Privatization

Alternative Conceptions of Privatization

Privatization is not a new phenomenon. While most economists have normally assumed the private sector to be something like a default position, with government activities being invented, added on, and often at the expense of the private sector, in fact the reverse is the case. Oliver Letwin, a British conservative theorist, observed that the private sector had to be invented. This occurred with the creation of the great European trading companies, such as the British and Dutch East India companies, founded in the 17th century. Notions of property before the Renaissance assumed that different actors had different relations to the same property. Manorial estates were, true enough, the domain of the local lord, but he was required to provide security, order, and justice to the inhabitants of the domain, while they [Page 2133]had certain rights to the usufructs of the property and owed the lord fealty and obedience. The lord in turn owed fealty to the king. This changed slowly. For example, only with the rise of the enclosures of common pastureland did Britain develop modern notions of property. Private property did, of course, exist in earlier eras, and much of its modern conception is owed to the rediscovery of Roman law, which had a well-articulated set of rules governing such property. However, as the economic abuses associated with the collapse of communism demonstrate, private property cannot exist without a political system that defines its existence, its use, and the conditions of its ex change. That is, private property is defined by and exists only because of politics.

Although state asset sales occurred in many European countries during the 1950s, when conservative parties took over from left-of-center parties, these were relatively limited in scope. Privatizing government assets and services became a major policy fashion in the 1980s and continued through the first decade of the 21st century until the financial crisis of late 2008, when many of the conservative policy trends of the late 20th century were called into question. This is not to say that only conservatives advocated privatization. Regimes as different as Margaret Thatcher's Britain, Bill Clinton's United States, and François Mitterrand's France all actively pursued privatization policies. They often had different reasons for pursuing such policies, and these are explored as follows.

At the end of the 20th century, the privatization movement was rooted in the collapse of Keynesian economics in the late 1970s. The oil crises of 1973 to 1974 and then 1979 were followed by periods of economic stagnation and high inflation. Keynesian orthodoxy saw employment and price levels as trade-offs, described by what was called the Phillips curve. Keynesians thought that inflation only occurred in economies experiencing full employment and had no explanation for the stagflation that followed the oil crises. Their inability to explain the behavior of the economy created a window of opportunity for neoclassical economists to step in and stipulate that these problems were due to public sector distortions that had accumulated over the postwar years. The solution to economic stagnation was, they asserted, less government. These were the advocates of privatization.

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