Privatization And The Federal Government

During the past two decades, the privatization of federal agencies and activities has been much debated. That said, privatization -- here defined as the use of the private sector in the provision of a good or service, the components of which include financing, operations (supplying, production, delivery) and quality control -- is not a recent phenomenon. Since its founding in 1789, the federal government has used private firms to provide goods and services. Hence, privatization is of perennial interest to Congress. This report is an introduction to privatization in the federal governmental context. It discusses the emergence of privatization on the federal policy agenda in the late 1970s and early 1980s. To some, privatization appeared as an answer to the purported failures of "big government." Privatization attracted political support due to its rhetorically persuasive rationales, purported benefits, and political attractiveness. However, privatization also has been controversial. Critics have complained that privatization is a form of union busting and that privatization can have unforeseen and undesirable consequences. This report also supplies a typology of the various means through which federal agencies and activities have been privatized. The typology shows that privatization is not an either/or proposition. Rather, privatization, as this report's definition implies, is a matter of degree. Policymakers may transfer to the private sector one or more of the components of government provision of goods and services -- however many they deem appropriate. Next, the report explains the distinction between privatization and marketization, an alternative to privatization, which is "the structuring of a government agency so that it provides goods and services in the efficient manner of a private firm." Marketization retains an activity within the governmental sector; privatization moves the components of an activity to the private sector. This distinction is significant because entities within these differing sectors tend to behave differently. Private sector firms tend to be self-directing and profit-seeking; government agencies tend to be process-oriented and pursue the multiple and sometimes conflicting goals assigned to them by Congress and the President. Hence, policymakers who wish to improve an agency's efficiency or performance, but are leery of privatization, may find marketization an attractive option. Finally, the report notes that, whenever policymakers consider privatizing a federal agency or activity, a fundamental issues arises -- "Which activities are essential to the state and should remain directly accountable to the elected representatives of the people and which may be carried out by the private sector?" This question is complex and value-laden; no definitive answer exists. Thus, the decision to privatize is inherently controversial.

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Privatization encompasses the whole or partial sale of state-owned companies as well as actions to reduce the role of government and enhance market forces to produce a more competitive economy. This document examines the role of public enterprise in Canadian public policy in the context of international and domestic pressures to privatize. The volume comprises an editors' introduction, eight case studies and an overview of recent developments in three provinces.

The book is divided into three major sections. The first presents a theoretical discussion that underlies the other essays. The second section deals with privatization issues from the perspective of the United States. The third describes research addressed to the U. K. and Canada. In the first chapter, Richard Zeckbauser and Murray Horn develop a wide-ranging theoretical framework for assessing the capabilities and role of state-owned enterprises; it provides a foundation for the analyses that follow. In The Control and Perfonnance o[ State-Owned Enterprises , they describe state-owned enterprises as an extreme case of the separation of ownership and control. The focus is on management --the incentives it faces and the conflicts to which it is subjected. The distinguishing characteristics of public enterprise, the authors suggest, give it a comparative advantage over both public bureaucracy and private enterprise in certain situations. They argue that legislators are more likely to prefer SOEs over private enterprise when the efficiency of private enterprise is undermined by regulation or the tbreat of opportunistic state action, when the informational demands of subsidizing private production to meet distributional objectives are high, when it is difficult to assign property rights, or when state ownership is ideologically appealing. These considerations suggest why SOEs are usually assigned special rights and responsibilities, and they help explain observed regularities in the distribution of SOEs across countries and sectors. Zeckhauser and Horn apply principal-agent theory to identify the key factors underlying the performance of state-owned enterprises.

Privatisation and deregulation was chosen as the topic of the annual Canada-UK Colloquium which was held in Scotland in 1987. Most of the papers presented here have been updated since that meeting. These papers discuss the Canadian and British privatisation programs. Also covered are telecommunications; transport; financial services; contracting-out; and problems and prospects with one article given for each country.