Nationalisation
Nationalisation refers to the transfer of ownership of an
industry/sector/company to the government. It then becomes publicly
owned. Most 'conservative' economists have a consus that nationalisation
most of the
time works as a synonym for 'economic failure'. The reasons why will become clearer as we look at the point of Privatisation.
Privatisation
Privatisation refers to the opposite of nationalisation, where the
transfer of ownership moves from the publict sector to the private
sector.
There are several points economists usually refer to in support
of privatisation:
1. Selling off public enterprises to the private sector will give the government an influx of
money
which they can use towards financing their expenditure or any
debts/deficits they may have. This way for instance, instead of using
tax
money, they could use this 'new money' to finance their expenditure and lower tax rates.
2. The second point refers to the well known 'government is inefficient' opinion, whereby economists always
see the private sector as more efficient than the government. Accordingly, it is
thought
that the government should only involve in those industries where
there's little to no profit involved and let the private sector handle
the rest.
3. The third point refers to the idea that since government owned
enterprises are inefficient, that they run losses and that these losses
are an important source of budget deficits and other fiscal related
issues.
4. As part of 'government inefficiency' state-owned enterprises are seen as bureaucratic, ineffective, not meeting
consumer wishes and a burden to the taxpayer. Due to lack of
competition they are also seen as lacking creativity, bad investment
decisions, poor financial management, low levels of productivity and a lack of accountability to the public.
5. Since private enterprises are more profit motivated, they will
attract
foreign direct investment and consequently increase the country's
foreign exchange reserves. Additionally, due to increased investment,
privately owned enterpises will be more easily able to adapt to the ever
rapid
changing economic/business environment.
6. Since public enterprises are state-owned, they do not pay any tax. So
another reason which gets put forward is that the government can
increase its income throught selling off its enterprises as they than
become part of the tax base.
7. The money the government receives can be used towards increased spending on hoising,
education,
health,
transport and so on.
There are also some cons which are considered:
1. Enterprises which have been privatised are not necessarily going to
find themselves in a more 'competitive' environment, and thus not become
more 'efficient'
2. Publicly owned firms usually have to take into account possible
external costs or benefits (since they are working with a bigger sphere
than just 'the one company' that they own). Privately owned firms won't
do this since their 'sphere' is quite limited.
3. Publicly owned firms will usually be more 'public' driven than
'profit' driven -- so they will for instance make sure that there are
particular infrastructures in place in poor areas, even though these
areas aren't "productive" in the sense that the people who live there
have little money to offer. Privately owned firms would not make such
'bad business decisions' and will go where the money is. Since they are
'profit' driven instead of 'people' driven, they will work within those
areas where there is money and where people can pay for their services.
So either privately owned companies will 'move away' from those areas or
'up the prices' -- both which will affect those with little money in a
negative way.
4. Trade unionists are generally against privatization. This is because
within the whole 'government is inefficient', how the government employs
people is also seen as inefficient. Privately owned enterprises want to
'squeeze the most' out of everyting and so they will try to have the
least amount of people employed to do the same amount of work (as this
results in higher profits since less wages need to be paid out). As
such, when enterprises get privatised, one of the first things that
happens is massive job cuts.
Privatization often forms part of one of the basic components of
Structural Adjustment Programs. This will be further expanded on in blogs to come.
Whenever the point of policies in relation recessions opens up in economy textbooks, we look at expansionary and monetary policies to help stimulate the economy. Within this government spending, taxation and interest rates play a major role. Here, we are pulling strings from a giant tapestry, hoping that a pull here and there will have an effect way down, on the other side of the tapestry, somewhere down the line… (if we allow enough time to pass by of course).
