Essay paper on privitization

It reviews the history of the public-private distinction and explores constitutional limits on the exercise of public power in private hands, including important new scholarship on the nondelegation and exclusive delegation doctrines. The connection of due process to delegation is emphasized, especially procedural controls as accountability mechanisms for overseeing privatized activities. At the statutory level, the largely overlooked potential of the Subdelegation Act to limit as well as sanction delegations to public officials is elaborated.

The current OMB A process is addressed in detail. Under current interpretations, the basic question of what inherent government functions agencies cannot privatize is lost in the overall mandate to engage in competitive sourcing. Enhanced procedures for administrative review of this process, including a greater role for the Government Accountability Office GAO , are recommended.

Indeed, the article suggests that the A process encapsulates the public-private debate in such a comprehensive way that the administrative law community can help reshape or rebalance that debate by reforming the process itself. Suggested Citation: Suggested Citation. Subscribe to this free journal for more curated articles on this topic. Administrative Law eJournal. Subscribe to this fee journal for more curated articles on this topic. We use cookies to help provide and enhance our service and tailor content. By continuing, you agree to the use of cookies.

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Does Privatization Serve the Public Interest?

There is something paradoxical about privatisation of state-owned companies in Western countries. After all, these companies were originally set up to resolve some economic problem not to cause one. Many were established to deal with the problems created by private monopolies and to create competition among them so that monopoly profit and social cost of monopoly can be done away with. Nationalisation was designed to encourage exploitation of scale economies and to ensure that monopoly profits, if any, would accrue to the state, which they would be able to distribute them in a socially optimum way.

Privatization And Deregulation Of Privatization

In retrospect these expected advantages fail to materialize. Too often nationalized industries abused their monopoly power. They provide bad services at higher prices. Their industrial relations were surprisingly very bad.

What is "Privatization" and Should We Privatize Schools?

Privatisation came in diverse form and many are of very recent vintage to determine their success or failure. Studies of the UK experience suggest a mixed bag of results. Some privatized companies have achieved a successful turnaround, notably BT and BA, but the verdict on the privatisation of British Rail and Water industry is far from success. The economists described the Railway privatisation as a disaster. Experience also differs between countries. In a highly generalized way one can say that privatisation has been more or less successful in the UK while unsuccessful in Russia.

The effect of privatisation can be evaluated under many headings effects on efficiency, on government revenue and income distribution. A key consideration is the effect on efficiency, IE. On total factor productivity. As a general rule, experience shows that the more competition in the privatized companies the greater the likelihood of positive outcome This just what the economic theory would predict A policy environment that encourages long- run investment in the privatized industries is also important.

Privatization Research Papers

The effect on government revenue is more complex than it might appear. In the case of an outright sale, the gain to the state cannot be equated with the sale price. The state has replaced one asset the state-owned company with another cash. To calculate the net financial gain to the state, we must compare the PV Present Value of the stream of revenue expected from the firm had it remained in state ownership with the proceeds from the sale.

The price paid for the company is thus a crucial variable. If under-paid, the privatisation programme could end up worsening instead of improving government finances in the long-run.


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Also there must be some assessment of how this extra cash accruing to the government is being used. It is being spent on building up military power or on consumer hand-outs or on long-term investment for the future.


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The last one must have an income distribution effects. There are at least 4 parties to be considered: the state, employees of the privatized firms, the consumers, and the new owners. The mode of privatisation has an important bearing on the outcome. Share floating is one way, often associated with a certain predetermined allocation to the existing employees BT — , BG — and so on. In each case, a careful analysis is needed in order to assess the resultant income distribution effect. It is obviously for the state that is strapped for cash to be included into selling too cheap Russia and other East European countries.

Also share can be sold too cheaply to the public in order to carry popular favour or to ensure that the floatation will be a success as happened in several west European countries. There is still doubt that in most instances privatisation has brought benefits to the consumer, not just in terms of lower price but also in terms of improved quality of services and efficiency. There are areas of the economy to which the ethos of a state company is particularly unsuitable and where privatisation might have yielded some benefits.

For example, state-owned hotel and restaurant and some manufacturing companies, where prompt decisions are needed and also some industries created on the ground of economies of scale, have never become very successful enterprises. The number and scope of privatisation programme around the world shows that finance ministers are convinced that the potential benefits exceed any potential losses. But it will take time before the dynamic efficiency effects of privatisation can be fully evaluated.

Extract of sample "Water privatization"

Regulatory reform is designed to promote competition, regardless of whether the industry is in state ownership or private ownership. It is a separate issue from privatisation. Yet, in practice, reform of government regulation of industries, particularly state-owned utilities such as electricity, gas, water, etc. Thus, we introduced the subject here. Suppose a state-owned company exists where competition is not possible. Economics of scale are so great that is not possible for more than one company to operate in the industry.

This is the case of natural monopoly. The state may still wants to privatize in the hope of securing a change in the management culture of the organisation, or to add to government revenues, even though the privatized firm will continue to retain monopoly power. How the costs and benefits back up in this instance? Clearly there are benefits from privatisation, but these will be achieved only if there is also some state regulation here. How should the privatized monopoly be regulated? The economics of regulation now enters in the picture. Natural monopolies were until recently regarded as dominant in the energy, transport and telecommunication and so on.

In addition, private sector competitors were excluded by law from trying to compete with the state monopoly in these sectors. But banning competitors would be redundant if the economies of scale were really powerful, so the existence of legal restriction suggests that the monopoly was not so natural after all. When such is the case, one solution is to remove the restrictions on entry, subject to the new entrants satisfying some basic minimum operating criteria such as prudential reserve ratios, safety provisions, and so on.

Privatisation can then proceed, though whether deregulation come before or succeeds privatisation can have an important bearing on how much revenue is obtained from the sale. Deregulation has been applied to many industries in addition to those controlled by the state monopolies.

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Major changes has been made in the rules governing banks, stock broking, and so on. These initiatives were inspired by belief in the merits of the free market.

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No less important was technological change.