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Does privatization necessarily increase efficiency?

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Paul B.
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  1. Introduction
  2. Privatization vs nationalization
    1. Definition of nationalization
    2. Monopolies in the public sector
  3. Role of natio
  4. List of nationalized industries privatized between 1979 and 1999
  5. Methodological problems
  6. Definition of Liberization
  7. Conclusion
  8. Bibliography

The basis of this assignment is to answer the question does privatization necessarily increase efficiency? In answering this question it is essential to investigate the reasons for privatization as a replacement for nationalization. This assignment will compare the efficiency case for nationalization with the efficiency case for privatization in order to find out which theory is seen to be more efficient. By examining the privatization of former nationalized industries such as the British railway system and highlighting the positive and negative changes that have taken place due to privatization an assessment as to whether privatization has increased efficiency will be formulated. To begin this assignment it is essential to highlight the history of privatization in the UK.

Up to the Second World War, government enterprises were set up on an ad hoc basis were it was felt that state provision would be better than private provision in that particular case.

[...] The extent in which the other forms of privatization increase efficiency and competition depends on the conditions of each sector. The privatization of some of the state owned services in particular British Petroleum failed to dramatically increase competition and efficiency because it already competed in a competitive market. With British rail hotels and ferry companies an increase in efficiency was expected due to the introduction of cost effective strategies. Stephen Bailey believes that allowing the public sector to produce a service if it submitted the lowest bid under CCT the then Conservative government accepted that it is competition rather than ownership that provides the spur to increased efficiency[13]?. [...]


[...] as steel and also prior to privatization in services such as BT. The lack of new investment and technology lead to allocative inefficiency. High Quality and universality of service both geographically and by sector Production is efficient in terms of minimizing costs i.e. efficiency) whether through competitive forces and/or economies of scale. Equity in terms of the consumer's ability to pay for monopoly services such as gas and electricity. When the price is inelastic the potential abuse of monopoly power has to be pre-empted by nationalization or by regulation. [...]


[...] In fact it is not evident that privatization does stimulate competition. The degree of competition engaged by privatization is crucially dependent on the form of privatization and the market restructuring with which it is associated[8]?. As already noted, the transfer of monopolies does nothing to stimulate competition since it has no effect on market structure. In cases such as the privatization of BT and British Gas much criticism occurred because of their monopoly position. Stephen Bailey states Competition may not be increased overnight, but over the long term industrial restructuring and technological change may make markets much more contestable and so create a spur towards increased efficiency[9]?. [...]

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