Privatization

Since privatization is aimed at reducing the role of the state, and by the same token expanding that of the private sector, it is useful to recall the various reasons why governments have taken on the functions that they do that are later targets for privatization. First, governments are expected to provide the necessary regulatory, legal, and security environment for the private sector to undertake its functions. Staunch neoliberals see this as the only major function that should be performed by the state. Crucial among these functions is the need to guarantee property rights, free disposal of property, and appropriation of the fruits arising from its use, and the facilitation and protection of contractual obligations. The second function relates to the provisions of pure public goods and services such as those related to security and defense, basic health, education, and sanitation and water. The third function concerns the provision of goods and services, such as the low level of development, market failures, missing markets or value chains, the small size of the local market, or excessive costs of production.

The fourth function has arisen as a result of strategic considerations, such as national security, the desire to be self-reliant, the need to develop infant industries, and the desire by some governments to influence the course of growth and development over time by seizing command of key industries or economic activities, especially at earlier levels of development and in order to effect rapid economic transformation and development as has been often the rationale for nationalization or government ownership. Finally, equity and welfare considerations, or the desire on the part of government to prevent a monopoly private sector outcome following privatization has led some governments to assume production of certain goods or provision of certain services.

Historically, governments have played an important role in the economy beyond the first function indicated above. The actual legacy of the nature of government participation has differed considerably between developed and developing nations and within each of these groupings. The increased adoption of Keynesianism and the growth of socialism had the effect of stimulating government participation in the economy especially after World War II, but even under these conditions, there was an undercurrent of dissent in favor of privatization and a minimal role of the state which persisted and gained its prominence during the ascendancy of neo-liberalism following the recession of the 1970s. By the middle of the 1980s, L. Gray Cowan was able to observe the following:

Worldwide interest in reducing the role of the public sector in national economies is a phenomenon of the past four to six years. The growing movement to privatize industries, services, and agencies and the changed conception of government's role are products of pragmatism: the state-owned sector is not working, and enormous subsidies to maintain money-losing enterprises and services only get bigger. The conviction is growing that private entrepreneurs can manage industries more effectively and operate services more efficiently and at lower cost to the public than can government. Evidence supporting private enterprise over public ownership has emerged in areas of every continent. (Hanke, p. 8)

The collapse of the Soviet bloc and the wholesale privatization of public enterprises that followed in these countries leading to their being labeled "transition economies," the liberalization of economic activities in China, and initial bold privatization initiatives in the United Kingdom and Chile fueled the trend in support for privatization. By the mid-1990s, the call for privatization was no longer one of mere pragmatism. It had become a coherent ideological agenda and a major theoretical paradigm.