Effective Privatization Essay Example | Topics and Well Written Essays - 2000 words

Effective Privatization - Essay Example (Yarrow 1999, 157-168) Transfer f ownership makes credible the fact that the firm does not have limitless government backing (although governments do bail out even private companies from time to time) for example it bailed out the rail companies and rail track because transport is vital to the economy. (Vickers 1991) Selling assets at a fair price leaves government wealth unaltered. If prospects f tougher treatment in the future lead to productivity improvements in state firms the government becomes better off when the productivity improves not when (or if) the firm is sold. (Chang 1992, 31-32) Many privatised firms now face intense competition often from abroad. However, natural monopolies have aquired a new framework f regulation. This has favoured price capping, administered by independent regularity agencies (quangoes) and subject to periodic review. (Shirley 1999, 115-136) Increasingly, the UK has been driven to regulate not merely conduct but structure. This presupposes that some parts f a natural monopoly can be hived off and become suitable for competition. In practice, this has usually been down stream activities in a vertically related industry i.e. union f firms at different production stages in the same industry. (Vickers 1991) To as Recent privatisations include 1British Rail (now taken back into public ownership as a not for profit organisation) 2 British Air Ways 3 Air Traffic Control 4 British Steel 5 British Gas 6 British Telecom 7 The Water Companies 8 And most Power Companies To assess the effects f the present governments nationalisation policy we would have to take in to consideration the fact that we have a socialist government, one f whose key beliefs is that public ownership is the better way to run the country, although this government does not appear to be as hard line in that respect as previous Labour Governments. (Stiglitz 1994, 307-323) Arguments for Privatisation 1 Opening up production and consumption to market forces, increase competition, economic efficiency and consumer choice 2 Breaking down monopolies into more competitive industries and introduces competition into the goods market 3 Enables the privatised firms to compete for finance on the private capital markets both home and abroad 4 Ensures that firms become accountable to their shareholders and their desire for profit 5 Ensures that businesses are run on commercial rather than political grounds 6 Reduces the burden on the governments finances to support nationalised industries Arguments against Privatisation 1 Privatisation may simply create private sector monopolies with high barriers to new firms entering the industry. There are a number f reasons why these might exist; (a)The existing firm has significant economies f scale that new firms cannot compete as in the case f natural monopolies (b) The start up costs for new firms are prohibitive 2 Privatised firms make decisions based on commercial profit maximising grounds. Nationalised firms make decisions in the public interest. If the government want to focus on poverty reduction and development then