Industrial policy: privatisation and the free-market revival/ the advantages of privatisation/ the disadvantages of privatisation

the disadvantages of privatization: Explain 'selling the family silver'

- If a private sector business were to sell its capital assets simply to raise revenue to pay for current expenditure, it would rightly incur the wrath of its shareholders - the same goes for the government when the sell state-owned assets - taxpayers should not sanction the sale of capital assets owned on their behalf by the UK government to raise revenue to finance current spending on items such as wages and salaries counter argument = supporters of the privatization programme argue that, far from selling the family silver, privatization merely returns the family's assets to the family: that is, from the custody of the state to direct ownership by private individuals

the advantages of privatisation: Explain the advantage 'reducing public spending and the government's borrowing requirement'

- after 1979, Conservative governments aimed to reduce public spending and government borrowing - Governments were able to reduce the level of spending as well as government borrowing (from an accounting point of view) by classifying the moneys received from asset sales as negative expenditure rather than as revenue - when the state successfully sold loss making industries e.g. Rover group, public spending on subsidies sometimes fell - government borrowing can also fall if private ownership returns the industries to profitability - corporation tax revenue is boosted and the state earns dividend income from any shares it retains in the privatized company

the disadvantages of privatization: Explain 'monopoly abuse' as a disadvantage

- far from promoting efficiency and competition, privatization increases monopoly abuse by transferring socially owned and accountable public monopolies into weakly regulated and less accountable private monopolies

the disadvantages of privatization: Explain 'short-termism wins over long-termism'

- many of the investments that need to be undertaken by the previously nationalized industries can only be profitable in the long-term - under private ownership, such investments will not be made because company boards concentrate on short-termism of delivering dividends to keep shareholders and financial institutions happy - under-investment in maintaining the rail track and in technically advanced trains by the privatized railway provides an example counter-argument = under public ownership, the government starved the nationalized industries of investment funds in order to keep government borrowing down

the advantages of privatisation: Explain the advantage 'revenue raising'

- privatization provides the government with a short-term source of revenue - at the height of privatization was worth around £3-4 billion per year - however, an asset cannot be sold twice

the advantages of privatisation: Explain how 'the promotion of competition' is an advantage

- promotes competition through the break-up of monopoly - at the time of their privatization, industries such as gas and electricity were natural monopolies. The growth of technology-driven competition, together with the removal of barriers to entry by regulating agencies such as Ofgem has increased competition.

the advantages of privatisation: Explain how 'popular capitalism' is an advantage

- promotion of an enterprise culture was an important reason for privatisation in the UK - privatization extended share ownership to employees and other individuals who had not previously owned shares and this added to the incentive for the electorate to support the private enterprise economy - privatisation has generally proved popular with voters, so governments both conservative and labour have supported

the advantages of privatisation: Explain how 'the promotion of efficiency' is an advantage

- public ownership gives rise to special forms of inefficiency which disappear once an industry moves into the private sector, even if the industry remains a monopoly - the culture of public ownership makes nationalized industries resistant to change - the exposure to the threat of takeover and the discipline of the capital market means that the privatization of a state-owned monopoly should improve a business's efficiency and commercial performance

the disadvantages of privatization: explain the free-lunch syndrome

- state owned assets have been sold too cheap, encouraging the belief among first-time share buyers that there is such a thing as a free lunch - the off-price of shares in newly privatized industries has normally been pitched at a level which has guaranteed a risk-free capital gain or one-way bet at the taxpayer's expense. - this encourages the very opposite of an enterprise economy

the advantages of privatisation: What are the main advantages of privatization? (5)

1. Revenue raising 2. Reducing public spending and the government's borrowing requirement 3. The promotion of competition 4. the promotion of efficiency 5. popular capitalism

the disadvantages of privatization: What are the main disadvantages? (4)

1. monopoly abuse 2. short-termism wins over long-termism 3. selling the family silver 4. the free-lunch syndrome

privatisation and the free-market revival: In the past, socialists often regarded nationalization as an end in itself, believing what about taking an industry into public ownership?

efficiency and equity would automatically improve and the public interest would be served

privatisation and the free-market revival: What was the free-market revival?

the counter-revolution in economic thinking

privatisation and the free-market revival: Supporters of the free-market revival at the opposite end of the political and economic spectrum believe what about private ownership and capitalism?

they are superior to public ownership - privatization of state-run industries must inevitably improve economic performance