Privatization is the incidence or process of transferring ownership of a business A business is a legally recognized organization designed to provide goods or services, or both, to consumers, businesses and governmental entities. Businesses are predominant in capitalist economies. Most businesses are privately owned. A business is typically formed to earn profit that will increase the wealth of its owners and grow the business, enterprise, agency or public service from the public sector The public sector, sometimes referred to as the state sector is a part of the state that deals with either the production, delivery and allocation of goods and services by and for the government or its citizens, whether national, regional or local/municipal (the state or government) to the private sector In economics, the private sector is that part of the economy which is both run for private profit and is not controlled by the state. By contrast, enterprises that are part of the state are part of the public sector; private, non-profit organizations are regarded as part of the voluntary sector (businesses that operate for a private profit). In a broader sense, privatization refers to transfer of any government function to the private sector - including governmental functions like revenue collection and law enforcement.[1]

The term "privatization" also has been used to describe two unrelated transactions. The first is a buyout, by the majority owner, of all shares of a public corporation A public company or publicly traded company is a company that has permission to offer its registered securities for sale to the general public, typically through a stock exchange, or occasionally a company whose stock is traded over the counter (OTC) via market makers who use non-exchange quotation services or holding company A holding company is a company or firm that owns other companies' outstanding stock. It usually refers to a company which does not produce goods or services itself, rather its only purpose is owning shares of other companies. Holding companies allow the reduction of risk for the owners and can allow the ownership and control of a number of's stock, privatizing a publicly traded stock, and often described as private equity Private equity is money invested in companies that are not publicly traded on a stock exchange or that is invested as part of buyouts of publicly traded companies in order to make them private companies. The second is a demutualization Demutualization is the process by which a customer-owned mutual organization or co-operative changes legal form to a joint stock company. It is sometimes called stocking or privatization. As part of the demutualization process, members of a mutual usually receive a "windfall" payout, in the form of shares in the successor company, a cash of a mutual organization A mutual, mutual organization, or mutual society is an organization based on the principle of mutuality. Unlike a true cooperative, members usually do not contribute to the capital of the company by direct investment, but derive their right to profits and votes through their customer relationship.[dubious – discuss] A mutual organization or or cooperative A cooperative is a business organization owned and operated by a group of individuals for their mutual benefit. Cooperatives are defined by the International Co-operative Alliance's Statement on the Co-operative Identity as autonomous associations of persons united voluntarily to meet their common economic, social, and cultural needs and to form a joint stock company A joint stock company is a type of business entity: it is a type of corporation or partnership involving two or more legal persons. Certificates of ownership (or stocks) are issued by the company in return for each financial contribution, and the shareholders are free to transfer their ownership interest at any time by selling their stockholding.[2]

Contents

Origin

Edwards states that The Economist The Economist is an English-language weekly news and international affairs publication owned by The Economist Newspaper Ltd. and edited in offices in the City of Westminster, London. Continuous publication began under founder James Wilson in September 1843. While The Economist calls itself a "newspaper", each issue appears on glossy coined the term in the 1930s in covering Nazi German economic policy.[3][4]

The Oxford English Dictionary The Oxford English Dictionary , published by the Oxford University Press, is a dictionary of the English language. Two fully-bound print editions of the OED have been published under its current name, in 1928 and 1989. As of December 2008[update], the editors had completed one quarter of a third edition notes usage dating from 1942 in Econ. Jrnl, 52, 398.

History

This section requires expansion.

A long history of privatization dates from Ancient Greece Ancient Greece is the civilization belonging to the period of Greek history lasting from the Archaic period of the 8th to 6th centuries BC to 146 BC and the Roman conquest of Greece after the Battle of Corinth. At the center of this time period is Classical Greece, which flourished during the 5th to 4th centuries BC, at first under Athenian, when governments contracted out almost everything to the private sector[5]. In the Roman Republic The Roman Republic was the phase of the ancient Roman civilization characterised by a republican form of government. It began with the overthrow of the Roman monarchy, c. 509 BC, and lasted 482 years until its subversion, through a series of civil wars, into the Principate form of government and the Imperial period private individuals and companies performed the majority of services including tax collection (tax farming Tax farming was originally a Roman practice whereby the burden of tax collection was reassigned by the Roman State to private individuals or groups. In essence, these individuals or groups paid the taxes for a certain area and for a certain period of time and then attempted to cover their outlay by collecting money or salable goods from the people), army supplies (military contractors), religious sacrifices and construction. However, the Roman Empire The Roman Empire was the post-Republican phase of the ancient Roman civilization, characterised by an autocratic form of government and large territorial holdings in Europe and around the Mediterranean. The term is used to describe the Roman state during and after the time of the first emperor, Augustus also created state-owned enterprises A government-owned corporation, state-owned enterprise, state enterpise, or government business enterprise is a legal entity created by a government to undertake commercial activities on behalf of an owner government, and are usually considered to be an element or part of the state[citation needed]. There is no standard definition of a government- — for example, much of the grain was eventually produced on estates owned by the Emperor. Some scholars suggest that the cost of bureaucracy was one of the reasons for the fall of the Roman Empire The decline of the Roman Empire refers to both the gradual disintegration of the economy of Rome and the barbarian invasions that were its final doom. The English historian Edward Gibbon, author of The Decline and Fall of the Roman Empire made this concept part of the framework of the English language, but he was not the first to speculate on why.[5]

In Britain, the privatization of common lands is referred to as enclosure Enclosure or inclosure is the process which was used to end some traditional rights, such as mowing meadows for hay, or grazing livestock on land which is owned by another person, or a group of people. In England and Wales the term is also used for the process that ended the ancient system of arable farming in open fields. Under enclosure, such (in Scotland as the Lowland Clearances The Lowland Clearances in Scotland were one of the results of the British Agricultural Revolution, which changed the traditional system of agriculture which had existed in Lowland Scotland in the seventeenth century. Thousands of cottars and tenant farmers from the southern counties of Scotland migrated from farms and small holdings they had and the Highland Clearances The Highland Clearances were forced displacements of the population of the Scottish Highlands during the 18th and 19th centuries. They led to mass emigration to the sea coast, the Scottish Lowlands and the North American colonies. The clearances were part of a process of agricultural change throughout the United Kingdom, but were particularly). Significant privatizations of this nature occurred from 1760 to 1820, coincident with the industrial revolution in that country.

In more recent times, Winston Churchill Sir Winston Leonard Spencer-Churchill, KG, OM, CH, TD, PC, FRS was a British politician known chiefly for his leadership of the United Kingdom during the Second World War. He is widely regarded as one of the great wartime leaders. He served as prime minister from 1940 to 1945 and again from 1951 to 1955. A noted statesman and orator, Churchill was's government privatized the British steel industry in the 1950s, and West Germany West Germany is the common English name for the Federal Republic of Germany or FRG (German: Bundesrepublik Deutschland) in the period between its formation in May 1949 to German reunification on 3 October 1990. This period, during which Germany and Berlin were divided, ended when communist East Germany was dissolved and its five states joined the's government embarked on large-scale privatization, including selling its majority stake in Volkswagen Volkswagen is one of the world's largest automobile manufacturers. The company is headquartered in Wolfsburg, Lower Saxony, Germany. Volkswagen is the original marque within the Volkswagen Group, which includes the car marques Audi, Bentley Motors, Bugatti Automobiles, Automobili Lamborghini, SEAT, Škoda Auto and heavy goods vehicle manufacturer to small investors in a public share offering in 1961[5]. In the 1970s General Pinochet Augusto José Ramón Pinochet Ugarte[note 1] was a Chilean army general who was brought to power as president by a coup d' etat. Among his titles, he was the Commander-in-Chief of the Chilean army from 1973 to 1998, president of the Government Junta of Chile from 1973 to 1974 and President of the Republic from 1974 until he reinstalled a implemented a significant privatization program in Chile Chile (traditional English pronunciation /ˈtʃɪli/, also pronounced /ˈtʃiːleɪ/ ), officially the Republic of Chile (Spanish: República de Chile [reˈpuβlika ðe ˈtʃile] ( listen)), is a country in South America occupying a long, narrow coastal strip between the Andes mountains to the east and the Pacific Ocean to the west. It borders. However, it was in the 1980s under the leaderships of Margaret Thatcher Margaret Hilda Thatcher, Baroness Thatcher, LG, OM, PC, FRS served as Prime Minister of the United Kingdom from 1979 to 1990 and Leader of the Conservative Party from 1975 to 1990. She is the only woman to have held either post in the UK The United Kingdom of Great Britain and Northern Ireland[note 7] is a sovereign state located off the northwestern coast of continental Europe. It is an island country, spanning an archipelago including Great Britain, the northeastern part of the island of Ireland, and many small islands. Northern Ireland is the only part of the UK with a land and Ronald Reagan Ronald Wilson Reagan was the 40th President of the United States (1981–1989) and the 33rd Governor of California (1967–1975). Born in Tampico, Illinois, Reagan moved to Los Angeles, California in 1937. He began a career as an actor, first in films and later television, appearing in 52 movie productions and gaining enough success to become a in the USA ^ b. English is the de facto language of American government and the sole language spoken at home by 80% of Americans age five and older. Spanish is the second most commonly spoken language, that privatization gained worldwide momentum. In the UK this culminated in the 1993 privatisation of British Rail under Thatcher's successor, John Major Sir John Major, KG, CH, ACIB is a British politician, who served as Prime Minister of the United Kingdom and Leader of the Conservative Party from 1990 to 1997; British Rail having been formed by prior nationalization of private rail companies.

A major ongoing privatization, that of Japan Post Japan Post was a government-owned corporation in Japan, that existed from 2003–2007, offering postal and package delivery services, banking services, and life insurance. It had over 400,000 employees and ran 24,700 post offices throughout Japan and was the nation's largest employer. One third of all Japanese government employees worked for Japan, involves the Japanese post service and the largest bank in the world. This privatization, spearheaded by Junichiro Koizumi Junichiro Koizumi is a Japanese politician who served as Prime Minister of Japan from 2001 to 2006. He retired from politics when his term in parliament ended, started in 2007 following generations of debate. The privatization process is expected[by whom?] to last until 2017.

Types

There are three main methods[citation needed] of privatisation:

  1. Share issue privatisation (SIP) - selling shares on the stock market A stock market or equity market is a public market for the trading of company stock and derivatives at an agreed price; these are securities listed on a stock exchange as well as those only traded privately - the most common type of privatisation
  2. Asset sale privatisation - selling an entire organization (or part of it) to a strategic investor, usually by auction An auction is a process of buying and selling goods or services by offering them up for bid, taking bids, and then selling the item to the highest bidder. In economic theory, an auction may refer to any mechanism or set of trading rules for exchange or by using the Treuhand model
  3. Voucher privatisation - distributing shares of ownership to all citizens, usually for free or at a very low price.

Share issues can broaden and deepen domestic capital markets, boosting liquidity In business, economics or investment, market liquidity is an asset's ability to be sold without causing a significant movement in the price and with minimum loss of value. Money, or cash on hand, is the most liquid asset. An act of exchange of a less liquid asset with a more liquid asset is called liquidation. Liquidity also refers both to a and (potentially) economic growth Economic growth is a term used to indicate the increase of per capita gross domestic product or other measure of aggregate income. It is often measured as the rate of change in GDP. Economic growth refers only to the quantity of goods and services produced, but if the capital markets are insufficiently developed it may be difficult to find enough buyers, and transaction costs (e.g. underpricing required) may be higher. For this reason, many governments elect for listings in the more developed and liquid markets, for example Euronext Source:"euronext.com". http://www.euronext.com/trader/indicescomposition/composition-4411-EN-FR0003502079.html?selectedMep=1&idInstrument=22218, and the London The London Stock Exchange is a stock exchange located in London, United Kingdom. Founded in 1801, it is one of the largest stock exchanges in the world, with many overseas listings as well as British companies. The exchange is part of the London Stock Exchange Group and so sometimes referred to by the ticker symbol for the group, LSE, New York The New York Stock Exchange is a stock exchange located at 11 Wall Street in lower Manhattan, New York City, USA. It is the world's largest stock exchange by market capitalization of its listed companies at US$12.25 trillion as of May 2010. Average daily trading value was approximately US$153 billion in 2008 and Hong Kong The Hong Kong Stock Exchange is the stock exchange of Hong Kong. The exchange has predominantly been the main exchange for Hong Kong where shares of listed companies are traded. It is Asia's second largest stock exchange in terms of market capitalisation, behind the Tokyo Stock Exchange. As of 31 December 2007, the Hong Kong Stock Exchange had 1,24 stock exchanges.

As a result of higher political and currency risk deterring foreign investors, asset sales occur more commonly in developing countries Developing country is a term generally used to describe a nation with a low level of material well being. There is no single internationally-recognized definition of developed country, and the levels of development may vary widely within so-called developing countries, with some developing countries having high average standards of living.

Voucher privatisation has mainly occurred in the transition economies A transition economy or transitional economy is an economy which is changing from a centrally planned economy to a free market. Transition economies undergo economic liberalization , macroeconomic stabilization where immediate high inflation is brought under control, and restructuring and privatization in order to create a financial sector and of Central and Eastern Europe, such as Russia Russia (pronounced /ˈrʌʃə/ ; Russian: Россия, tr. Rossiya, pronounced [rɐˈsʲijə] ( listen)), also officially known as the Russian Federation (Russian: Российская Федерация, tr. Rossiyskaya Federatsiya, pronounced [rɐˈsʲijskəjə fʲɪdʲɪˈraʦəjə] ( listen)), is a country in northern Eurasia. It is a federal, Poland Poland /ˈpəʊlənd/ (Polish: Polska), officially the Republic of Poland (Rzeczpospolita Polska), is a country in Central Europe bordered by Germany to the west; the Czech Republic and Slovakia to the south; Ukraine, Belarus and Lithuania to the east; and the Baltic Sea and Kaliningrad Oblast, a Russian exclave, to the north. The total area of, the Czech Republic The Czech Republic (pronounced /ˈtʃɛk/ chek; Czech: Česká republika, pronounced [ˈtʃɛskaː ˈrɛpuˌblɪka] ( listen), short form Česko [ˈtʃɛskɔ]) is a country in Central Europe. The country borders Poland to the northeast, Germany to the west and northwest, Austria to the south and Slovakia to the east. The Czech Republic has been a, and Slovakia The Slovak Republic (short form: Slovakia /sloʊˈvɑːkiə/ ; Slovak: Slovensko (help·info), long form Slovenská republika (help·info)) is a state in Central Europe. It has a population of over five million and an area of about 49,000 square kilometres (19,000 sq mi). Slovakia is a landlocked country bordered by the Czech Republic and Austria.

A substantial benefit of share or asset-sale privatisations is that bidders compete to offer the highest price, creating income for the state in addition to tax revenues. Voucher privatisations, on the other hand, could be a genuine transfer of assets to the general population, creating a real sense of participation and inclusion. If the transfer of vouchers is permitted, a market in vouchers could be created, with companies offering to pay money for them.

Differing views

Supporting

Proponents of privatisation believe that private market factors can more efficiently deliver many goods or service than governments due to free market A free market is a market without economic intervention and regulation by government except to enforce ownership and contracts. It is the opposite of a controlled market, where the government regulates how the means of production, goods, services and labor are used, priced, or distributed. This is the contemporary use of the term "free market& competition Competition is a contest between individuals, groups, nations, animals, etc. for territory, a niche, or a location of resources. It arises whenever two or more parties strive for a goal which cannot be shared. Competition occurs naturally between living organisms which co-exist in the same environment. For example, animals compete over water. In general, it is argued that over time this will lead to lower prices, improved quality, more choices, less corruption, less red tape, and quicker delivery. Many proponents do not argue that everything should be privatised. According to them, market failures In economics, a market failure occurs when there is an inefficient allocation of goods and services in a market. That is, there exists another outcome where market participants' overall gains from the new outcome outweigh their losses . Market failures can be viewed as scenarios where individuals' pursuit of pure self-interest leads to results and natural monopolies could be problematic. However, some Austrian school economists and anarcho-capitalists would prefer that every function of the state be privatised, including defense and dispute resolution.

The basic economic argument given for privatisation states that governments have few incentives to ensure that the enterprises they own are well run. One problem is the lack of comparison in state monopolies. It is difficult to know if an enterprise is efficient or not without competitors to compare against. Another is that the central government administration, and the voters who elect them, have difficulty evaluating the efficiency of numerous and very different enterprises. A private owner, often specializing and gaining great knowledge about a certain industrial sector, can evaluate and then reward or punish the management in much fewer enterprises much more efficiently. Also, governments can raise money by taxation or simply printing money should revenues be insufficient, unlike a private owner.

If private and state-owned enterprises compete against each other, then the state owned may borrow money more cheaply from the debt markets than private enterprises, since the state owned enterprises are ultimately backed by the taxation and printing press power of the state, gaining an unfair advantage.

Privatising a non-profitable state-owned company may force the company to raise prices in order to become profitable. However, this would remove the need for the state to provide tax money in order to cover the losses.

Opposing

Opponents of privatisation dispute the claims concerning the alleged lack of incentive for governments to ensure that the enterprises they own are well run, on the basis of the idea that governments are proxy owners answerable to the people. It is argued[by whom?] that a government which runs nationalized enterprises poorly will lose public support and votes, while a government which runs those enterprises well will gain public support and votes. Thus, democratic governments do have an incentive to maximize efficiency in nationalized companies, due to the pressure of future elections.

Opponents of certain privatisations believe certain parts of the social terrain should remain closed to market forces in order to protect them from the unpredictability and ruthlessness of the market (such as private prisons, basic health care, and basic education). Another view sees some of the utilities by which government provides benefit to society at large as indirect and difficult to measure or unable to produce a profit, such as defense. Still another is that natural monopolies are by definition not subject to competition and better administrated by the state.

The controlling ethical issue in the anti-privatisation perspective is the need for responsible stewardship of social-support missions. Market interactions are all guided by self-interest, and successful actors in a healthy market must be committed to charging the maximum price that the market will bear. Privatisation opponents believe that this model is not compatible with government missions for social support, whose primary aim is delivering affordability and quality of service to society.

Many privatisation opponents also warn against the practice's inherent tendency toward corruption. As many areas which the government could provide are essentially profitless, the only way private companies could, to any degree, operate them would be through contracts or block payments. In these cases, the private firm's performance in a particular project would be removed from their performance, and embezzlement and dangerous cost-cutting measures might be taken to maximize profits.

Furthermore, large corporations can pay public-relations professionals to convince decision-makers that privitazation is a sensible idea, whether or not this is actually the case. Corporations typically have far more resources for expert testimony, advertisements, conferences and other propaganda efforts than anti-privatisation advocates.

Some[who?] would also point out that privatising certain functions of government might hamper coordination, and charge firms with specialized and limited capabilities to perform functions which they are not suited for. In rebuilding a war torn nation's infrastructure, for example, a private firm would, in order to provide security, either have to hire security, which would be both necessarily limited and complicate their functions, or coordinate with government, which, due to a lack of command structure shared between firm and government, might be difficult. A government agency, on the other hand, would have the entire military of a nation to draw upon for security, whose chain of command is clearly defined. Opponents would say that this is a false assertion: numerous books refer to poor organization between government departments (for example the Hurricane Katrina incident).

Furthermore, opponents of privatisation regard it is undesirable to transfer state-owned assets into private hands for the following reasons:

Intermediate views

Others don't dispute that well-run for-profit entities with sound corporate governance may be considerably more efficient than an inefficient governmental bureaucracy or NGO, however many implementations of privatization can - in practice - lead to the firesale of public assets, and/or to inefficient or corrupt - for profit management.

Developed or minimally corrupt economies

A top executive can readily reduce the perceived value of an asset – due to information asymmetry. The executive can accelerate accounting of expected expenses, delay accounting of expected revenue, engage in off balance sheet transactions to make the company's profitability appear temporarily poorer, or simply promote and report severely conservative (e.g. pessimistic) estimates of future earnings. Such seemingly adverse earnings news will be likely to (at least temporarily) reduce sale price. (This is again due to information asymmetries since it is more common for top executives to do everything they can to window dress their earnings forecasts). There are typically very few legal risks to being 'too conservative' in one's accounting and earnings estimates.

When the entity gets taken private - at a dramatically lower price - the new private owner gains a windfall from the former top executive's actions to (surreptitiously) reduce the sales price. This can represent 10s of billions of dollars (questionably) transferred from previous owners (the public) to the takeover artist. The former top executive is then rewarded with a golden handshake for presiding over the firesale that can sometimes be in the 10s or 100s of millions of dollars for one or two years of work. (This is nevertheless an excellent bargain for the takeover artist, who will tend to benefit from developing a reputation of being very generous to parting top executives).

When a publicly held asset, mutual or non-profit organization undergoes privatization, top executives often reap tremendous monetary benefits. The executives can facilitate the process by making the entity appear to be in financial crisis - this reduces the sale price (to the profit of the purchaser), and makes non-profits and governments more likely to sell.

Ironically, it can also contribute to a public perception that private entities are more efficiently run reinforcing the political will to sell of public assets. Again, due to asymmetric information, policy makers and the general public see a government owned firm that was a financial 'disaster' - miraculously turned around by the private sector (and typically resold) within a few years.

Underdeveloped or highly corrupt economies

In a society with substantial corruption, privatization allows the government currently in power and its backers to siphon a large portion of the entire net present value of state assets away from the public and into the accounts of their favored power brokers. Without privatization, corrupt officials would have to slowly harvest their corrupt earnings over time. As such, efficient privatization depends on their being a very low of current corruption among the current government officials since it allows for far more 'efficient' extraction of corrupt rents.

Of course, corrupt governments can also extract corrupt rents quite efficiently in other ways - particularly by borrowing extensively to engage in spending on overly favorable contracts with their backers (or on tax shelters, subsidies or other give-aways). Generations of subsequent taxpayers are then left with paying back the debt incurred for corrupt transfers made decades previously. Naturally, this may lead to the sale of public assets....

In the end, the public is left with a government that taxes them heavily, and gives them nothing in return. Debt repayment is enforced by international agreements and agencies such as the IMF. Infrastructure and upkeep is sacrificed - leading to a further decay in the economic efficiency of the country over time.

Outcomes

This article has multiple issues. Please help improve it or discuss these issues on the talk page.
  • Its neutrality is disputed. Tagged since March 2008.
  • Its factual accuracy is disputed. Tagged since March 2008.

Literature reviews [8][9] find that in competitive industries with well-informed consumers, privatisation consistently improves efficiency. Such efficiency gains mean a one-off increase in GDP, but through improved incentives to innovate and reduce costs also tend to raise the rate of economic growth. The type of industries to which this generally applies include manufacturing and retailing. Although typically there are social costs associated with these efficiency gains[10], many economists argue that these can be dealt with by appropriate government support through redistribution and perhaps retraining.

In sectors that are natural monopolies or public services, the results of privatisation are much more mixed, as a private monopoly behaves much the same as a public one in liberal economic theory. In general, if the performance of an existing public sector operation is sufficiently bad, privatisation (or the threat thereof) has been known to improve matters. Changes may include, inter alia, the imposition of related reforms such as greater transparency and accountability of management, improved internal controls, regulatory systems, and better financing, rather than privatisation itself.

Regarding political corruption, it is a controversial issue whether the size of the public sector per se results in corruption. The Nordic countries have low corruption but large public sectors. However, these countries score high on the Ease of Doing Business Index, due to good and often simple regulations, and for political rights and civil liberties, showing high government accountability and transparency. One should also notice the successful, corruption-free privatisations and restructuring of government enterprises in the Nordic countries. For example, dismantling telecommunications monopolies has resulted in several new players entering the market and intense competition with price and service.

Also regarding corruption, the sales themselves give a large opportunity for grand corruption. Privatisations in Russia and Latin America were accompanied by large-scale corruption during the sale of the state-owned companies. Those with political connections unfairly gained large wealth, which has discredited privatisation in these regions. While media have reported widely the grand corruption that accompanied the sales, studies have argued that in addition to increased operating efficiency, daily petty corruption is, or would be, larger without privatisation, and that corruption is more prevalent in non-privatised sectors. Furthermore, there is evidence to suggest that extralegal and unofficial activities are more prevalent in countries that privatised less.[11]

Alternatives

This article may contain original research. Please improve it by verifying the claims made and adding references. Statements consisting only of original research may be removed. More details may be available on the talk page. (January 2010)

Public utility

The enterprise can remain as a public utility.

Non-profit

A private non-profit organization could manage the enterprise.

Municipalization

Transferring control to municipal government

Outsourcing or sub-contracting

National services may sub-contract or out-source functions to private enterprises. A notable example of this is in the United Kingdom, where many municipalities have contracted out their garbage collection or administration of parking fines to private companies. In addition, the British government has involved the private sector more in the workings of the National Health Service principally through outsourcing the construction and operation of new hospitals to private companies. There are also moves to refer patients to private surgeries to ease the load on existing NHS human resources, and covering the cost of this.

See also: private finance initiative

Partial ownership

An enterprise may be privatised, but with the state retaining a number of shares in the resultant company. This is a particularly notable phenomenon in France, where the state often retains a "blocking stake" in private industries. In Germany, the state privatised Deutsche Telekom in small tranches, and still retains about a third of the company. As of 2005, the state of North Rhine-Westphalia is also planning to buy shares in the energy company E.ON in what is claimed to be an attempt to control spiraling costs.

Whilst partial privatisation could be an alternative, it is more often a stepping stone to full privatisation. It can offer the business a smoother transition period during which it can gradually adjust to market competition. Some state-owned companies are so large that there is the risk of sucking liquidity from the rest of the market, even in the most liquid marketplaces: this may favor gradual privatization. The first tranche of a multi-step privatisation would also in the first instance establish a valuation for the enterprise to mitigate complaints of under-pricing.

In some instances of partial privatisation of contracted services, some portion(s) of the state-owned service are provided by private-sector contactors, but the government retains the capacity to self-operate at contract intervals, if it so chooses. An example of partial privatisation would be some forms of school bus service contracting, such as arrangements where equipment and other resources purchased with government capital funds and/o those already owned by a governmental entity are used by the contractor for a period of time in providing services, but ownership is retained by the governmental unit. This form of partial privatisation eases concerns that once an operation is contracted, the government may be unable to obtain sufficient competitive bids, and be subjected to terms less desirable than the prior operation under state-ownership. Under that scenario, a reverse privatisation would be more feasible for the government. (see section below)

See also: Public-private partnership

Notable examples

See also: List of privatisations

The largest privatisation in history involved Japan Post. It was the nation's largest employer and one third of all Japanese government employees worked for Japan Post. Japan Post was often said to be the largest holder of personal savings in the world.

The Prime Minister Junichiro Koizumi wanted to privatise it because it was thought[by whom?] to be an inefficient and a source for corruption. In September 2003, Koizumi's cabinet proposed splitting Japan Post into four separate companies: a bank, an insurance company, a postal service company, and a fourth company to handle the post offices as retail storefronts of the other three.

After the Upper House rejected privatisation, Koizumi scheduled nationwide elections for September 11, 2005. He declared the election to be a referendum on postal privatisation. Koizumi subsequently won this election, gaining the necessary supermajority and a mandate for reform, and in October 2005, the bill was passed to privatise Japan Post in 2007.[12]

Nippon Telegraph and Telephone's privatisation in 1987 involved the largest share-offering in financial history at the time.[13] 15 of the world's 20 largest public share offerings have been privatisations of telecoms.[13]

The United Kingdom's largest public-share offerings were privatisations of British Telecom and British Gas. The largest public-share offering in France was France Telecom. Privatisation in Europe has led to genuine competition: the former state-owned enterprises lost their monopolies due to legislation and technological change, competitors entered the market, and prices for broadband access and telephone calls fell dramatically.[citation needed]

Negative responses

Privatisation proposals in key public service sectors such as water and electricity in many cases meet with strong resistance from opposition political parties and from civil society groups, many of which regard them as natural monopolies. Campaigns typically involve demonstrations and democratic political activities; sometimes the authorities attempt to suppress opposition using violence (e.g. Cochabamba protests of 2000 in Bolivia and protests in Arequipa, Peru, in June 2002). Opposition is often strongly supported by trade unions. Opposition is usually strongest to water privatisation — as well as Cochabamba, recent examples include Haiti, Ghana and Uruguay (2004). In the latter case a civil-society-initiated referendum banning water privatisation was passed in October 2004.

Reversion

A reversion from contracted ownership of an enterprise or services to governmental ownership and/or provision is called reverse privatisation or nationalization. Such a situation most often occurs when a privatisation contractor fails financially and/or the governmental unit has failed to purchase satisfactory service at prices it regards as less than with state-ownership or self-operation of services. Another circumstance may occur when greater control than viable under privatisation is determined to be in the governmental unit's best interest.

National-security concerns may be the source of reverse privatisation actions when the most likely providers are non-domestic or international corporations or entities. For example, in 2001, in response to the September 11th attacks, the then-private airport security industry in the United States was nationalized[citation needed] and put under the authority of the Transportation Security Administration.

See also

References

  1. ^ Chowdhury, F. L. ‘’Corrupt Bureaucracy and Privatisation of Tax Enforcement’’, 2006: Pathak Samabesh, Dhaka.
  2. ^ "Musselburgh Co-op in crisis as privatisation bid fails.". Co-operative News. 2005-11-01. http://www.thenews.coop/index.php?content=story&id=835. Retrieved 2008-05-21.
  3. ^ Edwards, Ruth Dudley (1995). The Pursuit of Reason: The Economist 1843-1993. Harvard Business School Press. pp. 946. ISBN 0-87584-608-4.
  4. ^ Compare Bel, Germà (2006). "Retrospectives: The Coining of 'Privatisation' and Germany's National Socialist Party". Journal of Economic Perspectives 20 (3): 187–194. doi:10.1257/jep.20.3.187.
  5. ^ a b c International Handbook on Privatization by David Parker, David S. Saal
  6. ^ Central Europe's Mass-Production Privatization, Heritage Lecture #352
  7. ^ Dagdeviren (2006) "Revisiting privatisation in the context of poverty alleviation" Journal of International Development, Vol. 18, 469–488
  8. ^ "Privatisation in Competitive Sectors: The Record to Date, World Bank Policy Research Working Paper No. 2860". John Nellis and Sunita Kikeri (World Bank). June 2002. http://ssrn.com/abstract=636224.
  9. ^ "From State To Market: A Survey Of Empirical Studies On Privatisation" (PDF). William L. Megginson and Jeffry M. Netter (Journal of Economic Literature). June 2001. http://faculty-staff.ou.edu/M/William.L.Megginson-1/prvsvpapJLE.pdf.
  10. ^ "Winners and Losers: Assessing the Distributional Impact of Privatisation, CGD Working Paper No 6" (PDF). Nancy Birdsall & John Nellis (Center for Global Development). March 9, 2006. http://www.cgdev.org/docs/cgd_wp006.pdf.
  11. ^ Privatisation in Competitive Sectors: The Record to Date. Sunita Kikeri and John Nellis. World Bank Policy Research Working Paper 2860, June 2002. Privatisation and Corruption. David Martimort and Stéphane Straub. One career city manager in America, Roger L. Kemp, wrote a library reference volume titled Privatization: The Provision of Public Services by the Private Sector," which was originally published in 1991 and republished in 2007. In this volume, based on a national literature search of best practices among municipal governments in this field, Dr. Kemp recommended that administrators owe it to their taxpayers and citizens to seek private alternatives to selected public services. He felt that city managers should go to the marketplace to determine the cost of contracting for selected public services, while keeping quality consistent with the same service provided by the municipality. Sometimes, Kemp noted, it's more cost effective to have certain public services provided by contract by the private sector. No one can, however, that it always less expensive for the private sector to provide public services.
  12. ^ Takahara, "All eyes on Japan Post"Faiola, Anthony (2005-10-15). "Japan Approves Postal Privatisation". Washington Post (The Washington Post Company): p. A10. http://www.washingtonpost.com/wp-dyn/content/article/2005/10/14/AR2005101402163.html. Retrieved 2007-02-09.
  13. ^ a b The Financial Economics of Privatisation By William L. Megginson, p. 205 - 206

Further reading

Unindexed

External links

Look up privatization in Wiktionary, the free dictionary.

Categories: Public economics | Monopoly (economics) | Market structure and pricing | Economics of regulation

 

The above information uses material from Wikipedia and is licensed under the GNU Free Documentation License.
Some facts may not have been fully verified for accuracy. [Disclaimers]
This page was last archived by our server on Wed Jul 28 19:09:55 2010. [ refresh local cache ]
Displaying this page or its contents does not use any Wikimedia Foundation's resources.
The owners of this site proudly support the Wikimedia Foundation.

[Hide]▼
'Privatization' News
Protesting Austerity After a Suitable Vacation - National Review Online (blog)
corner.nationalreview.com
Protesting Austerity After a Suitable Vacation - National Review Online (blog)
Tue, 13 Jul 2010 14:37:08 GMT+00:00
National Review Online (blog) ... adopted the International Monetary Fund's recommendation to raise some of the 320 billion ($390 billion) it owes foreign lenders through privatization . ...
Google News Search: Privatization,
Tue Jul 13 13:36:31 2010
'Privatization' Images
PrivatizationParty 02 jpg
ricardojacobson.com
PrivatizationPa​rty 02 jpg
559px x 805px | 47.40kB

[source page]



Yahoo Images Search: Privatization,
Wed Jul 28 11:33:00 2010
'Privatization' Blogs
Newsbreak Online - SINGSON AT DPWH: Privatization expert has a ...
newsbreak.com.ph
Newsbreak Online - SINGSON AT DPWH: Privatization expert has a ...

unknown

ue, 13 Jul 2010 18:06:00 GM

His resume boasts of involvement in the development of the Subic-Clark-Tar​lac Expressway project and the . privatization. programs for the Fort Bonifacio and Villamor Airbase, Subic Bay Metropolitan Authority, Clark Special Economic Zone, ...

Google Blogs Search: Privatization,
Sun Jul 25 19:14:20 2010
'Privatization' Answers
Privatization??
Q. Alot of talk of the "BENIFITS" of privatizing aspects of government(social security)-Why no mention of privitizing the MILITARY???
Asked by SWTSGR - Sun Jan 28 14:42:33 2007 - - 5 Answers - 0 Comments

A. A principal role of the federal government is to provide for the defense of this nation. It's in the constitution. You will not find the words "Social Security" anywhere in the constitution, but that doesn't stop liberal activist judges from reading the invisible ink.
Answered by x - Sun Jan 28 14:45:31 2007

Yahoo Answers Search: Privatization,
Sat Jul 3 15:03:18 2010
[Hide]▲