Saturday, December 01, 2012

One and a Half Cheers for the Robber Barons

I wrote a bit ago about the rent seeking billionaires who made their fortunes off the fire sale of the assets of formerly government owned enterprises. We should resent them them for the bite they have taken out of GDP and their corruption of the political process but we should not forget the positive role they played either. The political machinations of Carlos Slim played a key role in making him the richest man in the world, and probably played a role in the fact that Mexico has grown much more slowly than some other similar countries, but it's undeniable that he has done a far better job of managing those enterprises than their former socialist managers. The same thing can be said of the Russian and Indian oligarchs and a fortiori, of their Chinese counterparts.

Why are governments so bad at managing(at least some) enterprises? It's probably complicated, but one component is surely rent seeking by the managers, workers, and above all, politicians. The incentive structures are wrong, and the decision making authority is too separated from the ownership.

On the other hand, it is interesting to ask why the privatization has been so successful in China and less so in Mexico and India. The dynamics were different for the American robber barons, perhaps because we never had a large public sector. That idea might be wrong though, since the government did own a lot of land.