PRIVATIZATION
TOPICS
• The welfare State
• The crisis of the Welfare State
• The foreign debt crisis in developing countries
• The neo-liberal State
• Privatization forces
• Typology of goods and services
• Forms of Privatization
• A political view of privatization
The Welfare State
• According to J. O’Connor the State tries
to fulfill two basic but contradictory
functions: 1) Accumulation (conditions
for capital to be profitable) and
2)Legitimization (social harmony)
• State expenditures have a double
character that correspond to the State’s
two basic functions of accumulation and
legitimization
• Thus expenditures take the form of social
capital and social expenses
The Welfare State
• Social capital expenditures are considered
inputs and they are required for profitable
capital accumulation (output) and they take the
form of:
1. Social consumption (investment that lowers the
reproduction costs of labor and increase the rate of
profits: social insurance)
2. Social investment (projects and services to
increase productivity of labor: roads and education)
• Social expenses : projects and services
required to maintain the social harmony to
fulfill the legitimization function of the State
(e.g. safety net for the poor)
The crisis of the Welfare State
• The crisis of the Welfare State can be traced to
the 1970s world’s recession, induced by high oil
prices.
• The capacity of the Welfare State to fulfill one of
its basic functions (accumulation) was
questioned.
• The surged simultaneously of high inflation and
unemployment (stagflation) questioned severely
Keynesian macroeconomic management.
• Economic policy shifted from Keynesianism
(fiscal policy and demand side) to monetarism
(interest rates and supply side).
Foreign debt crisis
• Developing countries all over the world borrow
heavily due to low interest rates and high
liquidity generated by petrodollars.
• Investment in many cases went to unproductive
areas (subsidies, white-elephant projects)
• As interest rates begin to increase due to
monetary policies in the developed world the
ability to repay loans was questionable.
• The IMF and the World Bank offered advice to
developing countries to undertake structural
adjustment policies in exchange for financial aid
and debt restructuring
The foreign debt crisis
OIL
SMALL OIL DEVELOPED LARGE
OIL EXPORTER WORLD OIL EXPORTER
COUNTRIES COUNTRIES
$$$ USA $$$
Saudi Arabia Western Mexico
Kuwait Petrodollars Europe Credit Nigeria
Qatar Japan Iran
Bahrain Canada Iraq
Interes Venezuela
Interes Russia
Indonesia
C
r
e
d Interes
$$$ i
t $$$
OIL IMPORTER
OIL COUNTRIES OIL
Brazil
Argentina
Korea
• Top ten borrowers as Dec.1982 • International Reserves Assets of
FROM private banks (Wood Selected OPEC countries (Aliber
1986:258) 1987:142)
• Debtor $ billions • Millions of US Dollars
Year S.Arabia Kuwait
1 Mexico 62.9
2 Brazil 60.5 1950 0 50
3 Venezuela 27.5
4 Argentina 25.7 1960 167 72
5 S. Korea 23.3
6 Phillipines 12.6 1970 543 117
7 Chile 11.6
8 Indonesia 10.0 1976 26,900 1,702
9 Malaysia 8.7 1980 23,437 3,928
10 Nigeria 8.5
1984 24,748 4.,590
Aliber 1987:142
The Neoliberal state
Y = C + I + G + (X-M)
• Consumption (the market as exchange and
allocation mechanism)
• Investment (create new opportunities for capital
accumulation)
• Government (reduce its share by cutting social
expenses and adopting fiscal discipline)
• Net exports: capital becomes global and the
world becomes a giant network of suppliers and
producers
The Neoliberal State
• Promotion of the primacy of private property
rights (pre-eminent in relation to other rights)
• The market as a panacea (allocation of G & S by
means of private mechanisms).
• Deregulation & privatization of the economy
• Transformation of the tax structure (burden
place on wages rather than capital)
• Downsizing of government
• Reduction of national debt (fiscal discipline)
Privatization Forces
INFLUENCE EFFECT REASONING
Pragmatic Better government Search for more cost-
effective public services
Economic Less dependence on Allowing more people to
government provide for their own
needs
Ideological Less government Too much government
on people’s life
Commercial More business Crowding out private
opportunities sector thus less
government new
business opportunities
Populist Better society Public should be able to
have choices
Sources E.S. Savas 2000: 6
Typology of G & S
Feasible Exclusion Infeasible
Individual
goods Common
Private car Sea water pool
Bottled water goods
individual Water in underground
aquifer
Taxi service
consumption
water from well in town
square
Bus service
Joint
Piped water
Collective
Turnpike Highway City street
Toll Goods goods
Source: E.S. Savas 2000:44-45
Typology of G & S
Feasible Exclusion Infeasible
Individual
goods Common
pool
individual goods
The Neo-liberal
consumption
State
The Welfare
State
Joint
Collective
Toll Goods goods
Source: Adapted from E.S. Savas 2000:44-45
Forms of privatization (The case of Education)
Government Service Grants (private colleges get
(Conventional public school government grant for every
system) enrolled student)
Government vending (Local public Vouchers (Tuition voucher for
schools accept out-of-district elementary school, GI bill for
pupils and is paid by parents colleges)
Intergovernmental-agreements Free market (Private school)
(pupils go to school in the next
town; sending town pays receiving
town)
Contracts (City hires private firm to Voluntary service (parochial
conduct vocational training) schools)
Franchises (school charters) Self-service (Home schooling)
Sources E.S. Savas 2000: 88
A political view of privatization
• P.A. and Economics treat privatization as a
choice among means to achieve a social goal.
• Privatization becomes essentially a technical
decision based on issues such as exclusion and
joint consumption of the good
• Privatization should be seen as a political
decision which takes the form of a strategy to
realign institutions and decision making to foster
the interest of some groups over competing
interests
• The above view is the same as O’Connor which
states that class struggle is present in the
budgets and public finance of the State.
A political view of privatization
• From a political stand point privatization can be
understood best by distinguishing among three
types:
1. Pragmatic (It takes place in areas that have
been already de-politicized)
2. Tactical (It occurs in situations that are directly
political. Privatization is not an end it is a mean
to achieve political goals such as getting
elected)
3. Systematic (It represents and ideological and
structural shift as it happened in some
developing countries and former communist
economies)