Public Vs. Private - What we learn from Arctic Exploration

Public vs. Private ownership, which can more effectively spur economic growth? Can Arctic Exploration give us a preview of what is ahead?

2009 has been Bailout-City as the US Government has saved numerous institutions in addition to seizing large stakes in AIG, Citigroup, Fannie, Freddie, and General Motors. The bailout pie has been prepared, sliced, divied up, and dolled out as effortlessly as leaflets in Vegas. Indeed, the Fed and government have gone "all-in" with not only monetary and fiscal policies but also with a new form of policy, that of bailing out anyone with a good lobbyist. Will these bailouts and gov ownership be beneficial or harmful to the US economy? We don't know how the story will end, but we do have something with which to compare - Results of Arctic Exploration - publicly vs. privately funded expeditions. (Joe Arctic Tundra)

In "Public versus Private Initiative in Arctic Exploration: The Effects of Incentives and Organizational Structure", Jonathan M. Karpoff organized a data set of 92 arctic explorations from 1818 to 1909 to study the successes and failures of privately and publicly funded expeditions. The goal was to determine which expeditions provided better results.

The Purposes of Arctic Exploration:

• Navigate the Northwest Passage
• Discover the North Pole
• Discover the lost (publicly funded) John Franklin Expedition of 1845
  

The Rewards:

• Cash Prizes
• Lecture Fees
• Larger budgets/funding for future expeditions
• Book Sales

The Risks:

• Loss of funding/budget shrinkage
• Fewer rewards
• Sickness
• Death from accidents, exposure, scurvy, or starvation

Because the goals, prospective rewards, and penalties were similar for both privately and publicly funded expeditions, Karpoff argues it is possible (and fair) to compare the two subsets. Karpoff summarized: "I find that compared to private expeditions, government sponsored expeditions tended to be large and well funded. By most measures, however, the government expeditions fared poorly. They made fewer major discoveries, introduced fewer technological innovations, were subject to higher rates of scurvy, lost more ships, and had more explorers die."

Quantitative Proof:

Failures

Death of Crew Members per voyage:

Public - 5.9, Private - .9

Loss of Ships per voyage:

Public - .53, Private - .24

Scurvy Presense for voyages > 1 yr:

Public -47%, Private - 13%

Successes:

Navigate Northwest Passage... Private

Discover North Pole... Private

Discover fate of Franklin Expedition... Private

So why did privately funded expeditions fare so much better than publicy funded counterparts? Karpoff suggested publicly funded expeditions suffered from :

1. Poorly motivated and prepared leaders.
2. Separation of initiation and implementation functions of executive leadership (aka, too many Chief Joes and not enough Indian Joes).
3. Slowness to exploit new information (Joey come lately) about clothing, diet, shelter, modes of Arctic travel, organizational structure and optimal party size. (Joe two's company but three's a crowd)

What can Joe Shareholder learn from this study by Markoff? While there's no guarantee that AIG, Fannie, Freddie, GM, and Citigroup will suffer the same fate as these expeditions funded by governments, there is reason to suggest the same bureaucracies that burdened public expeditions will also curtail government owned businesses. Companies that lean on taxpayer assistance (Joe blind man on guard rail) face completely different incentive levels as well as muted risks and rewards. Hence, Joe's sentiment on government-owned stocks is bearish (Polar Bearish....that is.....) because of the possibility of getting frost-bitten by sliding stocks (Joe dogsled.....pulled by publicy funded dogs.....with scurvy).

If anyone wishes to read the entire document, just email marketarty@gmail.com and we'll send it off. Send this to all friends, enemies, family, associates and let's spread the private word publicly!