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Article Excerpt
Abstract The primary focus of this work is on the nature of the privatization debate rather than on an attempt to explore the truth or validity of each of the many claims and counterclaims that have been made for the practice of privatization. The main objective is to discover why the issues remain controversial and whether there are prospects for reconciliation. The results obtained from the evidence examined suggest there is no well-formed theory of privatization, and no well-formed opposing theory. In the absence of a convincing theory, the authors conclude they expect the debate to continue on the lines of competition, free markets and choice versus complaints about unfulfilled promises and unexpected costs, corruption scandals and disadvantages to the poor, and suggest possible ways forward.
Keywords Privatization * Reconciliation * Competition * Free markets * Unfulfilled promises
JEL Classifications D63 * L33 * O50
Introduction
Privatization has been one of the most striking reforms concerning property ownership. Transference from governments to the private sector has occurred in almost every country--from Moscow to Manila to Athens, Greece--for competitiveness and liberalization of the entrepreneurial spirit. However, up to now there is no clear consensus on the benefits or drawbacks of the practice of privatization. Even the World Bank reports a disapproval rate of over 80% in some countries, admitting the mistake of believing "even poorly designed privatization is better than continued state ownership."
In theoretical terms, so far privatization is based upon and helps establish the "free market" ideas and beliefs. Most of the scholars' work undertaken in the past, attempt to decide the truth or validity of each of the many claims and counterclaims that have been, and are still being made for privatization. Their interest focuses in identifying circumstances in which privatization, or its alternative modes of ownership and control, may be appropriate. The authors of this paper assume that there is an interest in seeking efficient and equitable methods for producing and supplying goods and services to the public. Within that theme, however, they notice that the debate has been on whether or not goods and services that are or have been supplied by governments or by state-regulated organisations ought to be provided by private businesses. This paper is concerned to explore why the issues--after so many years of research--remain still controversial and whether there are prospects for reconciliation. The authors' primary focus is on the "nature of the privatization debate."
In the following sections the authors seek to show, from consideration of the literature and from case studies, that (a) empirically, the experience tends to be country-specific, (b) there are hidden, possibly obscuring, assumptions in the ideological debates, and (c) the forces that determine income distribution could be significant determinants of the outcomes of practices in the area. In addition, the authors enquire into (d) whether there are, or can be, criteria for deciding whether a particular privatization is, or is likely to be, beneficial on the whole.
The Privatization Debate: Significance and Background
It should be noted that not all the privatizations considered in the debate have been from central government to private for-profit corporations. Some, for example bus transport, housing and gas supply in Britain were once owned and controlled by local municipalities, and later privatized. Some of these, such as local bus companies, have become more like municipally owned enterprises than purely private companies.
At this point it will be helpful to indicate the set of ideas covered by the term "privatization." A useful start is provided by the Internet site of http://privatization.org: (1)
Privatization: A very broad term--but most simply, privatization is the transfer of assets or service delivery from the government to the private sector. Privatization runs a very broad range, sometimes leaving very little government involvement, and other times creating partnerships between government and private service providers where government is still the dominant player.
Taking the above as a working definition, privatization has been a significant policy of many governments since the early 1980s (Wright 2000; Warner and Hefetz 2004). Early examples were provided in Britain, where the assets and industries that have been transferred have ranged from electric power generation, gas supply, telecommunications, steel and coal production, motor manufacture, and railway transport to water supply and road transport (Lipczynski and Wilson 2001, p. 386). In some cases, such as rail and road transport, mining, motor manufacture and steel, the transferred assets had been in private ownership before coming under state control. For example, rail, coal and steel production had originally been nationalised because they were failing under private ownership in the 1930s and 1940s during the international trade recession of the period. In the 1950s, the belief grew that the experience of nationalisation had been wasteful, and that a return to private ownership would provide a profit-driven quest for efficiency, which would benefit the population as a whole.
By the late 1970s, sections of opinion emphasised the view that government expenditure had grown to more than half of the national income, and that economic power and economic waste were the inevitable concomitants (Foster 1992; Helm and Jenkinson 1997, pp. 1-14). This view appears to have been shared by many governments and by many opinion-makers in many parts of the world, at first, especially in the United States and the United Kingdom and later also in developing and transition economies (Davis et al. 2000; OECD 2002; http://www.privatizationbarometer.net). So much, as the authors of this paper believe, it is common ground that would be accepted both by proponents and critics of privatization.
Some Perspectives: Efficiency and Welfare
At the outset, it is worth noting that there are many empirical studies in which the conclusion is drawn that private suppliers are better able to raise finance than stated-owned companies can do (Megginson and Netter 2001, pp. 321-389; Helm and Jenkinson 1997, pp. 1-14). The studies also tend to conclude that privatization increases efficiency and do not destroy the total number of jobs, as displaced employees tend to find jobs elsewhere (Pendlenton 1997). Some studies suggest that under privatization, even where there is job shedding, those who remain in employment earn more than they did under state ownership (Pollitt 1999).
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