Possession of state assets has become an end in itself

Are you a mug ... person?

Imagine you were offered the choice of a rather ordinary coffee mug, or a big slab of chocolate. Which would you prefer?

Now, say you really preferred the chocolate but were given the mug instead, what would you do if offered the opportunity to trade your mug for the chocolate?

This may seem like an odd question but it has even odder results. Economists have, traditionally, believed in the idea of a rational consumer. A person who values chocolate more than mugs should immediately swap. The ownership of the mug should make no difference to the transaction. But a surprisingly large number of people find it hard to swap the mug even though they prefer chocolate. This was named the "endowment effect" by Richard Thaler of the University of Chicago, and explains why you have such a hard time throwing away unwanted gifts.

In much the same way, it shouldn't matter to governments whether they own schools, hospitals or power companies. What governments want is a universal and well-educated workforce, not a bunch of run-down schools.

If governments want to subsidise the cost of services for low-income families, there are numerous ways to do so. They could give cash directly to beneficiaries as a grant, or directly to service providers to reduce prices. Only as a last resort do they need to own the business itself.

Yet, despite daily evidence that they're incompetent managers offering terrible value for money, government continues to want to own schools, hospitals and utilities.

The Swedish government, in 1984, introduced legislation that allowed the creation of privately-run, state-supported "free" schools. The schools must meet minimum requirements set by the state and will receive the same fee for each registered learner as government would have spent if they had gone to a state school.

It has been a runaway success.

From the state's perspective, private investment in public goods is a win-win situation. The initial investment doesn't cost the state a cent and they only start paying when benefits are being accrued.

Major power stations, roads, or hospitals take years to build and a budget must be raised in advance. The South African government has committed itself to spending billions on infrastructure for the World Cup, as well as new hospitals and power stations. All of this has the potential to throw a lot of red ink over government finances. The costs must be incurred long before any benefit can result. And, given the skills shortages facing the nation, there is no guarantee that there will be sufficient skilled staff to run the facilities once they exist.

If our government had followed the Swedish model, then all of these headaches would belong to the private sector and the state would only have to pay for results. The education budget already caters for around R 8,800 per learner per year, more than the cost of most private schools, so it isn't as if it would cost more than is being currently spent.

Sadly, the government has locked itself into the mindset of endowing the assets they have, no matter how poorly run, with a value they do not aspire to. No matter how hard they try (or claim to try) state hospitals and schools continue to under-perform their private-sector competitors. Our politicians don't go to state hospitals when ill anymore than their children go to state schools.

The government's continued promotion of state-owned businesses is also at odds with their objective of promoting entrepreneurship.

Entrepreneurship cannot exist in a culture that believes that state-owned enterprises, no matter how incompetent, are more desirable than private investment.

A more nuanced approach to state-provided services would accomplish the dual objective of promoting private investment, infrastructure and service development, and the provision of low-cost services to lower-income households.

The current approach, of ownership over benefit, risks turning us all into mugs.