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”. [...]
[...] 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. [...]
[...] Hence the return on capital employed would necessarily be less for nationalized industries than for private monopolies companies. In practice even private sector firms may not maximize profits. There was a lack of comparable private sector companies since many of the nationalized services were primary sectors rather than secondary. Stephen Bailey states” In the practice there were no private monopoly companies that could legitimately have been compared with British Coal, the central Electricity Generating Board, British Rail and so on. [...]
[...] Privatization in the UK began in 1970 with policy analysis by the Conservative opposition. Reducing the power of the public sector trade unions was an important objective. But in the early years of the conservative's government following 1979 election, privatization was a marginal policy. Some public assets were sold-such as cable and wireless in October 1981 and Amersham International in 1982. Within ten years many public sector companies had been sold off to the private sector. Table 1.1 Highlights Nationalization and privatization in the UK Table 1.1 Nationalization and privatization in the UK Nationalized industries privatized between 1979 and 1999` table 1.1 British Aerospace British Shipbuilders British Airport Authority British Steel British Airways British Telecom British Coal Electricity generation and distribution British Gas National Bus Company British National Oil Corporation National Freight Consortium British Railways Water and sewerage (England and Wales) Nationalized industries remaining within the public sector 2000 British waterways board London Transport Caledonian MacBrayne Post Office Civil Aviation Authority Water and sewerage (Scotland) Other Privatized companies/enterprises/assets Amersham International Jaguar Associated British Ports Holdings Rolls Royce British Gas Onshore Oil ( Wytch farm) Rover Group British Petroleum Royal Ordinance Factories British Rail Hotels Sealink Britoil Short Brothers Cable And Wireless Trustee Savings Bank Enterprise Oil Unipart Girobank British technology Group and others Her Majestys stationary Office Local government seaports, airports International Aeradio Local government housing Privatization expanded the market sector transferring almost 50 major businesses to the private sector where efficiency has been improved by market disciplines. [...]
[...] The basis of this assignment was to answer the question does privatization necessarily increase efficiency? In answering this question this assignment has highlighted the main reasons for privatization as a replacement for nationalization. This assignment has compared the efficiency case for nationalization with the efficiency case for privatization. An examination took place on the privatization of the former nationalized industries such as the British railway system, which highlighted the positive and negative changes that have taken place due to privatization. [...]
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