Private firms and public business

Ricardo John Munyegera, Lecturer: Gerd Höfinghoff

3rd December 2014 Englisch für SozialwissenschaftlerInnen

Structure Review of previous chapters Market failures, government solutions and these

failures Government failures identified by neoliberal critique Marketization strategies to the failures Problems of marketization Privatization and marketization Privatization with or without marketization Private providers compete with public ones, but within

publicly funded system Remoteness from the private sector Conclusion Questions Sources

Market failures, government solutions and these failures

Market failures Inability of the market. Problem of public and

merit goods. Existence of goods without

prices. Transaction costs of

exchanges. Inequalities of wealth and

power accumulate. Powerful interests.

Government solutionsRegulations passed.Direct provision of goods

by taxation.Redistributive taxation.Clear decisions on service

provision.Direct state provision of

goods & services.Public service codes of

conduct – separation.

Government failures identified by neoliberal critique

• Regulation imposes excessive burdens on market; so formalistic and slow.

• Unwanted services, unresponsive to customers; dominance of producers; high taxation, etc.

• Are subject to lobbying from interest corporations; accelerating inequalities.

• Excessive centralization and remoteness• Politico-administrative elites, i.e. become out of

touch with business approaches.

Marketization strategies to the failuresPublic service failuresUnresponsive to

customers; dominated by producer interests; centralized & remote.

Unwanted services; inadequate cost effectiveness; high taxes.

Public service out of touch with business.

Marketization responses Privatization with regulation –

competition remain imperfect. Market-making within public

service. Private providers & sub-

contractors compete with public ones in a publicly funded system.

Internal markets Adoption of business criteria in

government practice. Intensive interaction

encouragement & learning of the private sector.

Problems of marketization• Scope for extensive marketization

often limited by technical features.• Market failure due to inadequate

information.• Limited use of mechanisms like central

authorities.• Limited use of price mechanisms.• Limits to & inappropriateness of pure

markets in public service.• Development of insider firms, return to

market failure of inadequate barriers.

Privatization and marketization Privatization“refers to selling or otherwise

handing to private owners the assets of a formerly public service”

OR ‘the transfer of ownership, property or business from the government to the private sector’.

Marketization“implies offering a good or

service for sale, placing it in the market under all the conditions above”

OR ‘its the exposure of an industry or service to market forces’.

Both compliment each other and work in a combination. The weaknesses of these monopoly privatized firms leads governments to establish

regulations for the market. The persistent problems maybe solved by marketization which may be done with in the public or private sector

leading to ‘Internal markets’. Also marketization may work as a check and balance for the privatization problems like oligopoly creation and limited

opportunities for competition.

Privatization with or without marketization

• Distinction between the two.• True markets have rarely

accompanied these privatizations, problems of oligopoly and limited opportunities for competition.

• The weakness of markets in these monopoly privatizations has been seen by governments through establishment of public regulation offices.

• Users of privatized services rarely notice much change in their status.

Private providers compete with public, but within publicly funded system

• Radical steps – private providers have been invited to compete with existing public ones.

• All practitioners were ‘knights’ but today they’re seen as potential ‘knaves’.

• Professional ethics have been set up due to growth of welfare states.

• Markets could only be made in policy fields where they had not previously existed.

• Concept of consumer sovereignty was nurtured.• New models’ programme gave public authorities

incentives. • Contract length is very crucial in the day-to-day

service provision.• Subcontractors have no market relationship to the

users and the public loses its citizenship claims.

Remoteness from the private sector

• Arm’s-length relationship between public officials and private firms.

• Public firms urged to act in the market.• There has been encouragement of intensive

interaction between public servants & private sector personnel.

• There is a paradoxical relationship between these developments and marketization, i.e. seeking advise versus weakening the market.

• The fundamental neoliberal strategy dilemma remains as intervention is maintained here.

Conclusion • Neoliberal critique identify real problems with

classic public service but the remedies are no better than the disease.

• The uncomfortable role that the corporation is playing in the polity; most debates concentrates on the ‘state vs. market’.

• Neoliberalism departs from both political and economic legacies of liberalism in not seeing any problem in a close relationship between firms and the state.

• Extreme neoliberals accept that market efficiency does not account for the sum total of human objectives and that a democracy has a right to establish alternative goals and parameters.

Questions • Is privatization or marketization a

solution to the classic market system problems? If so, then how can it operate to successfully solve the underpinning reasons?

• Do you agree with Crouch that the market does not always require the firm, and vice versa?

• What are your opinions on the questions raised by the author on page 90?

Sources

• Collin Crouch - The Strange Non-death of Neo-liberalism; 2011; Published by Polity; Topic , “Private Firms and Public Business” pages 71 – 96; ISBN-13: 978-0745652214.

• http://www.mpi-fg koeln.mpg.de/pu/oa_wiss_pub/BJPIR_11_2009_Crouch.pdf.