law and order are still rightly seen as government responsibilities, even though certain law and order functions are being increasingly and, in many cases, unsuccessfully outsourced these days. In the UK, the process of handing convicted prisoner transport to private security companies has also shown itself to be an irresponsibly executed exercise in central government devolution of responsibility.
The Wealth of Nations by Adam Smith is championed by free-marketeers for defining capitalism and the concept of the invisible hand steering capital flows to where their impact is greatest. But Smith also warned that governments have basic responsibilities, including national security, which should never be compromised. This has been observed not simply because of the consequences of complete privatisation, but also because of the fact that political control of national security is used and abused by politicians of all stripes from Margaret Thatcher and George W Bush to Tony Blair and Bill Clinton to strengthen their own grip on power. This is a widespread structural problem, not an individual one.
Smith argued that not only national security and law and order but also the likes of transport and, by extension, other utilities, should be most efficiently operated on a public-private partnership basis. Profitable toll roads should complement socially essential but non-profitable government roads; a transport sector wholly within the government domain is as bad as a wholly private one. My Irish holiday property is served by just two buses a week â€“ both run on the same day about an hour apart, then for the next six days and 23 hours there’s nothing. Whereas private capital promotes profit over responsibility to society, government inefficiencies waste money in the name of social welfare. There’s a dearth of Old World examples that get this difficult balance anywhere near right.
In the New World, Singapore outshines any other model, including China’s much vaunted “command economy”. “Harry” (as Lee Kuan Yew was then known, when he returned from his London education) implemented a vision that still stands the test of time so well that we don’t always fully recognise the extent of Singapore’s integration of state and markets. Many people just see it as an entirely capitalist free market. I suspect that would make the ageing mentor smile. That’s probably precisely what he wanted them to think.
Paul Gambles is managing partner and chief investment officer of MBMG Group.