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Privatization in Theory and Practice

1986; Oxford University Press; Volume: 1; Issue: 2 Linguagem: Inglês

10.2307/1344560

1468-0327

George Yarrow, Mervyn King, Jacques Mairesse, Jacques Mélitz,

Merger and Competition Analysis

Privatization George Yarrow This paper examines the theoretical and empirical case for private versus public ownership. Privatization usually leads managers to place greater emphasis on the pursuit of profits. However, whether this is beneficial to society depends on the trade-off between possible market failures due to a lack of competition and deficiencies in government control of public firms. The competitive and regulatory environment is more important than the question of ownership per se . In competitive markets there is a presumption in favour of private ownership. Where there is a natural monopoly, vigorous regulatory action is required. The evidence suggests that privatization has led to improved performance by firms such as the National Freight Corporation and Cable and Wireless which operate in a relatively competitive environment. The benefits are less clear in the case of firms like BP, Britoil and British Aerospace. However, the most worrying case is that of British Telecom and the projected privatization of British Gas where little thought has been given to limiting the abuse of monopoly power. Rather the regulatory environment has been tailored to the needs of the existing management and to ensuring a successful share flotation. Privatization is also advanced as a weapon for reducing trade union power, encouraging wider share ownership, redistributing wealth and improving the public finances. However, there are other policy instruments better suited to achieving these objectives. The existing privatization programme has not led to a marked widening of share ownership and has resulted in windfall gains to a small group of investors at the expense of taxpayers in general.