Privatization: A Question of Quantities and Qualities

Abstract

Privatization is a continuing process intended to increase the scope of the market in the provision of goods and services. It is thus the opposite of nationalization, an increase in government influence upon the market. Privatization has four distinguishing qualities: an increase in private ownership, competition, deregulation, and a reduction in public finance. Many large public enterprises today are not fully public, drawing revenue from the market, or fully private, drawing subsidies, regulation, or even semi-monopoly privileges from government.

The British experience with privatization under Margaret Thatcher shows that there can be a large reduction in public ownership and in public subsidies. It has not always promoted competition and in some cases has created new forms of public regulation of private enterprises. The experience has shown that the sale of public assets can raise substantial sums for the public treasury, broaden the base of share ownership, encourage efficiency in enterprises while in public hands, pose complex issues of corporate structure and finance, and be influenced by short-term political calculations. Still to be resolved are questions about the relative role of public regulation, including ministerial interference, and market motives in the running of privatized industries.

The long-term alternatives are three: renationalization through the back door of regulation and subsidy, the privatization of public enterprises now selling goods and services, or the privatization of social programmes as well as enterprises. Two possible equilibrium points can be identified: a market economy with state-funded social services or a balance-of-power compromise in which both non-market and market calculations affect major enterprises and social benefits.