Privatize Profitable Companies, Strategy or Bad Faith?

The ascension of the right-wing in Brazil, a new economic agenda, along the lines of the ancient
capitalism described by Adam Smith in 1776, has been put into practice by these conservative
extremists. The current government of Brazil is undertaking a mission to privatize all state-
owned companies, mainly the more profitable ones. Brazilians can not allow this supposed
economic strategy to go further. With more than 17 million companies, only 418 companies are
owned by the state. An overall analysis assures that, the outcome is profitable despite some of
the companies are not. Before profit, humans necessity, control of inequality, and Brazil's
sovereignty should be prioritized.

In the modern geopolitical state, all countries that possess strategical resources should maintain
their control. Oil, gas, nuclear power or even the credit market are too important to let the
"invisible hand" of the market control those resources and shape the future of the people. To be
more specific, strategic resources normally are basic inputs used to produce manufactured
products and must have two characteristics: must be indispensable for a large group of people,
throughout a country or throughout the world and, their supply must be controllable by a reduced
number of purveyors. Control these kinds of resources should be the government's responsibility.
To understand the importance of the resources, considered strategic, will be shown some
information about them.

For decades oil was considered the most important resource in the world and, in 2018, it was the
record of use with more than 98 million barrels a day. According to Peter R Odell. (p. 11) is the
only resource that concerns every single country, not only because of its use but, likewise,
represents a large amount of international trade and shipping. That claim is not exaggerated. An
outage of oil supply in one country can deteriorate an entire economy which, on the other hand,
could spread to other dependent countries. A simple price increase can start a period of
recession, as can be seen in several articles and papers, like "The Price of Oil and World
Inflation and Recession" by Michael R. Darby. To not be harmed with those variations of price
or an outage of supply, some countries are stocking huge quantities of crude oil, for instance, the
USA has an emergency stash of more than 640 million barrels which could keep the country
stocked about 31 days. With this importance for the international conjuncture and the supply
control made for a small number of exporting countries, the oil must be treated carefully, with
more intervenience of the government.

Because of its characteristics, some markets tend to end-up monopolized after privatization. This
economic effect, known as natural monopoly, has an important role to understand why the
government can not give up control of important sectors. The subject is defined, by Martina
Prskavcová and Jana Marková, as an industry branch which has very high fixed costs that
preclude other companies to compete, driving the market to a monopoly.

There are a couple of characteristics that have to be considered when dealing with natural
monopoly. The more expensive is the investment to enter on those industry branches, bigger are
the problems caused, especially in countries with high levels of inequality, like Brazil. It happens
that, a very small group of people and organizations would have enough resources to undertake
an endeavour like this. The cost of this investment is called a sunk cost, which is defined by Paul
L. Joskow(p.20) as a cost that "are associated with investments made in long-lived physical or
human assets whose value in alternative uses (i.e. to produce different products) or at different
locations (when transportation costs are high) is lower than in its intended use." The sunk cost is
not the only trigger that makes an industry branch becomes a monopoly, the technological
complexity is another barrier for the competition. The consequences of technological failure in a
structure of, for example, an oil company, is enormous. It can destroy vasts areas of the
environment and kill a large number of people and living beings. For that reason, even with
someone has money to invest, this individual needs to prove that he has enough knowledge to
undertake it. For those reasons, the government should keep control of those sectors to foreclose
that more inequality is generated by the control of profitable resources.

It is possible to understand what oil represents to a country by what was discussed so far,
however, meet the needs of the less fortunate and other nation's interests, has to be the
government's purpose too. Recently the finance minister and his staff announced the
privatization of another 17 companies. There are companies from different business sectors, like,
port managers, funding companies, IT development companies and others. Among them, there is
Correios, an enormous logistic company, the only one which reaches every city in the country. It
is important to make it clear that Brazil is a big country with a challenging logistics
infrastructure. There are cities that do not have any roads to get there, some cities reachable only
by boat, and other situations that increase the cost of the delivery service, making the private
competitors not provide service to those regions.

Another important cost that Correios subsidized was imported products with prices lower than
U$50,00. A couple of years ago, this kind of product rocketed with the coming of Chinese goods
giving a loss of 1billion a year to Correios. Last year Correios started to charge any foreign
product. This charge made Correios reach R$667 million in profit. This result shows that with
good management a state-owned company can be profitable and meet social needs.

The main important measurement that can be valuated about Correios is how the company helps
society. The company realizes payments of pensions and retirements of cities with small or none
access to a baking system, helps with the delivery of school supplies, transportation of donations
in case of calamity and other kinds of citizen's support.

The support that the Brazilians government can do when they have control of strategic sectors is
too important to the people. Even companies that do not monopolize a strategic resource, plays
an important role against inequality and reaching a well-fare state.