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Nobel Laureate Bengt Holmstrom rejects idea of maximizing profits from public sector

Xinhua, March 29, 2017 Adjust font size:

Bengt Holmstrom, the Finnish born Nobel economics laureate in 2016, surprised many Finnish parliamentarians and their guests on Wednesday by defending the role of the public sector.

Addressing a festive event in his honor at the Finnish parliament, Holmstrom dismissed the idea of introducing many commercial practices to the public sector. He said the principle of maximizing profit would destroy the rest of the goals of the public sector.

Hearing the words of Holmstrom, many centrist and right wing members of the parliament showed body language signs of disagreement. Ari Helminen, reporter of news service Uutissuomalainen said some actually grumbled aloud.

Privatization has been a source of polarization in Finnish politics, particularly during the current government.

Holmstrom said that those duties the state has taken over are usually what the private sector cannot cope with. "Therefore it is not sensible to copy the practices of the private sector to the public services. It is a huge mistake," he said.

Holmstrom did not oppose shrinking the public sector. While he rejected efforts to make the public sector more efficient, he said the solution is "to make it smaller."

"The public sector should not maximize profits, but it can take into account other things important to the society and the people and those that the market economy does not observe in a correct way," he said.

But there are operations that benefit from being privatized, and he gave garbage collection as an example. "International experiences indicate its quality has increased and costs gone down," he said.

Giving an example of less successful efforts, he mentioned the privatization of prisons in the United States.

Local media said the Nobel recipient indicated in his speech that as an organization theorist he is not an economist for the right or the left.

The Nobel prize for economics in 2016 was awarded to Bengt Holmstrom and Oliver Hart for their contributions to contract theory. Endit