Wednesday, October 5, 2011

Ideological motivations of privatization in Great Britain versus developing countries.

Ideological motivations of privatization in Great Britain versus developing countries. Privatization privatization:see nationalization. privatizationTransfer of government services or assets to the private sector. State-owned assets may be sold to private owners, or statutory restrictions on competition between privately and publicly owned is one of the most significant worldwide economic,social and political phenomena of this and the previous decade. It hasbecome the new economic mantra and will continue to exert influence onthe lives of people in countries throughout the world well into the nextcentury.(1) Understanding what privatization is, how it works, itsprevalence and the ideas and doctrines which underlie it is essentialfor politicians, government officials and their advisors who areconsidering adopting, or are currently managing, privatization programs. This paper begins by tracing privatization's growth duringthe 1980s and 1990s and then reviews the history of nationalization nationalization,acquisition and operation by a country of business enterprises formerly owned and operated by private individuals or corporations. State or local authorities have traditionally taken private property for such public purposes as the construction of ,exploring its underlying ideology, as an antecedent ANTECEDENT. Something that goes before. In the construction of laws, agreements, and the like, reference is always to be made to the last antecedent; ad proximun antecedens fiat relatio. to the initiation ofprivatization in the United Kingdom and developing countries. Thediscussion of nationalization in the United Kingdom and developingcountries provides the context for why these nations adoptedprivatization as a key element of their economic reform programs.Finally, the paper explores the objectives, ideological motivations andresults of the United Kingdom's privatization program and those ofprivatization programs in developing countries. This research shouldprovide insight into why privatization has been so widely adopted bymany types of governments throughout the world. It also may be valuablein providing fledgling privatization programs with useful informationbased on the experience of Great Britain Great Britain,officially United Kingdom of Great Britain and Northern Ireland, constitutional monarchy (2005 est. pop. 60,441,000), 94,226 sq mi (244,044 sq km), on the British Isles, off W Europe. The country is often referred to simply as Britain. and the developing countries. The most important distinction between the privatization programsin the United Kingdom and the developing countries is ideological. Theideological motivations of the United Kingdom's privatizationprogram are based primarily on the tenets of neoliberalism ne��o��lib��er��al��ism?n.A political movement beginning in the 1960s that blends traditional liberal concerns for social justice with an emphasis on economic growth.ne . Indeveloping countries, privatization programs are based primarily onpragmatic considerations. This may help explain why the objectives,techniques and results of these privatization programs sometimes differ. Privatization as a Global Phenomenon of the 1980s and 1990s Although little-known before the British government popularized itin 1979, privatization is now ubiquitous. The widespread acceptance anduse of privatization throughout the world is, in part, a function of theeconomic reform occurring in Asia, Eastern and Western Europe Western EuropeThe countries of western Europe, especially those that are allied with the United States and Canada in the North Atlantic Treaty Organization (established 1949 and usually known as NATO). , Africaand Latin America Latin America,the Spanish-speaking, Portuguese-speaking, and French-speaking countries (except Canada) of North America, South America, Central America, and the West Indies. . Countries in these regions are attempting toencourage entrepreneurial activity, promote the development offree-market economies and build sustainable economic growth. In addition to economic reform considerations, other factors havecontributed to privatization's widespread application, including:the generally held belief that privatized industries operate moreefficiently and economically than their publicly owned Publicly owned can refer to: Public company, a company which is permitted to offer its securities (stock, bonds, etc.) for sale to the general public, typically through a stock exchange Public ownership, of government-owned corporations counterparts andare more responsive to consumers; the desire of many elected officialsand their constituents to reduce the size and scope of government andthe reluctance of citizens to fund regular tax increases in order tosupport the operation of publicly -owned enterprises. Before the government of Prime Minister Margaret Thatcher Noun 1. Margaret Thatcher - British stateswoman; first woman to serve as Prime Minister (born in 1925)Baroness Thatcher of Kesteven, Iron Lady, Margaret Hilda Thatcher, Thatcher adoptedprivatization as a key element of its economic program, the practice wasimplemented only occasionally in the United Kingdom. For example, in1951 the Conservative government privatized parts of the steel industrythat had been nationalized by the previous Labor government.(2) In 1970,government-owned travel agencies, a brewery and several public houses(pubs) were sold by the government led by Conservative Prime MinisterEdward Heath For other people named Edward Heath, see Edward Heath (disambiguation). Sir Edward Richard George Heath, KG, MBE (9 July 1916 – 17 July 2005), often known as Ted Heath .(3) In 1977, the Labor government sold a small portion ofBritish Petroleum in order to limit public spending reductions madenecessary by the terms of the United Kingdom's 1976 InternationalMonetary Fund loan.(4) A limited number of privatizations also took place in othercountries, including Chile, France, Ireland, Italy and West Germany West Germany:see Germany. during the 1960s and 1970s.(5) However, all of the sales of State OwnedEnterprises (SOEs) that occurred during the 1950s and 1970s were smallin comparison to the sales that began with the first Thatcher governmentin 1979 and spread throughout the world during the 1980s and 1990s.Furthermore, the sales of SOEs prior to 1979 did not constitute ageneralized program Software that serves a changing environment. By allowing variable data to be introduced, the program can solve the same problem for different users, types of data or situations. For example, the Windows version of this Encyclopedia could be programmed to read a title every time it starts of denationalization de��na��tion��al��ize?tr.v. de��na��tion��al��ized, de��na��tion��al��iz��ing, de��na��tion��al��iz��es1. To deprive of national rights or characteristics.2. . Since the Thatcher-led privatization program in the United Kingdombegan in 1979, more than 100 developed and developing countries haveinitiated their own privatization programs. The World Bank reports that,during the 1980s, almost 7,000 SOEs were privatized, and the number ofprivatizations accelerated during the 1990s.(6) Today, privatization isbeing carried out by governments of all ideological types, includingcommunist Cuba, Labor governments in Australia and New Zealand New Zealand(zē`lənd), island country (2005 est. pop. 4,035,000), 104,454 sq mi (270,534 sq km), in the S Pacific Ocean, over 1,000 mi (1,600 km) SE of Australia. The capital is Wellington; the largest city and leading port is Auckland. , populistand social-democratic governments in Argentina and Mexico, andcapitalist democracies like the United States United States,officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. .(7) The largest number of privatizations is occurring in the formerSoviet Union and Eastern Europe Eastern EuropeThe countries of eastern Europe, especially those that were allied with the USSR in the Warsaw Pact, which was established in 1955 and dissolved in 1991. .(8) According to according toprep.1. As stated or indicated by; on the authority of: according to historians.2. In keeping with: according to instructions.3. the World Bank'sInternational Finance Corporation (IFC (Internet Foundation Classes) A class library from Netscape that provides an application framework and graphical user interface (GUI) routines for Java programmers. IFC was later made part of the Java Foundation Classes (JFC). See JFC, AFC and AWT. See also ICF. ), 75,000 small businesses and14,000 medium and large firms have been sold in Russia since 1992. Some40 million Russian citizens have become shareholders in newly privatizedcompanies, and about 40 percent of Russia's industrial labor forcenow works in the private sector.(9) The IFC reports that tens ofthousands of companies have now been privatized in the former communistcountries of Eastern Europe.(10) In the period 1979 to 1990, cumulative worldwide sales of SOEswere estimated to be about $250 billion.(11) Sales totaled more than $53billion in 1991 and $70 billion in 1992.(12) In 1993 and 1994, salesfrom global privatizations increased to approximately $77 billion and$80 billion, respectively.(13) According to the World Bank, the sale ofSOEs in developing countries raised $21 billion in 1994.(14) Through1995, proceeds from the United Kingdom's privatization programtotaled $95 billion.(15) The value of SOE SOE - Standard Operating Environment sales has been significantlyhigher in Western industrial nations than in developing countries.During the period 1990 to 1992, the sale of SOEs equaled $73 billion inWestern industrial countries and $48 billion in developing ones.(16) Thesale of SOEs is expected to raise $150 billion in Western Europe by 1998and $800 billion worldwide by 2000.(17) While revenues from the sale of SOEs grow as more governmentsworldwide initiate and expand privatization programs, new forms anddefinitions of the term have emerged. Broadly defined,"privatization means relying less on government to meetpeople's needs for goods and services In economics, economic output is divided into physical goods and intangible services. Consumption of goods and services is assumed to produce utility (unless the "good" is a "bad"). It is often used when referring to a Goods and Services Tax. , and more on privateinstitutions."(18) More specifically, privatization is "thetransfer of a function, activity, or organization from the public to theprivate sector," with the intention of reducing the size, scope andinfluence of government.(19) Nationalization in the United Kingdom When the United Kingdom became industrialized in the nineteenthcentury, it was a champion of free trade and private enterprise. Thegovernment's policy toward private business was generallylaissez-faire, and there were few state-run firms other than traditionalones like the post office. This situation changed when the UnitedKingdom entered the First World War. At that time, the governmentassumed ownership of several war-related industries and operated them soeffectively that, after the war, Britain's Trades Union Congressand some segments of the British populace called for greaternationalization of private industries. They were joined by the United Kingdom's Labour Party, whose1918 constitution stated its commitment to the "common ownership ofthe means of production Means Of Production is a compilation of Aim's early 12" and EP releases, recorded between 1995 and 1998. Track listing"Loop Dreams" – 5:30 "Diggin' Dizzy" – 5:33 "Let the Funk Ride" – 5:11 "Original Stuntmaster" – 6:33 , distribution, and exchange."(20) TheLabour Party believed that, because private capital is an importantsource of political and economic power, this power should be put in thehands of a popularly elected government in order to protect the countryfrom having its policies dictated by large private-sector firms.(21) TheLabour Party believed that government economic planning economic planning,control and direction of economic activity by a central public authority. In its modern usage, economic planning tends to be pitted against the laissez-faire philosophy which developed in the 18th cent. and control ofthe economy would stimulate economic growth, maintain full employmentand create better living conditions living conditionsnpl → condiciones fpl de vidaliving conditionsnpl → conditions fpl de vieliving conditionsliving for the United Kingdom'scitizens. It also saw nationalization as an essential tool in moving theUnited Kingdom toward a socialist system. Other proponents of nationalization argued that SOEs would provideconsumers with higher-quality goods and services at lower prices andwould operate more efficiently and economically than privately-ownedbusinesses.(22) These proponents assumed that, as guardians of thepublic interest, employees of SOEs would work harder than their privatesector counterparts to better serve this interest. It was also believedthat nationalization would promote a more equal distribution of wealthand would preserve jobs in financially troubled industries. During the 1920s and 1930s, several SOEs were established in theUnited Kingdom, including the British Broadcasting Corporation (company) British Broadcasting Corporation - (BBC) The non-commercial UK organisation that commissions, produces and broadcasts television and radio programmes.The BBC commissioned the "BBC Micro" from Acorn Computers for use in a television series about using computers. , theCentral Electricity Board, the London Passenger Transport Board The London Passenger Transport Board (LPTB), commonly known as London Transport, was the organisation responsible for transport in London, United Kingdom and its environs from 1933-1948. and theBritish Overseas Airways Corporation The British Overseas Airways Corporation (BOAC) was the British state airline from 1939 until 1946 and the long-haul British state airline from 1946. The company started life with a merger between Imperial Airways and British Airways Ltd. . Overall, however, SOE creation wasrather limited during this period. It was not until Labour came to powerin 1945 that nationalization of Britain's industries began inearnest. The state took ownership of the Bank of England Bank of England,central bank and note-issuing institution of Great Britain. Popularly known as the Old Lady of Threadneedle Street, its main office stands on the street of that name in London. in 1946 withthe passage of the first Nationalization Act.(23) By 1979, state-owned industries had been established in almostevery sector of the economy, touching the lives of virtually everyperson in the United Kingdom. Public-sector industries accounted for 14percent of the total investment in the economy, 10 percent of grossdomestic product (GDP GDP(guanosine diphosphate): see guanine. ), 10 percent of the retail price index, and 8percent of employment. SOEs dominated the communications, energy,shipbuilding, steel and transportation sectors of the British economy. Despite the important economic role of the SOEs, public supportfor nationalization waned over time. During the 1950s, Britisheconomists turned away from central economic planning and embracedKeynesian economic theory. In particular, Keynes' emphasis onsupply and demand equilibria driven by private-sector activity helpederode support for state ownership. The weakening performance of mostSOEs also contributed to the disillusionment DisillusionmentAdams, Nickloses innocence through WWI experience. [Am. Lit.: “The Killers”]Angry Young Mendisillusioned postwar writers of Britain, such as Osborne and Amis. [Br. Lit. with nationalization. Historical comparisons show that the prices of goods and servicesprovided by nationalized industries increased more rapidly than theretail price index. Between 1970 and 1983, employment costs per employeein the large nationalized industries increased faster than the nationalaverage, without equivalent increases in productivity. For example,employment costs per employee in the nationalized gas industry increased38 percent more than the national average. In the coal industry, thisfigure was 21 percent, and in the electricity and telecommunicationsindustries it was 18 percent more than the national average. Powerfulpublic-sector trade unions were able to secure significant pay raisesfor their members, despite minimal additions to worker productivity.(24)Nationalized industries were characterized by high costs, high prices,low productivity and inefficient use of resources. By 1979, theirborrowings and losses amounted to about 3 billion [pounds sterling]British annually.(25) Consumer satisfaction with the services and products ofnationalized industries was often low. A 1981 survey conducted by theNational Consumer Council found that customers were discouraged byrising prices and declining standards and that their expectations werenot being met.(26) Anecdotes about the poor service provided bynationalized industries are abundant. For example, it is said that,before British Telecom The telephone and communications carrier that provides services in Great Britain and Northern Ireland. It used to be a division of the British Post Office, but was privatized in 1984 under Margaret Thatcher's administration. was privatized in 1984, many customers had towait up to two years to have a telephone installed in theirresidence.(27) And passengers on state-owned British Airways British Airwaysin full British Airways PLCInternational passenger airline based in London. In 1936 British Airways Ltd. was founded through the merger of three smaller airlines. typicallydescribed the airline's service as "bloody awful."(28)The primary reason for the poor performance of nationalized industriesis the difference between the goals of public institutions and privatebusinesses. The government is concerned with pursuing social andpolitical objectives, leading it to make decisions that are not alwaysin the best economic interest of the state-owned firm. Furthermore,employees in nationalized industries tend to be less productive, becausethey know that their firms are essentially underwritten by the state,and survival is not dependent on success.(29) Government ownership of industry in the United Kingdom wasprimarily supported by the Labour Party and trade unions, althoughmembers of the Conservative party also supported it under certaincircumstances. For example, in order to prevent a significant loss ofjobs and to maintain a British presence in the aerospace industry fornational defense purposes, the Conservatives supported nationalizationof Rolls Royce Rolls Roycethe millionaire’s vehicle. [Trademarks: Brewer Dictionary, 928]See : Luxury when it faced bankruptcy in 1971. The same factors thateroded public support for nationalization led the Conservative Party toabandon it by the late 1970s. Under the leadership of then-PrimeMinister Margaret Thatcher, the Conservative Party launched a program tointroduce privatization as a way to roll back the state in order toestablish a free market economy.(30) Privatization in the United Kingdom The United Kingdom's privatization program is the oldest and,in terms of dollar value, the largest in the world. Between 1984 and1991, sales of SOEs in the United Kingdom equaled almost one-third ofthe total assets privatized in the entire world.(31) The originalobjectives of the privatization program were to reduce the size andscope of government, to increase the efficiency of privatized firms, andto distribute equity more widely among the population, diffusingownership and giving people a direct stake in the success of Britishindustry.(32) Sir Keith Joseph Keith Sinjohn Joseph, Baron Joseph, CH , PC (17 January 1918–10 December 1994) was a British barrister, politician, and Conservative Cabinet Minister under three different Ministries. , then-secretary of state for industry,saw a more purely economic objective to the government'sprivatization program: "to create a prospering social marketeconomy--that is, a mainly free enterprise [market] economy."(33)Former Prime Minister Margaret Thatcher summed up the goal quitesuccinctly when she said "privatization...was one of the centralmeans of reversing the corrosive and corrupting effects ofsocialism."(34) The ideological motivations of the United Kingdom'sprivatization program are based on the country's experience withnationalization and its historical preference for liberalism. They wereconceptualized in 1974 by Margaret Thatcher, Sir Keith Joseph, JohnMoore John Moore may be: ClergyJohn Moore (Roman Catholic Bishop) (born 1942), Bishop of Bauchi, Nigeria John Moore (Bishop of Ely) (1646–1714), British Scholar John Moore (Baptist) (1662–1726), English Baptist minister from Northampton , other prominent members of the Conservative party and influentialprivate think-tanks that specialized in neo-liberal ideas. Thatcher andher colleagues spent years developing their "new right",philosophy, promoting it among the Conservatives and building theintellectual foundation that made the privatization program politicallyfeasible. Privatization in the United Kingdom was based on the followingneo-liberal ideas: * Government is too large. * Politicians and government bureaucrats cannot be trusted becausethey make decisions and formulate policies that typically benefitthemselves or narrow constituencies. Their priorities often conflictwith and take precedence over those of effective business managers. Thisdistorts the functioning of the free market and thereby limits thebenefits of competition for society. Privatizing SOEs preventspoliticians and bureaucrats from using them to further their ownagendas. * The market is better than the government at allocating resourcesin the economy. Privatization is preferred because it promotescompetition and thus increases the role of markets. * Government ownership and control of industry undermine personalresponsibility, self-reliance and individual initiative. * State-owned businesses cannot provide consumers with the qualityand quantity of goods and services they demand, limiting consumerchoice, while privatization encourages competition, resulting in greaterchoice. Privately-owned businesses operate more efficiently andeconomically than SOEs. * Private equity ownership that is broadly distributed among thepopulation is intimately related to political freedom. According toMargaret Thatcher, "in those societies where property is widelyshared, freedom flourishes; and where property is concentrated in thehands of the State, freedom is denied."(35) * The government and taxpayers' relationship with publicsector trade unions and their leaders should be terminated. The Conservatives disliked the unions, particularly thoserepresenting employees of state-owned firms. In their view, the leadersof the United Kingdom's public sector trade unions often madeexcessive demands on management and government, weakening the financialposition of SOEs. They were also suspected of using the unions tofurther their own political goals.(36) An evaluation of the long-term results of the UnitedKingdom's privatization program--based on a review of 24 recentstudies published in popular, trade, professional and scientificjournals and in government reports--shows that the majority of theprogram's objectives have been achieved. Specifically, theevaluation shows unequivocally that the size and scope of government hasbeen reduced, political interference in management decisions hasdecreased; government funds formerly allocated to nationalizedindustries have now been freed for use in other programs; domesticinvestment has increased; privatized businesses are earning higherreturns than when they were under government ownership; new sources oftax revenue have been generated; equity ownership by the general publicand employees of privatized firms has increased and a free marketeconomy is emerging. The evaluation also shows that privatization hasonly partially succeeded in reducing government control of business,reducing the budget deficit, improving the efficiency and performance ofprivatized firms and providing consumers with improved service, betterquality, more choices, new products and lower prices.(37) Nationalization in Developing Countries During the 1960s and 1970s, the public sector grew rapidly indeveloping countries, with state-owned enterprises often accounting formost of the growth. This was especially true in developing countriesthat had recently gained independence. In Tanzania, for example, thenumber of SOEs increased from 50 to 400 between the mid-1960s and thelate 1970s; in Mexico and Brazil the number of SOEs increased from about150 in the early 1960s to over 600 at the beginning of the 1980s; and inthe sub-Saharan region of Africa the number of SOEs grew to more than3,000 by the early 1980s. During this period SOEs accounted for between10 and 25 percent of the gross national product and between 20 and 60percent of total investment spending. Not only were SOEs typically thecountries' largest employers, they usually dominated the developingcountries most important industries, including manufacturing, mining,transportation and utilities.(38) The rapid growth in the number of SOEs in the developing world isattributable to tradition, ideology and practical considerations. Duringthe colonial period Colonial Period may generally refer to any period in a country's history when it was subject to administration by a colonial power. Korea under Japanese rule Colonial America See alsoColonialism , foreign governments owned or controlled many of thebusinesses in their colonies. When granted independence, the formercolonies preserved this tradition of government control by assumingownership of these businesses. The population accepted governmentownership because they were used to it, had suspicions about the privatesector and disliked foreign ownership. State ownership was also supported by socialist ideology, whichwas adopted, in part, as a reaction to the capitalism of the formercolonial powers. Many developing countries believed that state ownershipwas necessary to preserve economic independence in the face of theperceived threat of neocolonialism. Others believed that state ownershipwas necessary to promote rapid economic growth because SOEs could beused to implement the government's plans for the economy. The reasons for state ownership were also pragmatic. Governmentsof developing countries sometimes concluded that the private sector didnot have the capital, management skills and/or technology necessary toown and operate certain industries. Under these circumstances, stateownership was the only option. In some cases, the private sector refusedto establish businesses in developing countries, because the risks ofinvestment were too high and potential profits too low. When thisinvolved essential industries, the state was forced to own and operatethem itself. When privately owned industries that were important tonational development failed, the government frequently assumedownership. SOEs were also established for national security reasons, tostabilize agricultural prices, to subsidize consumer prices, to providejobs for new urban populations, to satisfy the demands of labor unions,to gain support for the political party currently in power and toproduce profits that could be used to fund other governmentprograms.(39) In most developing countries, state-owned enterprises usuallyfailed to achieve their objectives. SOEs were rarely profitable. Insteadof contributing to their treasuries, SOEs were in fact heavilysubsidized. A 1988 survey by the World Bank of 25 developing countriesfound that the median contribution of their SOEs to the overall publicsector deficit was 48 percent. Governments turned to internationallending institutions to finance these shortfalls, significantlyincreasing their national debt. International borrowing to finance SOEsis estimated to account for 30 percent of developing countries'total external debt. Between 1976 and 1983, the total debt of SOEs indeveloping countries was estimated to be $80 billion.(40) Like the United Kingdom, the difference between economic andsocial objectives contributed to the poor performance of nationalizedindustries in the developing countries. This was exacerbated bywidespread political interference with SOEs, including politicalappointment of inexperienced managers who were unable to deal with thecomplex problems SOEs faced. Moreover, governments often failed toeffectively monitor the performance of their SOEs. As a result of SOEsnot operating according to market forces but rather in response topolitical pressure, nationalized industries in the developing world wererife with inefficiencies. As in the United Kingdom, worker productivitywas low because employees knew that the government would not let astate-owned firm go bankrupt, and the bottom line was not defined byprofitability.(41) During the 1980s, the financial condition of most developingcountries deteriorated, in part due to the economic burden of supportingSOEs. Privately owned commercial lending institutions as well asagencies such as the World Bank and the International Monetary Fundadvised these countries that they would have to reduce this burden ifthey wanted to continue to receive funding in the future. At the sametime, it became clear to the leaders of developing countries that,"socialist doctrines had failed to effectively mobilize and sustaincommunity resources and popular energies for [economic] development, onthe contrary, they had impeded development by repressing individualinitiative."(42) Along with the pressure from international lenders and donors,this realization prompted the governments of developing countries toconsider privatization as a method of reducing the burden of supportingSOEs, lowering debt and stimulating economic growth. The results of thehighly successful privatization programs of Western industrial nationslike the United Kingdom also influenced governments of these countriesto begin privatizing their SOEs. Privatization in Developing Countries Developing countries began to adopt privatization programs on agrand scale in the mid-1980s after they realized that thenationalization policies they had pursued in the 1960s and 1970s, thoughmotivated by socialist and nationalist ideologies, did not work. Thegovernments of these countries used privatization primarily to reducethe unsustainable levels of domestic and external debt required to propup their ailing SOEs. Although originally pressured by international lenders and donorsto adopt privatization as a method for reducing their debt, the leadersof developing countries came to believe that it should be an integralpart of their economic reform programs. According to the United StatesAgency for International Development The United States Agency for International Development (or USAID) is the U.S. government organization responsible for most non-military foreign aid. An independent federal agency, it receives overall foreign policy guidance from the U.S. (USAID USAID United States Agency for International DevelopmentUSAID Agencia de los Estados Unidos para el Desarrollo Internacional (Spanish)), the gradual ideologicalchange was "based on the experience of the Third World itself.Developing countries that rely on market forces as an engine for theireconomic systems have, by and large, grown more rapidly than those witheconomies that are planned, directed and controlled by thestate."(43) This ideological shift was primarily driven by the needfor a more pragmatic approach to economic development. The youngergeneration of politicians and government officials who now holdpositions of power and influence have widely adopted the pragmaticapproach to government. Unlike their counterparts in the United Kingdom,they are not very concerned with the ideological underpinnings ofprivatization. Government leaders have embraced privatization for many reasons.They believe that: 1) privatization enhances the efficiency ofenterprises by motivating employees to be more productive through workerand management share-ownership; 2) privatization allows managers toconcentrate on achieving economic rather than social objectives; 3)privatization eliminates political interference; 4) privatizationpromotes competition which may give consumers more choices of higherquality goods and services at lower prices; 5) privatization leads to amore equitable distribution of wealth in society by increasing the levelof stock ownership among the population; 6) privatization expands thesize of capital markets by increasing the number of firms whose sharesare publicly traded; 7) privatization opens domestic capital markets toforeign investment which can be used to modernize and expand bothindustry and infrastructure; 8) privatization creates new sources of taxrevenue for the government (privatized businesses, unlike SOEs, paytaxes); 9) privatization eliminates government subsidies to SOEs; and10) privatization reduces the national debt through the sale of SOEs andthe elimination of government subsidies. Government leaders also hopethat privatization will lead to sustained economic growth, which willhelp their nations become developed countries. In developing countries, SOEs are primarily sold to one or moreprivate-sector firms because local capital markets have a very limitedabsorptive capacity In business administration, absorptive capacity is theory or model used to measure a firm's ability to value, assimilate, and apply new knowledge. It is studied on multiple levels (individual, group, firm, and national level). . By comparison, in developed countries such as theUnited Kingdom, most privatizations are achieved through the sale ofshares directly to the public. There have been, however, a significantnumber of direct share sales in several developing countries, includingBangladesh, Brazil, Chile, Gambia, Jamaica, Malaysia, Mexico, Nigeria,Sierra Leone Sierra Leone(sēĕr`ə lēō`nē, lēōn`; sēr`ə lēōn), officially Republic of Sierra Leone, republic (2005 est. pop. 6,018,000), 27,699 sq mi (71,740 sq km), W Africa. and Venezuela. In Jamaica the government used a sharedistribution method which favors small investors and has kept the pricesof SOEs low, and has dramatically increased equity ownership among itscitizens.(44) In addition to diffusing ownership, these sales have giventhousands of new shareholders in developing countries an opportunity tolearn about the fundamental values and beliefs inherent in a free-marketeconomy. The first developing nations to privatize had some highexpectations, hoping to see loss-producing SOEs rapidly sold for largeprofits, so that receipts from SOE sales would completely eliminatedomestic and external debt. They also hoped that the newly privatizedfirms would quickly provide consumers with a wide variety ofhigh-quality, reasonably priced goods and services. The results of theirprivatization programs generally were more modest than these vaultedexpectations, but they were encouraging nonetheless. The widespread privatization of state-owned enterprises indeveloping countries is now entering its second decade. Rather than thefast-working panacea they hoped for, the developing countries havelearned that privatization is only one part of a long-term strategiceconomic reform process. They now know that the models used to privatizeSOEs in western industrial nations are not always applicable to them.Finally, developing countries have realized that achieving the benefitsof privatization takes longer for them than for western industrialnations, because their economic infrastructure is not as well-developed.They do not have the sophisticated capital markets and well-establishedregulatory structures that are necessary to make rapid progress.(45) In Mexico, privatization is part of the government'slong-term strategy for stabilizing the economy. Between 1983 and 1994,more than 900 of Mexico's SOEs were sold. This helped to decreaseits foreign debt from 44.2 percent of GDP in 1989 to 12.5 percent in1993. Similarly, domestic debt decreased from 16.9 percent of GDP in1987 to 8.0 percent in 1993. The sale of Ahmsa and Sicartsa,Mexico's two largest steel producers, saved Mexican taxpayers about$700 million in annual subsidies and yielded the government $ 1.5billion in revenue. The privatization of Aeromexico helped transform itfrom one of the world's worst airlines in terms of reliability,punctuality PunctualityFogg, Phileascompletes world circuit at exact minute he wagered he would. [Fr. Lit.: Around the World in Eighty Days]Gilbrethsdisciplined family brought up to abide by strict, punctual standards. [Am. Lit. and luggage handling to one of the best. The sale ofMexico's state-owned telephone company, Telmex, significantlyincreased foreign investment in domestic capital markets. Nonetheless,the overall results of Mexico's privatization program are mixed,especially when considered in the context of the 1994 financial crisiscreated by the country's currency devaluation Currency devaluationA deliberate downward adjustment in the official exchange rates established, or pegged, by a government against a specified standard, such as another currency or gold. . It is expected totake years before the full benefits of Mexico's privatizationprogram are realized.(46) In order for privatization to be successful in the future,developing countries must maintain their priorities of increasingefficiency and competition, rather than focusing on short-term revenue.The governments must regularly inform the public about the goals ofprivatization and explain how achieving these goals benefits theircitizens and nation. The highly successful privatization ofJamaica's National Commercial Bank (NCB (Network Control Block) A packet structure used by the NetBIOS communications protocol. ) in 1986, for example,involved an intensive government-sponsored media campaign to increasepublic support for the sale. The campaign included regular use offull-page newspaper advertisements, radio and television programs whichexplained how privatization works, radio talk shows to answercallers' questions, and briefing sessions for all interested groupsthroughout the country.(47) Governments must also carefully analyze the political impedimentsto privatization and must develop plans to eliminate them. In Jamaica,the media campaign to promote NCB's sale was used to thwart strongopposition from the socialist Peoples' National Party, which hadnationalized the NCB when it was in power.(48) Finally, developingcountries must rely more on their own experiences with privatizationthan on models created by western industrial nations. Tunisia took thisapproach, rejecting a USAID plan that did not take account of thecountry's own experiences. The government was still able to takeadvantage of USAID's extensive technical assistance and consultingservices during the privatization process.(49) Conclusions While countries across the globe feature privatization in theireconomic development strategies, the ideological concerns that havedriven them to choose this particular vehicle of economic transformationvary considerably. In both the United Kingdom and the developingcountries, large-scale privatization developed as a backlash against thefailure of economic systems that featured nationalization and socialism.The ideological basis of the United Kingdom's privatization programwas the neo-liberal ideas developed, in part, by Margaret Thatcher andher conservative colleagues. Privatization programs in developingcountries have generally been driven by more pragmatic concerns. Though also motivated by the desire to transform their economies,developing countries have been driven to privatize their SOEs at leastpartially due to the dire financial circumstances facing thesecountries. While there is obvious overlap between the objectives ofprivatization programs in the United Kingdom and the developingcountries, certain objectives take precedence based on the differingpriorities of the governments. For example, selling SOEs in order toreduce government debt is much more important in developing countriesthan it is in the United Kingdom. Alternately, increasing equityownership among the general public as a way to move wealth out of thehands of the government and into society is a primary concern in theUnited Kingdom, but not in developing countries. The different circumstances facing the United Kingdom and thedeveloping countries have not only had ideological ramifications ramificationsnpl → Auswirkungen pl, theyhave also determined the success of the privatization efforts.Privatization programs in the United Kingdom and the developingcountries have been able to achieve many of their goals. However, thedeveloping countries have made much slower progress in meeting thesegoals, primarily because several important economic characteristics aremissing or are less-developed. Privatization programs fail to take offrapidly in many developing countries due to the limited absorptivecapacity of capital markets, a dearth of managerial talent andinsufficient funds to significantly improve the performance of SOEsbefore they are sold. As the economies in the developing world overcome these hurdlesand move beyond the initial stages of their privatization programs, theywill need to find an ideological basis for their economic strategiesthat goes beyond pragmatic fundraising concerns. Like the UnitedKingdom, they may embrace a neo-liberal view, eschewing public ownershipand government intervention in the economy out of a belief in theefficiency of the free market. Or, more likely, as these countries learnmore from their own experiences and develop their own privatizationstrategies, they may also develop a unique theoretical approach todevelopment, perhaps placing a greater emphasis on the equitabledistribution of wealth. Such an ideological underpinning will not onlyshape individual countries' development strategies, includingprivatization, to reflect the particular priorities of their societies.It will also, by providing continuity, increase their long-term chancesfor success. (1) "Sale of the Century: Privatization," WallStreet Journal (2 October 1995).(2) C. Graham and T. Prosser, Privatizing Public Enterprises:Constitutions, the State, and Regulation in Comparative Perspective(Oxford, England: Claredon Press, 1991).(3) Graham and Prosser.(4) V. Wright, "Industrial Privatization in Western Europe:Pressures, Problems and Paradoxes," In V. Wright, ed.,Privatization in Western Europe: Pressures, Problems and Paradoxes(London, England: Pinter Publishers, 1994).(5) J. Friedland, "The Master Plan," Wall Street Journal (2October 1995) p. R4; Wright.(6) D. Rondinelli, "Policy and Management Requirements forPrivatization," Business Forum (Winter/Spring, 1994).(7) R. Poole, "Privatization for Economic Development," inT. Anderson and P. Hill (editors), The Privatization Process: AWorldwide Perspective (Lanham, Maryland Lanham is an unincorporated community in Prince George's County in the State of Maryland in the United States of America. Because it is not formally incorporated, it has no official boundaries, but the United States Census Bureau has defined a census-designated place consisting of : Rowman & LittlefieldPublishers, Inc., 1996).(8) "Privatisation: Selling the State," The Economist (21August 1993).(9) United States Agency for International Development,"Economic Policy Reform: Privatization Around the Globe," ARecord of Success Supporting Economic Growth. (Washington, DC:Government Printing Office, 1996).(10) M. Allen, "What is Privatization, Anyway?" Wall StreetJournal (2 October 1995) p. R4.(11) N. Zahariadis, Markets, States, and Public Policy: Privatizationin Britain and France (Ann Arbor, Michigan “Ann Arbor” redirects here. For other uses, see Ann Arbor (disambiguation).Ann Arbor is a city in the U.S. state of Michigan and the county seat of Washtenaw County. : The University of Michigan (body, education) University of Michigan - A large cosmopolitan university in the Midwest USA. Over 50000 students are enrolled at the University of Michigan's three campuses. The students come from 50 states and over 100 foreign countries. Press, 1995).(12) Wright; Zahariadis.(13) Allen; Poole.(14) Cited in "Emerging Market Indicators: State Assets,"The Economist (23 March 1996).(15) D. Milbank, "Backlash: Britain Embraced PrivatizationBefore It Was the Thing To Do," Wall Street Journal (2 October1995) p. R17; Privatisation - Sharing the UK Experience (London: HerMajesty's Treasury, 1995).(16) Rondinelli.(17) "Privatisation: Selling the State," (1993);"Privatization: Global Trends," International Financial LawReview (April, 1994).(18) Allen, p. R4.(19) L. Cowan, Privatization in the Developing World (New York New York, state, United StatesNew York,Middle Atlantic state of the United States. It is bordered by Vermont, Massachusetts, Connecticut, and the Atlantic Ocean (E), New Jersey and Pennsylvania (S), Lakes Erie and Ontario and the Canadian province of :Greenwood Press, 1990) p. 6.(20) R. Rose, "Privatization as a Problem of Satisficing Satisficing is a decision-making strategy which attempts to meet criteria for adequacy, rather than identify an optimal solution. A satisficing strategy may often, in fact, be (near) optimal if the costs of the decision-making process itself, such as the cost of obtaining complete andDissatisficing," American Review of Public Administration (June,1989) p. 104.(21) ibid., p. 100.(22) H. Morrison, Government and Parliament: A Survey From the Inside(London: Oxford University Press, 1964).(23) Zahariadis.(24) Privatisation in the United Kingdom (London: Her Majesty'sTreasury, 1989); R. Pryke, "The Comparative Performance of Publicand Private Enterprise," fiscal Studies, 3, no. 2 (1982); J. VanOudenhoven, "Privatization in Europe," in L. Finley, ed.,Public Sector Privatization: Alternative Approaches to Service Delivery(New York: Quorum Books, 1989).(25) J. Moore, "British Privatization - Taking Capitalism to thePeople," Harvard Business Review Harvard Business Review is a general management magazine published since 1922 by Harvard Business School Publishing, owned by the Harvard Business School. A monthly research-based magazine written for business practitioners, it claims a high ranking business readership and (January/February, 1992) pp.115-124.(26) Privatisation in the United Kingdom.(27) K. Newman, The Selling of British Telecom (New York: St.Martin's St. Martin's or St. Martins may refer to: St. Martins, Missouri, a city in the USA St Martin's, Isles of Scilly, an island off the Cornish coast, England St Martin's, Shropshire, a village in England Press, 1986).(28) "From Bloody Awful to Bloody Awesome," Business Week(9 October 1989) p. 97.(29) L. King, "Lessons of Privatization," Long RangePlanning To comply with Wikipedia's , the introduction of this article needs a complete rewrite. (December, 1987) p. 18-22; Privatisation in the United Kingdom;Rose.(30) Problems with nationalization in the UK and their causes arealso discussed in A. Miller, "British Privatization: Evaluating theResults," Columbia Journal of World Business (Winter, 1995) p82-98.(31) Wright.(32) Privatisation in the United Kingdom.(33) Newman, p. 1.(34) M. Thatcher, The Downing Street Downing Street,Westminster, London, England. On the street are the British Foreign Office and, at No. 10, the residence of the first lord of the Treasury, who is usually (although not necessarily) the prime minister of Great Britain. Years (New York: Harper CollinsPublishers, 1993) p. 676.(35) C. Hertzner, "Keeping the Aspidistra aspidistraAny plant of the genus Aspidistra (lily family), native to eastern Asia and known for ornamental foliage. The only cultivated species is a houseplant commonly known as cast-iron plant (A. elatior, or A. Flying: ThatcheritePrivatization and the Creation of the Enterprise Culture,"International Journal of Public Administration, 11 (1988) p. 632.(36) Graham and Prosser; Wright; Zahariadis.(37) Miller. (38) C. Adam, W. Cavendish, & P. Mistry, AdjustigPrivatization: Case Studies From Developing Countries (London: JamesCurrey, Ltd., 1992); E. Berg, "The Role of Divestiture The breakup of AT&T. By federal court order, AT&T divested itself on January 1, 1984 of its 23 operating companies, which became known as the Regional Bell Operating Companies (RBOCs). in EconomicGrowth," in S. Hanke, ed., Privatization and Development (SanFrancisco San Francisco(săn frănsĭs`kō), city (1990 pop. 723,959), coextensive with San Francisco co., W Calif., on the tip of a peninsula between the Pacific Ocean and San Francisco Bay, which are connected by the strait known as the Golden : ICS (1) (Internet Connection Sharing) A Windows feature that enables two or more computers to share one Internet connection. First introduced in Windows 98 Second Edition, sharing is accomplished with network address translation (NAT), which is the common method. Press, 1987); L. Cowan.(39) Cowan.(40) Adam, Cavendish and Mistry; Cowan.(41) ibid.(42) Cowan, p. 6.(43) M. McPherson, "The Promise of Privatization," in S.Hanke (editor), Privatization and Development (San Francisco: ICS Press,1987) p. 18.(44) Adam, Cavendish and Mistry; W. Megginson, R. Nash and M.Randenborgh, "The Financial and Operating Performance of NewlyPrivatized Firms: An International Empirical Analysis," in T.Anderson and P Hill, eds., The Privatization Process: A WorldwidePerspective (Lanham, Maryland: Rowman & Littlefield Publishers,Inc., 1996).(45) Adam, Cavendish and Mistry; Cowan.(46) R. Salinas-Leon, "Between Mercantilism mercantilism(mûr`kəntĭlĭzəm), economic system of the major trading nations during the 16th, 17th, and 18th cent., based on the premise that national wealth and power were best served by increasing exports and collecting and Markets: AnAnalysis of Privatization in Mexico," in T. Anderson and P. Hill,eds., The Privatization Process: A Worldwide Perspective (Lanham,Maryland: Rowman & Littlefield Publishers, Inc., 1996).(47) Cowan.(48) ibid.(49) ibid.

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