Railtrack as the Ultimate Failure of Privatisation
The word Privatisation has been used in a variety of contexts, ranging
from returning state owned companies to the private sector,
contracting out services to the private sector and liberalisation and
deregulation. Although the most common definition of Privatisation is
the idea that involves transferring the production of goods and
services from the public sector to the private sector.
Privatisation generally involves two main objectives. Firstly there is
the objective to reduce the role of the government in economic affairs
and share ownership of the public. The other main objective is to make
public organizations operate in a more cost effective manner,
essentially the public asset is sold because it is felt that the
private sector could more effectively provide that service.
The main arguments for Privatisation are that historically, with
communist countries, the state is not a good decider of how to
distribute factors of production. The bureaucratic processes involved
with decision making prevent efficiency gains which arise through the
Since organisations have been freed from political interference, they
are now able to focus more on long-term objectives without having to
keep voters on their side. As well as this industrial relations and
productivity should improve as companies recognise that they have no
government funding to fall back onto.
Another argument for privatisation is that the government wanted to
create more competition, many state-owned companies were monopolies
which exploited the public. Privatisation has introduced competition,
in the telecommunications industry with Cable and Wireless and Orange
competing with BT, which has resulted in falls in prices.
Another benefit is that privatisation raises revenue for the
Government, by selling shares to members of the public. The funds
raised allowed governments to fund tax cuts in the 1980's and early
1990's. However this could have been simply to gain political favour,
and also this is a one-off payment and does not allow a steady supply
Despite the proposed benefits of privatisation, there are numerous
criticisms. A Major criticism is that by transferring an government
owned monopoly to the private sector, is that it will simply create a
privatised monopoly in its place. This is especially dangerous in a
market where the demand in inelastic, e.g. Water.
It has also been strongly argued that many of the nationalised
industries were sold off too cheaply to shareholders. After
privatisation share prices rocketed and shareholders were able to
profit, with the taxpayer shortchanged. As well as leaving people
short changed they were also unemployed. Newly privatised businesses
cut costs by downsizing, which created...