The above-titled article
will highlight the evolution of “Privatization”, a public policy that pursued
the movement to deregulate the private industry and transfer many government
services, assets and functions to the private sector in the local, regional and
national levels in the governments all over the hemisphere.
A continuum of the this
write-up will focus on the privatization
initiatives under taken by both local and national governments in the
Philippines.
The term Privatization may have several
meanings and interpretations.
Wikipedia
defines Privatization primarily “as the process of transferring ownership of a
business, enterprise, agency, public service, or public property from the public
sector (a government) to the
private
sector, either to a business that operates for a profit or to a
non-profit organization. It may also mean government outsourcing of services or
functions to private firms, e.g. revenue collection, law enforcement, and
prison management.”
“Privatization has also been used to describe two unrelated
transactions. The first is the buying of all outstanding shares of a publicly
traded company by a single entity, making the company privately owned. This is
often described as private equity. The second is a demutualization of a mutual
organization or cooperative to form a joint-stock company.”
History of Privatization *
The history of privatization
dates from Ancient Greece, when governments contracted out almost
everything to the private sector. In the Roman Republic private individuals and
companies performed the majority of services including tax collection (tax
farming), army supplies (military contractors), religious sacrifices and
construction. However, the Roman Empire also created
state-owned enterprises—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.
Perhaps one of the first
ideological movements towards privatization came during China's golden age of
the Han
Dynasty. Taoism came into prominence for the first time at a state
level, and it advocated the laissez-faire principle of “wu wei”,
literally meaning "do nothing".
The rulers were counseled by the Taoist clergy that a strong ruler was
virtually invisible.
During the Renaissance, most of
Europe was still by and large following the feudal economic model. By
contrast, the Ming dynasty in China began once more to practice
privatization, especially with regards to their manufacturing industries. This was a reversal of the earlier Song
dynasty policies, which had themselves overturned earlier policies in favor of
more rigorous state control.
In Britain, the
privatization of common lands is referred to as enclosure (in Scotland as the Lowland Clearances
and the Highland Clearances). Significant privatizations of this nature
occurred from 1760 to 1820, coincident with the industrial revolution in that
country.
In more recent times, Winston
Churchill's government privatized the British steel industry in the 1950s,
and West Germany's government embarked on large-scale privatization, including
selling its majority stake in Volkswagen to small investors in a
public share offering in 1961. However, it was in the 1980s under the
leaderships of Margaret Thatcher in the UK and Ronald Reagan in the USA, that privatization
gained worldwide momentum. Notable privatizations in the UK under Thatcher
included British Airways (1987), British Petroleum (gradually privatized
between 1979 and 1987), British Aerospace (1985 to 1987), British Gas (1986),
Rover Group (formerly British Leyland; 1988), British Steel (1988), British
Telecom (1984), Sealink ferries (1984), Rolls-Royce (1987) and the regional
water authorities (mostly in 1989). After 1979, council house tenants in the UK
were given the right to buy their homes; one million had done so by 1986.
In the United Kingdom, this culminated in the 1993 privatization of British
Rail under Thatcher's successor, John Major; British Rail having been
formed by prior nationalization of private rail companies.
Privatization in Latin
America flourished in the 1980s and 90's as a result of Western liberal
economic policy. Public resources, including water management, transport
systems and national telecommunication companies, were sold off to the private
sector more rapidly than in almost any part of the world. In the 1990s,
privatization revenue from 18 Latin American countries totaled 6% of gross
domestic product or GDP. Private
investment in infrastructure, between 1990 and 2001, reached $360.5 billion,
$150 billion more than the next emerging economy.[10] While the evaluation of
privatization in Latin America by economists is generally favorable, opinion
polls and public protests across the country suggest the vast majority of
citizens are dissatisfied with or have negative views of privatization in the
region.
Significant privatization of
state owned enterprises in Eastern and Central Europe and the former Soviet
Union was undertaken in the 1990s with assistance from the World Bank, the U.S.
Agency for International Development, the German Treuhand, and other
governmental and non-governmental organizations.
A major ongoing privatization is
that of Japan Post, involves the Japanese post service and the largest
bank in the world. This privatization, spearheaded by Junichiro Koizumi,
started in 2007 following generations of debate. The privatization process is
expected to last until 2017. Japan Post 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. Japan Post was thought to be inefficient and a source for
corruption. In September 2003, Prime Minister Junichiro 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 privatization, Koizumi
scheduled nationwide elections for September 11, 2005. He declared the election
to be a referendum on postal privatization. Koizumi
subsequently won this election, gaining the necessary supermajority and a
mandate for reform, and in October 2005, the bill was passed to privatize Japan
Post in 2007. Nippon Telegraph and Telephone's privatization in 1987 involved
the largest share-offering in financial history at the time. 15 of the world's
20 largest public share offerings have been privatizations of telecoms.
In 1988, the Perestroika policy of
Mikhail Gorbachev started allowing private enterprise in the previous
centrally-planned and government-owned economy of the Soviet Union. This began
a massive privatization of the Soviet economy over the next few years as the
country dissolved. Other Eastern Bloc countries followed suit after the
Revolutions of 1989 brought them non-Communist governments. Meanwhile, the
largest public-share offering in France was France Télécom.
Egypt undertook widespread
privatization under President Hosni
Mubarak. After his overthrow in the 2011 revolution, the association of the
newly private businesses with the crony capitalism of the old regime along with
the new look at long-festering labor and police-state issues have led to calls
for re-nationalization.”
*(Source Wikipedia)
Outcomes of Privatization
“Literature reviews find that in
competitive industries with well-informed consumers, privatization consistently
improves
efficiency. The more competitive the industry is, the greater the
improvement in output, profitability, and 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. Although typically there are many costs
associated with these efficiency gains, many economists argue that these can be
dealt with by appropriate government support through redistribution and perhaps
retraining. Yet, the empirical literature suggests that privatization could
also have
very modest effects on efficiency and quite regressive
distributive impact. In a wide-ranging first attempt at a social
welfare analysis of the British privatization program under the Conservative
governments of Margaret Thatcher and John Major, Massimo Florio points to
the absence of any productivity shock resulting strictly from ownership change.
Instead, the impact of the UK privatization program had surprisingly small
effects on firms and most employees.”
“Privatizations 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 privatization 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 privatization, and that
corruption is more prevalent in non-privatized sectors. Furthermore, there is
evidence to suggest that extralegal and unofficial activities are more
prevalent in countries that privatized less.”
In Latin American, there is a
discrepancy between the economic efficiency of privatization
and the political/social ramifications that occur. On the one hand,
economic indicators, including firm profitability, productivity and growth,
project positive microeconomic results. On the other hand, however, these
results have largely been met with a negative criticism and citizen coalitions.
This neoliberal criticism highlights the on-going conflict between varying
visions of economic development. Karl Polanyi emphasizes the societal concerns
of self-regulating markets through a concept known as a "double
movement". In essence, whenever societies move towards increasingly
unrestrained, free-market rule, a natural and inevitable societal correction
emerges to undermine the contradictions of capitalism. This was the case in the
2000 Cochabamba protests.
Privatization in Latin America
has invariably experienced increasing push-back from the public. Some suggest
that implementing a less efficient but more politically mindful approach could
be more sustainable.
Pros and Cons of Privatization
“Studies show that private market
factors can more efficiently deliver many goods or service than governments due
to free market competition. Over time this tends to lead to lower prices,
improved quality, more choices, less corruption, less red tape, and/or quicker
delivery. Many proponents do not argue that everything should be privatized.
According to them, market failures and natural monopolies could be problematic.
However, anarcho-capitalists prefer that every function of the state be
privatized, including defense and dispute resolution.”
Most proponents of privatization,
mostly corrupt government officials, make the following arguments:
In terms of performance,
government-run industries tend to be bureaucratic which considerably slow down
the operations, made worse by the mismanagement of less qualified political
appointees. A political government may only be motivated to improve its
governance when its poor performance becomes politically sensitive that will
affect the retention of their political power.
Generally, private companies and firms have a
greater incentive to produce more goods and services for the sake of reaching a
customer base and hence increasing profits. Some of these incentives include
profit sharing scheme, bonuses and other employees perks. While in public
organizations, the insufficiency of funds is prevalent since fund allocations
by the entire government's budget must also consider other public services of
the economy.
A private business has the
ability to focus all relevant human and financial resources onto specific
functions resulting in specialization and improvements. while a state-owned
firm does not have the necessary resources to specialize its goods and services
as a result of the general products provided to the greatest number of people
in the population. Most importantly, the government tends to put to procrastinate on developments due to
political sensitivity and personal interests.
A government monopoly of
operations is highly susceptible to graft and corruption. The decisions of government executives are made
primarily for the personal gain of the decision-makers and political considerations, rather than economic reasons..
Corruption in state-run corporations
affect the ongoing asset stream and company performance, whereas any corruption
that may occur during the privatization process is a one-time event and does
not affect ongoing cash flow or performance of the company.
In the issue of accountability,
executives of privately owned companies are accountable to their
owners/shareholders and to the public “consumer” and can only exist and thrive
where objectives are achieved. Conversely, managers of publicly owned companies
are required to be more accountable to the broader community and to political
"stakeholders". This can reduce their ability to directly and
specifically serve the needs of their customers, and can bias investment
decisions away from otherwise profitable areas.
A company controlled by the state may have
access to information or assets which may be used against dissidents or any
individuals who disagree with their policies. A political government tends to
run an industry or company for political goals rather than economic targets. Government- run industries are likewise prone
to interference from politicians for political or populist reasons..
The proponents and protagonists
of privatization extend their conflicting opinions in terms of security,
capital, monopolies, job gains and state of the economy.
Rogelio G Balo
Sept. 10, 2014
Central Valley, California USA
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