Is private sector really superior to public sector?

The big crib about the 2009 Union budget is that it doesn’t send out any signal whatsoever on “reforms”. That there is no talk of disinvestment, no talking of parting with the family silver. And this despite the Left parties not having any role in or control over the new UPA government.

The negative reaction of the chattering classes is what has forced Manmohan Singh and Pranab Mukherjee to bend backwards to reassure investors and the stock markets since B-Day.

Siddharth Varadarajan argues in today’s Hindu that privatisation of public assets is not a panacea for plugging the fiscal deficit or for stemming the perceived ineffciencies of the public sector. Reason: “privatisation” is predicated on the presumption that public ownership of industry is inherently inferior to that of private.

“In his recent book, Privatisation in India: Challenging Economic Orthodoxy (RoutledgeCurzon, 2005), by far the most comprehensive and rigorous study of the issue in the Indian context, T.T. Ram Mohan of the Indian Institute of Management, Ahmedabad, conclusively debunks the assumption that the private sector is more efficient than the public.

“After carefully reviewing both financial performance and input-output related physical productivity in the two sectors, he concludes that “the evidence thus shows that the perception that the private sector is uniformly superior to the public sector … rests on a weak evidential foundation.” This does not mean other aspects of the reform package are necessarily bad.”

Read the full article: Go easy with the family silver

Also read: Three reasons why everybody loves to hate IT

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18 Responses to “Is private sector really superior to public sector?”

  1. Madhu Rao Says:

    A book from 2005 is recent ? I guess it is, ..relative to the stone age. I skimmed thru TTRM’s blog and he ends his recent article(2 days ago) about the budget thus…


    Unlike most of the intelligentsia (which is not necessarily very intelligent), I have great respect for the instincts of politicians..

    Really ? Maybe one or two, but to make a general statement about our the bunch of jokers as a prescient lot is surprising. I happen to believe politicians are like diapers — always full of crap, if not, it’s just a matter of time ; fits the majority…

  2. Metaempiricus Says:

    “conclusively debunks the assumption that the private sector is more efficient than the public.”

    Mr Ram Mohan please do tell us what are those conclusive evidences. The public sectors with all the red tapism, bureaucracy and unions had resulted in sloppy growth of our economy and wastage of national funds.

    This is one stealthy attempt by an IIM professor to get close to the socialist lobbies in the government.

  3. Salty Says:

    Extending the concept of public sector also to Government organisations like banks, administration etc ; one can safely conclude the following based on one’s own experiences & without getting into any kind of research by a IIM professor.

    1. Public servants think that public are their servants while private sector value the public’s patronage

    2. Public sector focuses on employment while private sector focuses on productivity

    3. In public sector the “system” is finally accountable while in private sector individuals are accountable

    4. Public sector thrives on wastage in expenditure while private sector cuts unnecessary cost.

    5. Finally in public sector, there is no fear of getting fired once you are hired.

  4. shanoi Says:

    Private sector cannot be very different from Public sector. They all reflect the morals of the society. If the five points mentioned above are true in the case of public sectors there are other points which are equally true of private sector
    * They do not mind deceiving public in quality, service and make quick money. Ambassador and fiat cars
    * They are mostly engaged in having them closely held and line the packet of owners in every possible way
    * they hardly spend any money on social responsibility, research and development
    Many of them do not believe in paying back the loans
    * They are also all the time engaged in getting concessions and evading tax
    Not far nothing there is the proverb sirkar me der hai lekin andher nahin hai.
    This proverb is older than British rule. So where is andher?

    We should ask any person who has kept his money in a blade company

  5. Chet Says:

    “conclusively debunks the assumption that the private sector is more efficient than the public.”

    Show me one public sector IT company that has performed well, compared to Infy, TCS, WIPRO.

  6. Abhi Says:

    “conclusively debunks the assumption that the private sector is more efficient than the public.”

    Agree. Then why is it that private companies record better performance, productivity, profit, higher salaries compared to public? Why is it that capitalist governments succeed in bringing prosperity to people over socialist govts all over the world consistently?

    Coincidence?

    btw, Original article as a whole is not as much against the private sector as the piece churumuri chose.

  7. Alok Says:

    uh… Air India.

    Nothing more needs to be said.

  8. Rama Says:

    “It can happen only in Indian Public Sector AI. Every day flight AI 187 flies from Amritsar to London. The crew, though, is not based in Amritsar. The pilots and cabin crew fly from Mumbai. It is not an isolated instance. The erstwhile Indian Airlines (IA) has daily flights from Thiruvananthapuram to Male. The crew for this 40 minutes flight of IC 963 flies over four hours from Delhi to Thiruvananthapuram. Similarly, for the Chennai-Singapore AI 9555 or AI 9557 flights, the crew is from Delhi. The meter for the crew starts ticking when they leave home. Now add up the costs.
    The loss of revenue on dozen plus business class seats back and forth, wages for the hours wasted, cost of five-star stay, flying allowances for travelling time, the dislocation allowance that costs the airline Rs 12 crore a year and the resultant lower revenue”.
    This is from India Today. So what??

  9. Simple Says:

    Privatisation need not nessarily facilitate efficiency.

    1. Private bus operators treat you arrogantly and rudely, once you buy their ticket. They make you wait beyond the scheduled time of departure with no explanation.

    2. Private Auto Drivers well, the less said the better.

    3. Private mobile service providers – i can list of a dozen grievances for their sloth and inefficiency and indifference to customer service.

    4. Private Cable Operators – it takes one dozen calls to get the cable guy to get your bad transmission rectified.

    5. Private Electricians, plumbers and carpenters – are never ever prompt and professional. Build a house with the help of these people and you’ll know what I am talking about

    6. Private restaurants – the ones which are successful – check out the waiters in such restaurants. they are impolite and unfriendly. they know that customers continue to come in droves – even if you don’t bother about niceties.

    7. Public sector Doordarshan gave us memorable serials like Hum Log, Malgudi days, Buniyaad, Yeh Jo Hey Zindagi. Not a single Private channel has been able to match any of these soaps.

    The sole guiding force for private sector is profit. Yes, of course they do make more profit than public sector. But at what cost?

    Private sector is also known for its high handedness, sack-without-notice policy, cruel working hours, etc

    The sole guiding force for public sector is job security. Job security that makes employees treats customers as a pain.

    There must be more imaginative ways in which both private and public sectors are held accountable for their actions, not at the cost of being inhuman.

  10. Yella OK Says:

    What I would like Simple to do get rid of private sector in his life?

    Private buses – instead, use only public sector buses, esp outside karnataka

    private autos -wait for public sector autos. you will remain where you are given there are none

    Private cable operators – pls opt only for DD’s DTH service.

    Private mobile service providers – travel back in time to 1980s and wait for a decade and a half to get a telephone connection.

    private electricians, etc – remain homeless without getting “public sector” electricians, etc. Dont even buy a house/apt which is constructed using these private sectorwalahs – wait for government to build houses using PWD folks and pray.

    Private restaurants – eat only at “mayura” restaurants.

    Have a good time, simple. Enjoy!!

  11. Metaempiricus Says:

    Simple, You have missed the point. It is a proven fact that Free market and Competition breeds efficiency, innovation and higher productivity. A state controlled mono-organization only results in stagnation and corruption. The so called non-profit social welfare schemes of the state have only resulted in enriching politicians and bureaucrats. Just visit Government hospitals and schools and look at the way they operate. Don’t tell that there are no funds. They do have enough but it goes directly to the politicians pocket and thereby to their part funds and swiss bank accounts et all. The people will be better served if the Government minimizes its governance and only act as an enlightened regulating body. The socialist and commie talk of rich becoming richer and poor becoming poorer is also a big farce. It has been proved in socialist countries that all become poor except for the government and the politburo officials.

  12. Simple Says:

    Yella OK

    I did not say do away with private sectors.

    I am only telling you that private and public – both can be lethargic, arrogant and inefficient.

  13. Anonymous Guy Says:

    Simple,

    Is it because we Indians in general are lethargic, arrogant and inefficient? Private or public sector cannot save us from our attitudes no?

  14. Simple Says:

    metaempericus

    What you are saying is nothing new. Yaawn. It is a known fact that public sector is corrupt, dishonest and inefficient. I never disagreed with that. So save your breath.

    But i gave you scores of examples to showcase the fact that Private sector is not without its sins.

    Private sector too can be ruthless, corrupt, dishonest, inefficient, indifferent and arrogant. I gave several examples to prove my point.

  15. M UPENDER Says:

    private sector’s main concern is to have more the profits.Therfore they concentrate to raise the production per unit of labour or capital.

  16. arun Says:

    //It is a proven fact that Free market and Competition breeds efficiency, innovation and higher productivity//..
    Where is it proved….let me know…Free market is a failed concept as far as I know.It cannot answer so many questions.Even the US has not practised free market economics and anything close to it has provided catastrophic results across the globe with profit seeking finance managers showing up how inherently teaked and rubbish the system is…
    Private sectors help in efficiency but these profit seekers should be controlled and reined and should be channeled effectively for the growth of efficiency by the govt….

  17. rambo Says:

    bosses the people of india need job security. you cannot run a family or move around in our society without a job. have you roamed around hunting for a job after a layoff ? you will know what this means. private sectors are full of opportunists and cheap politics. you can feel poor job security the employees have straight on their faces. when the markets tumble they kill each other to survive. is this the kind of life you want to lead ? God bless you !. the fact of the matter is not whether it is private or public sector. it is about attitude. if you have been brought up in a decent environment where you are taught to do your work well and be accountable, you will follow your principles wherever you are. public sector will be the best option for you since you know you have a place to go the next day and you can speak with courage and do what is right. for a growing india, a secure job with the right work attitude is what is needed. there are many people in government establishments who work better than private sector people.

  18. no body Says:

    the thing is that both the sectors are equally imp to run the administration of a big country like India .but still private sector dominate over public sector as
    1. in private sectors the main focus is quality not the quantity
    2. in private sectors

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