The case for privatization
If GTA were still a government-run corporation, it would likely be among the agencies lining up at the legislature to ask for subsidy from the general fund, if not digging into the tax jars to cover the debt service for its revenue bonds. In either case, the burden would’ve been on the taxpayers, with no guarantee of efficient service. We would probably have been thrown back to the dial-up era.
Then known as Guam Telephone Authority, the agency was privatized in compliance with mandates of the federal telecommunications law, which opened up the telecommunications field to wider competition. GTA was fully transferred to TeleGuam Holdings in 2004 with a price tag of $150 million, making it the last government-run telephone agency in the United States. The new private management had absorbed GTA’s classified employees along with related personnel cost. GTA has since been a provider of private sector jobs, tax contributor and major player in the field. The company has been passed from one owner to another for whatever reason that GovGuam doesn’t have to deal with anymore.
Locally, GTA is an excellent argument for privatization. For the government, reducing public cost is the draw of pursuing privatization. For the people, who are frustrated with the typically poor performance of bureaucracies, the appeal is a promise of increased efficiency, greater innovation and competitive service.
Economists endorsing privatization argue that “the private sector is either a more efficient provider than the public sector or that the failures of the private sector are much lower than those of the public sector.” On Guam, the outcomes of federal receivership of mental health service and the solid waste system epitomize those premises. After repeatedly failing to convince the court that it is capable of managing the solid waste system, GovGuam should completely relinquish this function to the private sector.
It is tempting to support the idea of fully privatizing the Guam Memorial Hospital. However, given that its services involve public health and human life, completely giving it up to the corporate world might not guarantee health access for the indigent. Outsourcing its business operations and privatizing its management might be a better alternative, which would require depoliticization of the hospital.
During the Chamber forum, candidates identified the lowest-hanging fruits, such as the mass transit system. Leave that service completely to the private sector, said Sen Frank Aguon. Use the transit agency’s funds to deploy Uber drivers all around the island, former Gov. Carl Gutierrez suggested. Sen. Dennis Rodriguez put the Guam Power Authority, Guam Waterworks Authority and Department of Public Works on the target list.
Chris Edwards, director of tax policy studies at Cato and editor of DownsizingGovernment.org., has compiled a collection of statistical studies that examined the performance of businesses before and after privatization.
Among the findings:
A 1994 study in the Journal of Finance looked at 61 privatizations in 18 countries and found strong performance improvements, achieved surprisingly without sacrificing employment security. Specifically, after being privatized, firms increase real sales, become more profitable, increase their capital investment spending, improve their operating efficiency, and increase their work forces;
A 2003 study on privatization in the Journal of Public Economics found that ‘the empirical literature has provided systematic evidence that privately-owned companies outperform state-owned enterprises;
A 2004 study by the Inter-American Development Bank of Mexico's reforms found that privatization leads to dramatic improvements in firm performance and that they are the result of efficiency gains, not transfers from workers or exploitation of consumers.
A 2012 study looked at more than 50 Canadian businesses privatized during the 1980s and 1990s, including an airline, a railroad, manufacturers, and energy and telecommunications firms. It found, “the overall impacts have been largely positive, in many cases impressively so. Key economic indicators such as capital expenditures, dividends, tax revenues and sales per employee tended to increase.
Clearly, privatization offers a solution to bureaucratic inefficiencies that the local government must seriously explore without waiting for a federal mandate.
Mar-Vic Cagurangan is the publisher and editor-in-chief of the Pacific Island Times. Send feedback to email@example.com