Privatization: an Overview from a Public Administration Perspective

University of Montana ScholarWorks at University of Montana Graduate Student Theses, Dissertations, & Professional Papers Graduate School 1990 Privatization: An overview from a public administration perspective Holly Luck The University of Montana Follow this and additional works at: https://scholarworks.umt.edu/etd Let us know how access to this document benefits ou.y Recommended Citation Luck, Holly, "Privatization: An overview from a public administration perspective" (1990). Graduate Student Theses, Dissertations, & Professional Papers. 5853. https://scholarworks.umt.edu/etd/5853 This Thesis is brought to you for free and open access by the Graduate School at ScholarWorks at University of Montana. It has been accepted for inclusion in Graduate Student Theses, Dissertations, & Professional Papers by an authorized administrator of ScholarWorks at University of Montana. For more information, please contact [email protected]. Mike and Maureen MANSFIELD LIBRARY Copying allowed as provided under provisions of the Fair Use Section of the U.S. COPYRIGHT LAW, 1976. Any copying for commercial purposes or financW gain may be undertaken only with the author’s written consent. MontanaUniversity of Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. PRIVATIZATION: An Overview From a Public Administration Perspective by Holly Luck B . A. Carroll College, 1971 Presented in partial fulfillment of the requirements for the degree of Masters in Public Administration University of Montana 1990 Approved b hairman ean. Graduate School Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. UMI Number: EP36654 All rights reserved INFORMATION TO ALL USERS The quality of this reproduction is dependent upon the quality of the copy submitted. In the unlikely event that the author did not send a complete manuscript and there are missing pages, these will be noted. Also, if material had to be removed, a note will indicate the deletion. UMT OwMrtation PuUttNing UMI EP36654 Published by ProQuest LLC (2013). Copyright in the Dissertation held by the Author. Microform Edition © ProQuest LLC. All rights reserved. This work is protected against unauthorized copying under Title 17, United States Code ProQ^st’ ProQuest LLC. 789 East Eisenhower Parkway P.O. Box 1346 Ann Arbor, Ml 48106-1346 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. TABLE OF CONTENTS Introduction ............................................... I Definition: Variations on a Theme ....................... 3 Why is Privatization Popular Now ......................... 11 The Privatization Option .................................. 17 Privatization & Public Sector Management ................ 28 Concluding Remarks ..................................... 53 Footnotes .................................................. 58 Bibliography ............................................... 60 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. "Not content with justifying the idea of private property, I should like to make it appealing even to the most rabid partisans of public ownership." Frederic Bastiat (1850) INTRODUCTION The government of Great Britain, in 1984, sold by public subscription 51 percent of the shares of the previously nationalized British Telecom Corporation. In Bangladesh, the government recently sold to private investors a number of jute mills nationalized by the government a decade ago. China, shedding the xenophobia of the Maoist period, is entering into a number of joint-ownership ventures with Western firms. President Ronald Reagan of the United States recommended in his 1988 Budget Message to Congress that the five power marketing administrations (PMAs) be sold to private investors. These five decisions taken by governments functioning under widely divergent political and economic systems share a common characteristic. They are all instances of decisions designed to promote and implement a concept called "privatization." It is evident to even the most casual reader of newspapers and journals that "privatization" is a popular idea at all levels of government. As with many political labels, however, privatization is interpreted to mean many different things. Although the term may inspire a number of interpretations, there is an underlying consistency in its principle theme. The theme of privatization appears to be that wherever and whenever possible, the objective of public 1 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. 2 policy should be to shrink the size and role of the public sector vis-a-vis the private sector. This theme cuts across many scholarly disciplines resulting in a somewhat confusing welter of terms, concepts, and literature. Although the parentage of privatization is clearly traceable to the discipline of economics, and more particularly to the free market school of economics, related disciplines such as public administration and law also have been involved to varying degrees with the development of privatization. The purpose of this study is to provide an overview of privatization with emphasis given to its potential impact upon the United States federal political and administrative systems and to explore the various elements of privatization. While much of the current debate over privatization is conducted by economists using the language and concepts of that discipline, this paper will emphasize the implications of privatization upon the field of public administration. The discussion will range from the descriptive accounts of what is taking place here and abroad to questions concerned with theoretical distinctions between the public and private sectors. Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. CHAPTER 1 DEFINITION: VARIATIONS ON A THEME Privatization, as a word and as a concept, is closely associated with the discipline of economics. It is a term employed internationally, as well as domestically, and is today one of the central concepts in many discussions of possible future directions for the world economy. The term "privatization" has come to be a short-hand referent to describe a number of practices. If public activities are viewed on a spectrum with one end being a pure public function and the other end being a pure private function, any decision that moves an activity toward the private end of the spectrum is likely to be described as an act of privatization. In many instances, however, the shift from the public sector is partial, with residual responsibility remaining with the public sector. This is the case, for instance, when the performance of a function is contracted-out to a private firm. In discussions promoting privatization, Ted Kolderie asserts that some governmental services ought to be "turned over to" the private sector. Kolderie asks: What does "turned over to" in this context mean? "Government performs two quite separate activities," Kolderie points out. "It is essential to be clear which activity would be dropped under privatization. Is it the policy decision to provide a 3 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. 4 service? Or is it the administrative action to produce a service?"! Generally speaking, the decision to "turn over to" the private sector some activity in the public realm refers to the actual production side of the service rather than the responsibility for deciding whether the service ought to be provided, a responsibility that generally remains with a governmental unit. While specific privatization proposals will differ in their scope and method, promoters of privatization are quite clear in their objectives. In every instance, the objectives of privatization are to reverse the century-long expansion of the public sector; to decrease the intervention of the state in the economy and private lives generally; and to promote the productivity of the unit in questions through deregulated free markets. However, it is not sufficient to approach this study with only the general designation. It is necessary to have some understanding of the specific forms it can take. The word "privatization," as previously indicated, is a general term covering a number of distinct activities. Included in the list of methods for privatization are: divestiture (selling) of corporate bodies; contracting-out for the performance of services; imposition of user fees; use of vouchers; awarding of franchises; and voluntarism.2 Each of these methods for providing a public function is worthy of separate study. Indeed, the literature on contracting-out is substantial in itself. In recent years, however, the Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. 5 activities noted above have often been subsumed under the more general term of privatization. DIVESTITURE The sale, or divestiture, by a government of any agency, corporation, or service, to private ownership is the most clear-cut method of privatization. Another form of divestiture is to simply sell some asset, such as Federal land, to a private firm or individual. Or, the government may simply give some asset away as the federal government did when giving land to homesteaders

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