Privatisation

Privatisation means the transfer of assets from the public (government) sector to the private sector.

In the UK the process has led to a sizeable reduction in the size of the public sector. State-owned enterprises now contribute less than 2% of GDP and less than 1.5% of total employment.

• Privatisation has become a key micro reform in the transition economies of Eastern Europe.

• Over the last few years privatisation in the UK economy has given way to a new wave of nationalisation including some high profile banks, building societies and transport services. Nationalisation has also happened in other Western European countries

List of Major Privatisations in the UK

• Associated British Ports
• British Aerospace
• British Airports Authority
• British Airways
• British Coal
• British Energy
• British Gas
• British Leyland
• British Nuclear Fuels Limited (BNFL)
• British Petroleum
• British Rail
• British Shipbuilders and Harland and Wolff
• British Steel Corporation
• British Sugar Corporation
• British Telecom
• Buses
• Cable & Wireless
• Electricity Supply Industry
• London Underground
• National Air Traffic Services
• Rolls Royce
• Royal Dockyards
• Royal Mail
• Royal Ordnance Factories
• Short Brothers
• Horserace Totalisator Board (The Tote)
• Thomas Cook
• Water Industry

Privatisation – Is it Good or Bad for Economic Efficiency?

• Supporters of privatisation believe that the private sector and the discipline of free market forces are a better incentive for businesses to be run efficiently and thereby achieve improvements in economic welfare.

• Privatisation was also seen as a way of reducing trade union power, widening share ownership and increasing investment, as privatised businesses were now free to raise finance through the stock market. Privatisation was also regarded as an important supply-side policy designed to drive competition and improve productive and dynamic efficiency.

Opponents of privatisation argued that state owned enterprises had already faced competition when part of the public sector and that in several instances the transfer of ownership merely replaced a public sector monopoly with a private sector monopoly that then required regulation.

There were criticisms that state assets were sold off by the government at too low a price and that the consequences of privatisation has been a decrease in investment and large scale reductions in employment as privatised businesses have sought to cut their operating costs.

Deregulation of markets

Deregulation involves opening up markets and encouraging the entry of new suppliers. Examples of this in the UK include the opening up of markets for bus services, household energy supplies, the liberalisation of household mail services and financial deregulation affecting both banks and building societies.

The expansion of the European Single Market has accelerated the process of market liberalisation. The Single Market seeks to promote four freedoms – namely the free movement of goods, services, financial capital and labour. In the long term we can expect to see the microeconomic effects of the EU Single Market working their way through many British markets and the general expectation is that competitive pressures for all businesses working inside the European Union will continue to intensify.

Product market liberalisation involves breaking down barriers to entry, boost market supply, bring down prices for consumers, and encourage an increase in competition, investment and productivity leading to a rise in economic efficiency. In the long term, if product markets become more competitive and investment flows into these industries, there are macroeconomic implications for example an increase in an economy's underlying trend rate of economic growth which might contribute to an improvement in average standards of living.