Privatization in uk macroeconomic Analysis icon

Privatization in uk macroeconomic Analysis




НазваPrivatization in uk macroeconomic Analysis
Дата29.06.2013
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Privatization in UK

  • Macroeconomic Analysis,

  • Topic 5


Central Idea and Keywords

  • Purpose:

  • The essence of efficient privatization

  • Keywords:

  • Privatization, Regulatory policy; Companies’ Liberalization, Hybrid firms

  • Offers for sale versus Tenders for sale



Lecture plan

  • Privatization Fundamentals:

    • Why Privatizing
  • Optimal Privatization:

    • What to privatize first? How to adjust other (not-ready-yet) firms?
    • Privatization mechanisms: the balance of “social justice” and firms efficiency


Literature:

  • Lecture Slides Only!

  • (to cite:

    • Jackson P. & C. Price. Privatization & Regulation. // Harlow: Longman. – 1997)


Lecture plan

  • Privatization Fundamentals:

    • Why Privatizing
  • Optimal Privatization:

    • What to privatize first; How to adjust other (not-ready-yet) firms?
    • Privatization mechanisms: the balance of “social justice” and firms efficiency


Privatization Fundamentals

  • Privatization:

  • Introducing private-sector-specific mechanisms to public sector

  • Regulatory Policy:

  • Establishing state control over

    • Market entry/exit
    • Quantity and range of goods/services
    • List of (inputs’) sellers and (final goods’) buyers
    • Firms profitability


Essence of Regulatory Policy

  • The government might need to privatize a firm even if the firm confronts non-competitive market

  • In this case the regulatory policy is mandatory. Purpose: to mitigate potential monopoly power of the privatized firm (rather than to offer SBC).



Why Privatizing?

  • State ownership: Benefits

  • Defense industry

  • Infant industry

  • Smoothing negative external shocks (e.g. global 2008 crisis)



Lecture plan

  • Privatization Fundamentals:

    • Why Privatizing
  • Optimal Privatization:

    • What to privatize first; How to adjust other (not-ready-yet) firms?
    • Privatization mechanisms: the balance of “social justice” and firms efficiency


What to Privatize First:

  • Firms that at the beginning of privatization campaign have already been:

  • Profitable.

  • Competitive

  • & their privatization did not hurt consumers

  • Alternatively:

  • Holdings with limited state ownership



How to Adjust Profitability

  • Prior to privatization:

  • Raise prices

    • “Thames Water Authority” was able to cover totally its tax debt till the end of 1989
  • Write Tax Arrears off

    • The government was compensated by a stock of shares
    • (!) the overall price of the sate portfolio was less then the bailed out debt


How to Adjust Competitiveness

  • Introduced foreign competitors a limited assess to British market

  • “Regionalization” of monopolists:

    • A monopolist was split to independent regional offices (former local subsidiaries)
    • The government regularly monitored different regional offices and compared their price/cost margins


How to Adjust Competitiveness

  • For Natural Monopolies:

    • The natural monopoly was not privatized
    • Distributors – small private firms (competitive market)


How to Adjust Corporate Culture

  • Privatization is useless if managers are not ready for that!

  • Introducing Adequate Corporate Culture:

  • Kind persuasion

  • Persistent monitoring and stridden critique

  • New managers placement:

    • Active proponents of privatization
    • Outstanding specialists in marketing
    • Having solid background in private firms management
    • Having basic knowledge in a sector they need to govern


  • New managers of British Telecom have first implemented liberalization and later – privatization.

  • Firm’s Liberalization:

  • Establishing joint venture: government and private owners

  • A state company introduces

    • Licenses offered to private distributors
    • Subcontracts aimed to produce particular goods/services
    • in order to allow private firms operating on a market which previously was totally controlled by state entities.


Optimal Privatization: Self-test questions

  • Could water/gas/ energy suppliers be privatized right now?

  • What is the proper strategy of their privatization?

  • Should the strategy differ for firms-producers and firms-traders?

  • Is Liberalization applicable in this context? If “yes” – to what extend?



Lecture plan

  • Privatization Fundamentals:

    • Why Privatizing
  • Optimal Privatization:

    • What to privatize first; How to adjust other (not-ready-yet) firms?
    • Privatization mechanisms: the balance of “social justice” and firms efficiency


Sales Methods



Hybrid Companies (HC)

  • HC – partial state ownership.

  • Reasons for introducing HC:

  • Influence a company partially controlled by foreigners

  • Precursor of a 100% privatization



Sales Mechanisms



Social Justice: Other Options

  • Petite investors could pay for their shares via two or more tranches

  • Petite investors were offered non-monetary payment ruses:

    • “Voucher”
      • Backed by a fixed proportion of future profits;
      • If paying by vouchers, a person refuses from its profit for a certain period of time.


Privatization Results: State versus Private Monopoly

  • State Monopoly:

  • Insensitive to bankruptcy

  • Used to get SBC

  • State Competitive Firm:

  • Insensitive to bankruptcy

  • Actively seeks for SBC



Privatization Mechanisms: Self-test questions

  • Why “social justice” and firms efficiency privatization concerns might differ?

  • Is it possible to privatize a firms safeguarding its (i) future efficiency & (ii) “social justice”?

  • How to assure “social justice” (three possibilities)?

  • What is more harmful for a society: a private or a state monopoly? Why?



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