Privatization Essay ⋆ Political Science Essay Examples ⋆ EssayEmpire

The debate initiated around the neoliberal themes of privatization, deregulation, denationalization, and destatization is based upon new political economy—economic politics applied to political markets. It signifies political action in economic markets with the definite aim of maximizing profit and utility—the underlying themes of neoclassical economics. Whether considered Thatcherism, Reaganomics, or the contributions of Milton Friedman, the confluence of two important political legacies of 1980s and 1990s—the renewed enthusiasm for the market economy, and the rolling back of the frontiers of the welfare state—led to the spread of privatization movement in the so-called first, second, and the third worlds alike, cutting the ideological barriers in recent history. Privatization can mean anything from sale of public enterprise to public-private partnership.

Etymologically speaking, privatization implies “withdrawal of the state from the production of goods and services or transfer of ownership from the public sector to the private sector.” In the narrow sense, it may refer to the sale or leasing of assets, substitution of user charges for tax finance, and liberalization measures aimed at providing competition, efficiency, and wider choice. In the “de-ideologized” recasting of the concept, a variety of measures have sailed under the flag of privatization, such as contracting, leasing, imposing user charges, changing ownership through divestiture, liquidation, postponing proposals, and so on. It has been used as an economic device, political strategy, or administrative tool by different countries in different contexts.

Rationale For Privatization

Privatization can be seen as an economic device to rehabilitate the market forces following an intellectual disillusionment with the Keynesian approach to economic management and failure of socialism as a serious intellectual force. It can be seen as a political strategy to eliminate loss-making public sector enterprises, curtail budgetary support, or retrench government employees through divestiture. At the heart of the privatization movement lies the assumption that the public sector is always wasteful, inefficient, and unproductive, and privatization can make it more efficient, competitive, and consumer friendly. It can be seen as an administrative tool useful for taking some of the load off the government.

Depending upon the motivation, privatization may take different forms in different countries. In advanced economies, it may attempt to reinvigorate a poorly run state enterprise through divestiture, or spreading ownership more widely by selling shares to the general public. In some countries, privatization may involve various measures toward liberalization, deregulation, and structural adjustments ranging from liquidation to leasing. Ancillarization could be another technique of privatization. In some countries, the government may encourage small-scale ancillary units to undertake production, provide certain services, or technical know-how.

Managing change through privatization requires a great deal of political sagacity and administrative expertise. No government can implement privatization programs and policies effectively without cooperation from the top bureaucrats, legal experts, and financial analysts. All privatization efforts require a lot of restructuring prior to privatization, such as selecting the enterprises or parts of it to be privatized, obtaining loans from official banks or financial institutions, establishing long-term guarantee programs in cooperation with private commercial banks, floating shares, converting bonds, creating debt-equity swaps, writing off liabilities, allowing flexibility in the valuation of public assets and “shares to be floated,” and providing the regulatory framework. Contrary to the popular perception, the privatization drive initially may actually enhance the role of the government and the bureaucracy. It may also require additional resources.

The bureaucracy must play a proactive role in providing the necessary information, assistance, and support to the government in making privatization policies and implementing them effectively. The bureaucrats help identify the public enterprises, utilities, and services to be privatized. They suggest the modalities and time schedule. They also provide the necessary financial expertise in evaluating the value of public assets or fixing the price of a share to be floated. If these are overvalued, the privatization drive may be halted, and if these are undervalued, the government may be criticized for selling family silver at throwaway prices. Once the government decides to privatize a particular enterprise, a high level of administrative efficiency is required to assess the bids made by the potential buyers, arrange finance and insurance cover, provide a safety net for the staff retrenched, and deal with legal matters. An incompetent bureaucracy can never lead to economic efficiency—the hallmark of privatization.

Many believe that even after privatization, the role of public bureaucracy is not really reduced. The nature of its job merely changes. The bureaucracy now must regulate the privatized bodies in public interest. For example, privatization in the United Kingdom actually led to the proliferation of regulatory watchdogs, such as the Monopolies Commission and the Merger Commission to look after the interests of industrial customers of British Gas. Once a public enterprise, utility, or service is privatized, the cardinal values of traditional public administration are likely to conflict with the modern requirements of knowledge-based and technology-driven market economies.

Shift In Paradigm

With privatization, the very administrative culture, in terms of red tape, is replaced with a managerial and entrepreneurial culture. Instead of inputs, the focus is now on outputs and performance monitoring. Instead of autonomy, the focus is more on accountability. Instead of standardized procedures, the emphasis is more on innovation and flexibility. Under the traditional public administration, personnel are recruited either on the grounds of merit or seniority, under privatized administration; whereas with privatization, the stress is more on contractual arrangements.

Privatization can be regarded as an administrative tool, yet certainly not an end in itself. There may be conflict in values as far as the new role of entrepreneurial managers. While entrepreneurship requires autonomy, personal vision, secrecy, and risk taking behavior on the part of administrators-cummanagers, the democratic norms of the society may call for accountability, citizen’s participation, openness, and transparency in policy making and stewardship. Therefore, privatization cannot be seen as a panacea to political, economic, sociocultural, or administrative problems. The more one is privatized, the less part one likely takes in collective actions or civic engagements.

Bibliography:

Arestis, Philip, and Malcolm Sawyer, eds. Critical Essays on the Privatization Experience. Basingstoke, U.K.: Palgrave Macmillan, 2010.
Gupta, Asha. Beyond Privatization. Basingstoke, U.K.: Macmillan, 2000.
Parker, David. The Official History of Privatization. New York: Routledge, 2009.
Savas, Emanuel S. Privatization and Public-private Partnerships. Washington, D.C.: Congressional Quarterly, 2010.
Woodward, Nick. “Ownership and Management—the Concepts.” In Privatization, Ownership, and Management, edited by V.V. Ramanadham. London: Routledge, 1991.

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