A private company, created with the capital contributions owned by some family economic units, has as its main objective the maximization of profits. To do this, with the capital contributed they acquire fixed assets that they combine with the labor services offered by the workers they have hired, paying them in exchange a salary that reflects the value of their productivity.
The owner of the business seeks to maximize profits because this would maximize the return on the capital he owns and provides him with the income to acquire consumer goods and services that satisfy some of the needs of the family members. Furthermore, for a private company to maximize profits, assuming it operates in a competitive context, is the greatest contribution it can make to the well-being of society as a whole; fulfills its social responsibility. All of this is possible because in the case of a private company the property rights are perfectly defined, which allows the shareholders to appropriate the net profits but also to fully assume the cost in the event that there are losses.
On the other hand, we have government companies, which generally have losses, which are socialized, that is, society as a whole covers them in two ways. The first is that to cover the losses they incur, the government allocates fewer resources to the provision of services such as education, health and public goods in general (security, administration of justice, parks, streets, drinking water and drainage networks, etc.) or incurs greater debt. The second is that they are generally companies that were created without a rigorous and comprehensive social evaluation of the projects, which is why they are not socially profitable and, consequently, destroy national wealth and reduce the growth potential of the economy.
Government companies suffer mainly from two problems, both serious. The first is that property rights are not defined; All Mexicans are owners of each of the companies and, consequently, it belongs to no one but someone appropriates it (who will be seen later) so effectively no one ends up being responsible for the losses. The second problem is that these companies are assigned a “social function” so from the outset the possibility of them generating profits is ruled out (unlike a private company whose social function is precisely to maximize profits).
When a government company is assigned a supposed “social function,” it is normally understood as the one that will sell the good or service it produces at a price lower than the marginal cost of producing it, so that its income is not enough to cover even the variable or operating costs (salaries, raw materials and inputs, etc.) so it incurs accounting losses and, therefore, will require government transfers that allow it to cover them. Furthermore, since it does not even cover the variable costs, it still does not cover its fixed costs, mainly the cost of capital, which is why it incurs economic losses and hence they are production units that destroy part of the national wealth.
Returning to the point of the poor definition of property rights, since no one is effectively the owner of government companies (the population, not the government, are nominally the owners), there will be those who take ownership and they generally end up being the workers of the companies, both the bureaucracy that manages them and the workers who are directly used in the production process.
The fact that it is the workers who effectively take over government companies leads to, on the one hand, there being an excess of personnel and, on the other hand, to their comprehensive salary including benefits (days of paid vacation, days with the right to leave, leave for union work, bonuses, retirement at an earlier age and/or with fewer years worked than an employee of a private company, and a pension significantly greater than a private retiree) being greater than the value of their productivity. This constitutes another additional source of higher variable or operating costs and therefore losses.
Thus, a government company loses from two sources: lower income since it sells below the cost of production and because it has higher operating costs than it would have if the company were private. And this requires that companies have to receive transfers from the government, which is forced to cut spending in other areas and/or incur greater debt.
This has been and will continue to be the story of the Mexican parastatal sector. As an example, it is enough to see the Federation’s expenditure budget: transfers to Pemex, CFE, Tren Maya, Ferrocarril Interoceánico, Mexicana de Aviación, AIFA (what the hell are the armed forces doing operating railways, airlines and airports?) Litiomex and more. The government, with a statist ideology, does not care that its government companies, by destroying part of the national wealth, instead of contributing to economic development, are holding it back.
