public property – the _

[2642] They should have auctioned it

The state — or in common parlance, the government — is the guardian of public resource. These resources are ones that we own collectively, like petroleum, or of interest in the past few weeks in Malaysia, telecommunication spectrum. It is the responsibility of the government to manage and use the resources efficiently. If it cannot, then there is a case to privatize those resources to those who can.

In privatizing these resources, one would expect the government to raise some money it can use to improve the general welfare of the public. One of the best ways to raise money from such privatization is by auctioning the public resource.

Economists typically love auctions because it is efficient. In everyday English, it means an auction can extract the most benefit out of a transaction for the seller. In an auction that focuses purely on maximizing sale prices, the government will benefit enormously from the outcomes of the auctions.

In the Netherlands recently, the government raised nearly EUR4 billion by auctioning the 4G spectrum to the private sector. Initially, the government had expected to raise half a billion euro only. The large difference came as a pleasant surprise to the government. In time when the Dutch government is tightening their belt as a reaction to the economic crisis that Europe as a whole is facing, the EUR4 billion will help in maintaining the quality of public service in the Netherlands.

If one is concerned whether such privatization and auctioning would create a monopoly, there are types of auction that can address exactly that. Restrictions can be imposed so that nobody can buy everything, or buys too much. While total receipts out of those auctions may suffer, the government will still enjoy considerable revenue out of it that can put to good use.

One example will bring us to the United States in 2008 when the Federal Communications Commission (FCC) conducted a controversial spectrum auction. Restrictions were imposed to prevent telecommunication firms from gaining too much market power. Google, worried that these telecommunication firms would restrict access to various content and applications on the internet, even decided to participate in the auction despite not being a telecommunication firm per se. After all had been said and done, the FCC still raised nearly USD20 billion from that particular auction while addressing the issue of market power.

In contrast in Malaysia, 4G spectrum was transferred from the public domain to private firms for free. There was no sale at all, and much less an auction.

For the public, the privatization is an outright welfare loss. An asset that could have been worth billions of ringgit of public money ended up as being nothing. There is no new revenue for the government and so, the public cannot benefit from the privatization exercise as much as it should. And this comes at a time when the government recognizes that it needs to broaden its taxpayer base, which is narrow at the moment. So, the privatization will not be popular to discerning taxpayers.

Even libertarians, who would typically support privatization exercise, will find this particular Malaysian privatization as very disappointing.

Despite the fact that the privatization came at the expense of potential revenue for the public, some would no doubt defend the flawed privatization. Several defenses have been presented so far.

One argument suggests that with the free award, the recipients would be able to provide cheaper services with the same level of quality than they otherwise could. This is not a given unfortunately and right now, it is a mere speculation.

The reason is that these recipients can effectively form a cartel. This has happened in the past, even with the new Competition Act is in place. In fact, Maxis and Redtone International, two of the 4G spectrum recipients, are already collaborating in rolling out their 4G network. How far this particular collaboration will go is for all of us to see.

Worse, some could even essentially resell the spectrum to other more serious telecommunication companies instead of utilizing the spectrum for themselves. In doing so, they would realize the economic rent that should belong to the public in the first place. If there was an auction or even just a sale instead earlier, there would have been less opportunity for such rent-seeking activities. An auction especially would have squeezed the incentive for rent-seeking out into public pocket and force firms to try to create new wealth rather than engage in unproductive rent-seeking.

Unfortunately, now that everything is done, we are left with the possibility of collusion in the market and a whole lot of room for rent-seeking activities by private firms at the expense of the public. This is not an ideal market scenario.

Mohd Hafiz Noor Shams. Some rights reserved

First published in The Sun on December 25 2012.

[2436] Bellamy mistook public-private dichotomy as the universe

In Looking Backward by Edward Bellamy, which is kind of the ideological polar opposite of Atlas Shrugged by Ayn Rand, there is one particular argument that denies the legitimacy of private property in favor of public property.

Bellamy believed that a person uses all of his or her knowledge and experience to produce a good or a service. All of those knowledge and experience were derived from past thinkers and inventors, through interaction with society. All those goods are public properties said Bellamy, produced by humanity and none can privatize it.

Since any further inventions or innovations will necessarily use those goods defined as public properties, new inventions and innovations will continue to be public properties. The usage of public property as an input is sufficient to classify a product as public property.

The inventors and innovators have no moral right to appropriate the products of public property as private properties. It belongs to everybody, so Bellamy held. Just as a person used all these public goods for free, the person must repay it back to the owner of these public properties, which is the society or more practically, the government. As you can see, it is a pretty collectivist idea.

This idea is set within a thought complex where money does not exist and a central planner is all-knowing in terms of productive and distributive efficiency. The central planner assigns all labor based on needs and capability into an “industrial army” and the problem of scarcity has been solved. More generally, the central planner manages all input of production. The whole book was decidedly painted by the statist version of communism all around.

This line of thinking is attractive for those who are against the idea of private property, never mind the impracticability of the matter. In the book, the idea was practical only because of the existence of an omnipresent government that does everything and can enforce the status of a good as a public property. But I am not really interested in its practicality, or impractically rather. I am more interested in its morality, and its origination, which Bellamy based Looking Backward on, despite its elaborate description of Bellamy’s prefered economic system.

The problem with this kind of thinking is its initial state assumption. Bellamy assumed past knowledge is the product of humanity and a person that uses that product owes humanity something in return. In short and more clearly, if you use it, you must return it back. It assumes collective ownership of all things and it preserves collective ownership regardless of circumstances. It is an effort at drawing a perfect circle that goes round and round.

But going back to the first men when none owned anything, or rather without making any assumption on ownership, consider the first state when men were beasts far back in history. The question is who owned what in the very first state of affairs?

Did the first men own the lands, the air and the water, or did these resources were not owned?

If they owned these resources, did they own it privately or collectively?

Bellamy necessarily assumed that these resources were owned collectively by the first men. The mere use of these resources make these resources public property.

I differ. I refuse the relationship between usage as a sufficient condition to turn a good into ownership, hence turning the good into either private or public property.

I differ because unlike Bellamy, I hold that these resources were not owned by anybody. It was a common owned by none. Consider this: if I used the water from a free-flowing river owned by none, would I automatically own the river?

No.

Furthermore, if I used the water and others used it as well, would it automatically mean all the users collectively own the river?

No.

My point is that usage does not translate into ownership, privately or publicly. Bellamy assumed otherwise.

More importantly, lack of private ownership does not automatically suggest public ownership. Within the realm of property ownership, there is a dichotomy between private and public property. But within the universe, there is a dichotomy of ownership and absence of ownership.

Bellamy, I think, worked within the dichotomy of private-public ownership and mistook that as the universe.

But this relates to physical resources. How about something intangible, like calculus?

It is true that knowledge, like calculus, is the product of contribution of hundreds or thousands of men and women throughout the ages. Without any exaggeration, it is a product of humanity. But although it is, it is not owned by humanity. The discoverers of various laws, theorems, rules, lemma and anything that has logical value in the case of calculus made it free for society to use. But free does not automatically translate into ownership, just like physical resources. None own it but they are free to use or learn it.

Recall the universe and the place of ownership dichotomy within the universe.