Privatization

The economic process of transferring property from public ownership to private ownership, sometimes called denationalization. Privatization is the process by which economic activity (the production of goods or services) is removed from the government sector of the economy and placed in the private sector. The reasoning behind privatization is that the market environment of the private sector will force business enterprises to respond to market signals and stimuli and become more efficient.

Privatization is frequently associated with industrial or service-oriented enterprises, such as mining, manufacturing, or power generation, but it can also apply to utilities, such as land, roads, energy providers, telecommunications, or rights to water. In recent years, government services such as health, sanitation, prison facilities, and education have also been targeted for privatization in many countries, including the United States.

According to proponents of privatization, in addition to making enterprises more efficient, privatization policies help to establish a free market as well as foster capitalist competition. The absence of competition, critics of state ownership argue, puts management of state-owned firms under no pressure to produce goods and services that consumers demand and to provide them at lower cost. Moreover, state companies often supply their products and services without direct charges to consumers. Therefore, even if they want to satisfy consumer demands, these firms are unaware of what consumers want because consumption reflects only the availability of goods, not consumer preferences.

Although nationalization (governmental acquisition and management of assets) was common during the immediate post–World War II period, privatization became a more dominant economic trend during the 1980s and 1990s, especially within the United States and the United Kingdom. In these countries, the experience of economic recession in the 1970s catapulted the conservative political parties of Prime Minister Margaret Thatcher and President Ronald Reagan to power. Both leaders called for less government regulation and more business.

Meanwhile, at the World Bank (the post–World War II donor organization for the reconstruction and development of economically distressed countries), developmental economists began to depart and free-trade advocates took control of economic policy at multinational lending organizations. These free-trade advocates became known as neoliberals because of their belief in liberal trade policies and their disdain for intervention into economic affairs by national governments.

Believing firmly in the efficiency of the market, the neoliberals scorned the developmentalist theories of government-led planning, which they claimed encouraged protectionist policies and placed the world economy at risk. Reducing barriers to trade and capital flows, it was reasoned, would generate a cycle of economic growth and a sustained attack on poverty. Furthermore, as the world witnessed the disintegration of the Soviet Union in 1991, the failure of the Communist Party trumpeted proof for neoliberals that governments were fallible and that the market was not.

In the case of Eastern Europe, however, the haste to transform economies and transfer state-owned property to the private sector resulted in disastrous consequences. Reformers felt pressured to put in place the rudiments of a middle class in order to avert the return to communism. Private property, it was believed, would help accomplish this by buttressing an economic order that would install an indigenous middle class and redistribute national wealth more evenly.

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