Public Versus Private Ownership - Essay Example

Topic: The EU has stipulated that in order to receive financial support Greece must privatize public assets. Advise Greece on the experiences of the UKs privatization programme, and how they can avoid the errors of the UKs experience 1.1 Introduction The present question is asking for a definition to privatization in relation to the European Union’s stipulation for Greece to go into privatization. The merits of demerits associated with the privatization are to be drawn in relation to the United Kingdom’s experience when that country had its own privatization experience in the 1970s. 1.2.1 Approach to Question. The question will be answered by constructing major themes that discuss the meaning of privatization, privatization from the view point of the United Kingdom and how Greece should learn from the United Kingdom experience. 1.2.3 Definition of "privatization" In a very typical and ideological world, the word “privatization” may have several meanings and interpretation. However, the present study limits the definition and meaning of the word to its political connotation. From a political viewpoint, Starr (1989) perceives the meaning of privatization from two major perspectives. First, he talks about “any shift of activities or functions from the state to the private sector.” This therefore implies any situation in the governance system whereby the populaces who in this case are considered to be in the private sector are given much power to take charge of basic activities and functions that would otherwise had been monopolized by government. In the second instance, the writer states that privatization also represents “any shift of the production of goods and services from public to private.” 1.3.1 Consequences for Greece of not following EUs request. As it appears now, it would be said that Greece finds itself in some kind of serious fix whereby the country’s hands are very tight as far as the opinion given by the European Union is concerned. This point is made against the backdrop that as far as Greece remains a member of the Union, it is bound by regulations to heed to all conventions and laws that come from the General Assembly. A refusal to do this may result in a rather unpleasant situation where it would have to face political and economic sanctions from the European Union that may even worsen the financial plight of the country (Musgrave, 2001). Again, as far as the ownership of businesses in Greece is concerned, Greece will be faced with under capitalization because the government or public sector is not presently in a better position to man the affairs of State enterprises and businesses and cushion them with the needed resources and capital to make them competitive on the globalised market. In effect, Greece may be facing the danger of collapsing most of her State companies. 1.3.2 UKs experience /reasons for implementing privatization United Kingdom was in the 1970s pushed into privatization for a number of reasons, most of which centered on the need to salvage the country’s public businesses from being swallowed with debts and losses. Indeed at a point in time, the United Kingdom government came to a realization that the financial injection done to the country’s economy in terms of sourcing capital and sustaining the capital market to cater for State owned enterprises was not forthcoming because of expanded budget (Runge, 2004). This was therefore the most underlining reason for the country’s adherence to privatization. Once implemented, there were a number of benefits that the United Kindom had as a nation. It is for instance noted that “from 1989 to 1990, companies privatized by the Thatcher government fattened the government purse by some £2 billion” (Moore, 1992). Despite the new profit scopes, there were disadvantages with the privatization systems in the United Kingdom. For example there was a phenomenon where wealth creation in the United Kingdom became centered among some little few. Eventually, there became the creation of the class systems and with time some people gained so much power to manipulate the government system. Most of the challenges that the United Kingdom faced have been associated to regulation issues. For instance it is said that the government of the day gave too much power to the private sector and that the implementation of the privatization process could have been done gradually. 1.3.3 How Greece can avoid UKs errors Experience, we say is the best teacher. What this implies is that we are always free to learn from the mistakes of other people. One of the things Greece can do to avoid the mistakes of the United Kingdom is to undertake its privatization process on a gradual basis. What this means is that at the very initial stages, it will be wrong for the government to sell off many companies together. Few companies should be privatized so that the revenues raised from the sales will be targeted at capitalizing and facilitating other State owned enterprises (Ellefson, Palm, & Othner, 2004). again, unlike the United Kingdom who in most cases undertook total sale out, Greece could avoid the mistake of selling 100% stake rather, the country always create a quota system whereby the government will at any point in time have some shares in privatized companies. This way, the government can still have authority in determining how the companies should be run by the private sector. 1.3.4 How the money raised from the privatization programme should be used When used to pay off debts, the money raised through privatization may not be regenerative. This means that the money will not yield other sources of funds. It is thus recommended that the nation uses the money to be raised in other income earning ventures. For instance the money could be used in further financial investments such as the sale of bounds on the international market. Such a move would help in restructuring the Greek economy. This however does not mean that the country should entirely forget about the debts it owns its debtors. As a way of raising special funds to pay off the country’s debts, the nation could lend out the proceeds from the privatization to the private sector so that interests on the loans will be channeled mainly into the settlement of debts (Krutilla. et al., 2003). 1.3.5 Taxation evasion issues on Greece One of the major advantages that Greece is expected to have through the privatization of public property is the payment of taxes by private investors. For this reason, any conditions that bring about tax invasion will be a major indictment on the part of government. Government is actually going to loss woefully should there be lapses that allows for taxes to be invaded by investors. It is therefore recommended that the government strategize a means that will ensure that the payment of tax is done though a well mechanized and synchronized system. For example government can choose to demand for certain amount of projected tax from investors. Such advanced tax payment will limit the probability that some companies and investors will go away with the taxes of the country unnoticed. 1.4.1 Summary The need for Greece to approach the privatization order from the European Union with a lot of caution and expertise has been outlined in the paper. First, it has been identified that the nation has a lot to loss in terms of diplomatic immunities if the nation decides to forgo the order from the European Union. It is therefore recommended that Greece takes the move to adapt to privatization. However as the country does this, greater caution ought to be taken to ensure that it does not function on the losing size. For example it has been stated that it is important that the privatization be done on a gradual step by step basis. Again, the country ought to share in the privatized businesses so that the mistakes of the United Kingdom where so much power became vested in the hands of ordinary civilians will not resurface. 1.4.1.1 UK"s experience / lesson/ advantages/ disadvantages The lesson from the United Kingdom experience is that it is wrong to vest too much power in the hands of civilians in the form of financial power. Once this happens, it is likely that the governance system will be corrupt because the wrong hands will find their way into the government through the influence of money. The advantages however include the fact that in the case of Britain, there was enough capital to push up the business and activities of undiversified government companies. There was also the widening of the tax basket such that there were enough funds raised to clear the debts of the government. On the disadvantage, the government lost a lot of its purchasing power to the private sector because there was no co-sharing of companies. 1.4.1.2 How Greece can avoid errors of UKs experience One of the best ways by which Greece can avoid the mistakes of the United Kingdom is to practice co-privatization instead of outright privatization. In co-privatization, the government will own some part of the businesses sold so that the government will continue to have stacks in the affairs of the country’s economy. 1.4.1.3 How should Greece use money raised It is duly advised that Greece uses a greater part of all money raised in re-investment into the economy. Investments should come in the form of the sale of government bounds and treasury bills. Government could also go extensively into the lending market as a way of gaining interests on the money raised. With time, government can be buying some of its stakes and shares from the sales that were made earlier (Baumol, Panzar & Willig, 2002). REFERENCE LIST Moore, John. British Privatization—Taking Capitalism to the People.1992. web. August 1, 2012 Starr, Paul. The Meaning of Privatization. Yale Law and Policy Review 6 1988: 6-41. Musgrave, Leviathan Cometh--or Does He?, in Tax and Expenditure Limitations 77 (H. Ladd & T. Tideman eds. 2001). Runge, The Fallacy of "Privatization," J. Contemp. Stud., Winter 2004, at 3,12. Ellefson, Palm, & Othner I , From Public Land to NonIndustrial Private Forest: A Minnesota Case Study, J. Forestry, Apr. 2002. at 219. Krutilla. et al., Public versus Private Ownership: The Federal Lands Case, 2J Pol. Analysis & Mgmt. 548 (2003). Baumol W., Panzar J & Willig R, Contestable Markets and the Theory of Industry Structure (2002). Read More