Liberalization privatization globalization free essay sample

Privatization, also spelled privatisation, may have several meanings. Primarily, it is 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 operate 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. [1] 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, taking the company private. This is often described as private equity. The second is a demutualization of a mutual organization or cooperative to form a joint stock company. [2] Primary Objectives: The following are the primary objectives which have been defined in the Government’s policy statement on Parastatal Sector Reform: Improve the operational efficiency of enterprises that are currently in the Parastatal sector, and their contribution to the national economy; Reduce the burden of Parastatal enterprises on the Government budget; Expand the role of the private sector in the economy, permitting the Government to concentrate public resources on its role as provider of basic public services, including health, education and social infrastructure; and Encourage wider participation by the people in the ownership and management of business. We will write a custom essay sample on Liberalization privatization globalization or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page Secondary Objectives: In so far as their pursuit is consistent with the primary objectives, the CHC intends to ensure that divestiture meets the following secondary objectives: to create a more market-oriented economy; to secure enhanced assess to foreign markets, to capital and to technology; to promote the development of the capital market; and to preserve the goal of self-reliance. There are four main methods[citation needed] of privatization: 1. Share issue privatization (SIP) selling shares on the stock market 2. Asset sale privatization selling an entire organization (or part of it) to a strategic investor, usually by auction or by using the Treuhand model 3. Voucher privatization distributing shares of ownership to all citizens, usually for free or at a very low price. 4. Privatization from below Start-up of new private businesses in formerly socialist countries. Choice of sale method is influenced by the capital market, political, and firm-specific factors. SIPs are more likely to be used when capital markets are less developed and there is lower income inequality. Share issues can broaden and deepen domestic capital markets, boosting liquidity and (potentially) economic growth, but if the capital markets are insufficiently developed it may be difficult to find enough buyers, and transaction costs (e. g. underpricing required) may be higher. For this reason, many governments elect for listings in the more developed and liquid markets, for example Euronext, and the London, New York and Hong Kong stock exchanges. Secured borrowing Some privatization transactions can be interpreted as a form of a secured loan[3][4] and are criticized as a particularly noxious form of governmental debt. [3] In this interpretation, the upfront payment from the privatization sale corresponds to the principal amount of the loan, while the proceeds from the underlying asset correspond to secured interest payments – the transaction can be considered substantively the same as a secured loan, though it is structured as a sale. [3] This interpretation is particularly argued to apply to recent municipal transactions in the United States, particularly for fixed term, such as the 2008 sale of the proceeds from Chicago parking meters for 75 years. It is argued that this is motivated by politicians desires to borrow money surreptitiously,[3] due to legal restrictions on and political resistance to alternative sources of revenue, viz, raising taxes or issuing debt. History The history of privatization dates from Ancient Greece, when governments contracted out almost everything to the private sector. [7] 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. [7] Perhaps one of the first ideological movements towards privatization came during Chinas 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. [8] 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. [9] 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. Potential Benefits of Privatisation 1. Improved Efficiency. The main argument for privatisation is that private companies have a profit incentive to cut costs and be more efficient. If you work for a government run industry, managers do not usually share in any profits. However, a private firm is interested in making profit and so it is more likely to cut costs and be efficient. Since privatisation, companies such as BT, and British Airways have shown degrees of improved efficiency and higher profitability. 2. Lack of Political Interference. It is argued governments make poor economic managers. They are motivated by political pressures rather than sound economic and business sense. For example a state enterprise may employ surplus workers which is inefficient. The government may be reluctant to get rid of the workers because of the negative publicity involved in job losses. Therefore, state owned enterprises often employ too many workers increasing inefficiency. 3. Short Term view. A government many think only in terms of next election. Therefore, they may be unwilling to invest in infrastructure improvements which will benefit the firm in the long term because they are more concerned about projects that give a benefit before the election. 4. Shareholders It is argued that a private firm has pressure from shareholders to perform efficiently. If the firm is inefficient then the firm could be subject to a takeover. A state owned firm doesn’t have this pressure and so it is easier for them to be inefficient. 5. Increased Competition. Often privatisation of state owned monopolies occurs alongside deregulation – i. e. policies to allow more firms to enter the industry and increase the competitiveness of the market. It is this increase in competition that can be the greatest spur to improvements in efficiency. For example, there is now more competition in telecoms and distribution of gas and electricity. However, privatisation doesn’t necessarily increase competition, it depends on the nature of the market. E. g. there is no competition in tap water. There is very little competition within the rail industry. 6. Government will raise revenue from the sale Selling state owned assets to the private sector raised significant sums for the UK government in the 1980s. However, this is a one off benefit. It also means we lose out on future dividends from the profits of public companies. Disadvantages of Privatisation 1. Natural Monopoly A natural monopoly occurs when the most efficient number of firms in an industry is one. For example tap water has very significant fixed costs, therefore there is no scope for having competition amongst several firms. Therefore, in this case, privatisation would just create a private monopoly which might seek to set higher prices which exploit consumers. Therefore it is better to have a public monopoly rather than a private monopoly which can exploit the consumer. 2. Public Interest There are many industries which perform an important public service, e. g health care, education and public transport. In these industries, the profit motive shouldn’t be the primary objective of firms and the industry. For example, in the case of health care, it is feared privatising health care would mean a greater priority is given to profit rather than patient care. Also, in an industry like health care, arguably we don’t need a profit motive to improve standards. When doctors treat patients they are unlikely to try harder if they get a bonus. 3. Government loses out on potential dividends. Many of the privatised companies in the UK are quite profitable. This means the government misses out on their dividends, instead going to wealthy shareholders. 4. Problem of regulating private monopolies. Privatisation creates private monopolies, such as the water companies and rail companies. These need regulating to prevent abuse of monopoly power. Therefore, there is still need for government regulation, similar to under state ownership. 5. Fragmentation of industries. In the UK, rail privatisation led to breaking up the rail network into infrastructure and train operating companies. This led to areas where it was unclear who had responsibility. For example, the Hatfield rail crash was blamed on no one taking responsibility for safety. Different rail companies has increased the complexity of rail tickets. 6. Short-Termism of Firms. As well as the government being motivated by short term pressures, this is something private firms may do as well. To please shareholders they may seek to increase short term profits and avoid investing in long term projects. For example, the UK is suffering from a lack of investment in new energy sources; the privatised companies are trying to make use of existing plants rather than invest in new ones. Evaluation of Privatisation It depends on the industry in question. An industry like telecoms is a typical industry where the incentive of profit can help increase efficiency. However, if you apply it to industries like health care or public transport the profit motive is less important. It depends on the quality of regulation. Do regulators make the privatised firms meet certain standards of service and keep prices low. Is the market contestable and competitive? Creating a private monopoly may harm consumer interests, but if the market is highly competitive, there is greater scope for efficiency savings. Liberalization In general, liberalization refers to a relaxation of previous government restrictions, usually in areas of social or economic policy. In some contexts this process or concept is often, but not always, referred to as deregulation. [1] Liberalization of autocratic regimes may precede democratization (or not, as in the case of the Prague Spring). In the arena of social policy it may refer to a relaxation of laws restricting for example divorce, abortion, or drugs and to the elimination of laws prohibiting same-sex sexual relations or same-sex marriage. Most often, the term is used to refer to economic liberalization, especially trade liberalization or capital market liberalization. Although economic liberalization is often associated with privatization, the two can be quite separate processes. For example, the European Union has liberalized gas and electricity markets, instituting a system of competition; but some of the leading European energy companies (such as EDF and Vattenfall) remain partially or completely in government ownership. Liberalized and privatized public services may be dominated by just a few big companies particularly in sectors with high capital costs, or high such as water, gas and electricity. In some cases they may remain legal monopoly at least for some part of the market (e. g. small consumers). Liberalization is one of three focal points (the others being privatization and stabilization) of the Washington Consensuss trinity strategy for economies in transition. An example of Liberalization is the Washington Consensus which was a set of policies created and used by Argentina There is also a concept of hybrid liberalisation as, for instance, in Ghana where cocoa crop can be sold to a variety of competing private companies, but there is a minimum price for which it can be sold and all exports are controlled by the state. [2] Economic liberalisation in India From Wikipedia, the free encyclopedia Jump to: navigation, search The economic liberalisation in India refers to ongoing economic reforms in India that started on 24 July 1991. After Independence in 1947, India adhered to socialist policies. Attempts were made to liberalize economy in 1966 and 1985. The first attempt was reversed in 1967. Thereafter, a stronger version of socialism was adopted. Second major attempt was in 1985 by Prime Minister Rajiv Gandhi. The process came to a halt in 1987, though 1966 style reversal did not take place. [1] In 1991, after India faced a balance of payments crisis, it had to pledge 20 tons of gold to Union Bank of Switzerland and 47 tons to Bank of England as part of a bailout deal with the International Monetary Fund (IMF). In addition, the IMF required India to undertake a series of structural economic reforms. [2] As a result of this requirement, the government of P. V. Narasimha Rao and his finance minister Manmohan Singh (currently the Prime Minister of India) started breakthrough reforms, although they did not implement many of the reforms the IMF wanted. [3][4] The new neo-liberal policies included opening for international trade and investment, deregulation, initiation of privatization, tax reforms, and inflation-controlling measures. The overall direction of liberalisation has since remained the same, irrespective of the ruling party, although no party has yet tried to take on powerful lobbies such as the trade unions and farmers, or contentious issues such as reforming labour laws and reducing agricultural subsidies. [5] Thus, unlike the reforms of 1966 and 1985 that were carried out by the majority Congress governments, the reforms of 1991 carried out by a minority government proved sustainable. There exists a lively debate in India as to what made the economic reforms sustainable? [6] The fruits of liberalisation reached their peak in 2007, when India recorded its highest GDP growth rate of 9%. [7] With this, India became the second fastest growing major economy in the world, next only to China. [8] The growth rate has slowed significantly in the first half of 2012. [9] An Organisation for Economic Co-operation and Development (OECD) report states that the average growth rate 7. 5% will double the average income in a decade, and more reforms would speed up the pace. [10] Indian government coalitions have been advised to continue liberalisation. India grows at slower pace than China, which has been liberalising its economy since 1978. [11] The McKinsey Quarterly states that removing main obstacles would free India’s economy to grow as fast as China’s, at 10 percent a year. [12] There has been significant debate, however, around liberalization as an inclusive economic growth strategy. Since 1992, income inequality has deepened in India with consumption among the poorest staying stable while the wealthiest generate consumption growth. [13] For 2010, India was ranked 124th among 179 countries in Index of Economic Freedom World Rankings, which is an improvement from the preceding year.