Public or private ownership in infrastructure sectors is one of those issues where most of public opinion and many economic experts see things differenty.
Most economists believe that under some conditions (competition or good regulation) private ownership is preferable. However, some experts in regulation recognise that public ownership may be the default choice where there are no available commitment mechanisms to remunerate sunk private investments. Are there other ways to sustain regulatory commitments in fully democratic societies under populist challenges? In theory yes, but the institutional package (which may include independent regulators) needs the consent of voters. They need to be convinced.
Recent behavioral political economy (and regulation) emphasizes endogenous preferences: standard social choice studies the difficulties of aggregating preferences for given preferences, but preferences and choices are affected by endogenous factors (beliefs, biases, framing, social context…). That is why the public reasons about some policies including public vs private ownership differently from experts.
That and the objective shortcomings of some privatization processes, especially at the end of totalitarian regimes (Pinochet underpricing and selling to cronies, or Russian postcommunism), explain the appeal among many populist progressives of calls to state ownership in water or energy. Chile, once the poster child of the ability to solve the commitment problem in Latin America, in the recent past and now, is experiencing a challenge to “the model” (there is a constitutional referendum on Sept. 4th). In Spain, as a result of the left-wing populist challenge of Podemos and related movements, there is an ongoing campaing to re-nationalize, create public operators or re-municipalize firms in regulated sectors (especially in energy and water).
Chile and Spain have interesting links on this. Mostly privatized Spanish firms took over privatized and other Chilean firms in the 1990s: there is Spanish investment in Chile in telecoms, energy, water, roads, parking lots… The current leaders of the left-wing populist movements (Frente Amplio and Podemos) in the two countries belong to the same generation, are in touch, and inspire each other. And one could add that they share common problems.
For many years, Chile alleviated the commitment problem by a combination of:
-Specific hard to change legislation... with an unpleasant aspect: it is hard to change because of mechanisms embedded in a Constitution that was written in 1980 by the Pinochet regime, although some aspects were reformed in 2005 under democracy.
-Independent judiciary and high quality administration.
-A political system with few political parties, a binominal electoral system, and other checks and balances (such as an agenda setting president with two legislative chambers).
But this political equilibrium collapsed in 2019 under massive protests.
The positive (economic growth, elimination of extreme poverty) and negative (high inequality) outcomes of Chile are an uncomfortable combination of the legacy of a pro-business brutal military dictatorship in the Cold War (1973-1990) under the influence of the Chicago School, and moslty center-left governments in the first years of democratic transition.
As mentioned above, one of rallying motives of the left-wing populists has been the creation of new public sector operators, especially in the water and energy sectors, so far with little success but a lot of noise. Public ownership in infrastructure sectors then remains attractive because of a combination of the following:
-It remains the default mode when other commitment mechanisms fail.
-Many public sector firms in infrastructure sectors survived the privatization wave of the 1990s.
-Public opinion shows high distrust of the role of private sector firms in infrastructure sectors, and populist forces capitalize on this discontent.
But a focus on climate change, macroeconomic constraints that suggest the need for sustainabe growth, and deep inequalities may make transparent that creating a public operator is a distraction that does little to address the big challenges.
At the same time, large private sector operators need to re-calibrate their role in society, at a time that we face enormous global problems without a global democracy. Not only they need to improve their reputation, but it is imperative that they question the profit motive as their sole driving force, if the correction of global externalities is not strong enough by other means.