Privatization

Concepts
Milton Friedman, Nobel Prize in Economics, 1971

“We have government of the people, by the bureaucracy, for the bureaucracy.”

John Maynard Keynes,

one of the most influential economists of the 20 th century.

“"His radical idea that governments should spend money they don't have may have saved capitalism.“
Times Magazine, 1999

Purpose of Study
The purpose of this study is

 to identify Privatization in Sri Lanka

 To identify stages of privatization

 To identify major problems and issues of privatization

Scope of Privatization Study

 The purpose of this study is to identify those parameters and policy issues to be considered in
connection with proposals to transfer federal, state, or local government services, assets, and/or
function to the private sector. It will review the stated goals and the community impact of such
transfers and identify strategies to ensure transparency, accountability, and preservation of the
common good.

Concepts
 Privatization: The Public Policy Debate

 Privatization is a movement to deregulate private industry and/or

transfer many government services, assets and functions to the private
sector.

Definition of Privatization
 Classic
  Total transfer of assets and authority from the government sector to the for profit or nonprofit
sector

 Purposes: Shrink government; Reduce risk and cost

 Reason: Often a response to economic downturn; Ideology

Definition of Privatization

 Modified

 Private sector provision of a service once/also provided by government along with

private sector funding (Proprietary colleges)

 Private sector provision of a service with public sector funding (Direct funding for a
private college; Private trash collection paid for by tax revenue)

 Public sector provision of a service with private sector funding (Student tuition at public
colleges)

Definition
Deregulation
the lessening of regulatory provisions that govern individuals, entities, and systems.

Definitions

Decentralization
 Moving the authority for a function from a central agency to an agency closest to where the
activity is actually performed.

Privatizing Actions
• deregulating – reducing regulations (often used as a defining characteristic of privatization),

• contracting with the private sector to purchase a service (road construction),

• establishing incentives to encourage the private sector to provide a service,

• abandoning or shedding of services,

• reducing demand for a service,

• establishing quasi-public organizations (government enterprise, charters),

• establishing separate corporations - profit and nonprofit (authority),

• supplying temporary help on the part of the private sector,

Con……
• issuing vouchers

• issuing waivers,

• selling or giving away government owned assets,

• establishing franchises,

• leasing,

• subsidizing or making available grants to the private sector,

• relying on user fees rather than tax dollars to fund a service (hunting licenses),

• discontinuing subsidies to public entities (almost doing this with public higher education in some
countries),

• providing joint funding,

• establishing public/private partnerships, and

• setting up consumer self-help processes, or using volunteers

Summary
 For the purposes of this study, privatization can be considered as occurring any time the
government gives up some amount of control in any of several different ways. Examples
include:

 Authorities (Regional Transportation District)

 Charters

 Deregulation (Higher education procurement )

 Transfer of assets to a private entity (Workers Compensation/Pinnacol)

 Contracting with for profit or nonprofit entities (e.g., building contractors, social
services)

 Turning over a service (provision of, funding of) to an other than government entity

History
 Shift from central control to less central control – late 1960s/early 1970s

 End of “regulatory capitalism” (Yergin 1998, 8) – regulatory backlash

 Reducing the size of government

  Revitalizing entrepreneurial spirit

 Restoring influence of market forces

 Reducing taxes

Recent Examples of Privatization or Suggestions to Privatize

 Social Security

 Medicare

 Student loans

 Military service

 Highways, roads, and bridges

 Corrections

 Education

 Libraries

 Parks

 Court services

 Free Trade

 Eliminate food safety

 Eliminate environmental safety

 Establish a flat tax

 Eliminate Workers Compensation

Con….
 Sale of Conrail, government owned/operated rail system

 Use of private entities for military support services

 Deregulation of airline, natural gas, electrical and telecommunications industries

Attributes Attached to
Public Entities
 Part of state

 Geographic boundaries
  Public action

 Public welfare

 Public as beneficiaries

 Public accountability

 Base on certain principles: e.g., Equality, Security, Fairness, Safety

Attributes Attached to Private (nonprofit and for profit) Entities

 Part of the economy

 No boundaries except those self imposed

 Private action/Operated by individuals

 Individual freedom

 Privately held assets

 Benefits individuals

What should the government do?

 Public Safety

 Defense

 Justice

 Protect public health/environment

 Education

 Ensure democracy

 Other?

Does government have to do these things itself?

What is the balance between government, business, and civil society?
How can the balance best be fostered?

The public agenda of privatization requires a close examination of the proper relationship between
government, business and civil society.

Major Issues in Privatization:

Transparency and Accountability

Sunshine Laws
Freedom of Information Act

Community Engagement

Can these requirements be applied to privatization?

Some thoughts on Choosing Privatization

 How can a community vision be developed?

 What are the goals and which form (government/privatization) would best achieve the goals?

 Which concept would best achieve quality?

 Which is the least costly while still maintaining other goals?

 How will personnel be affected?

 What is the political resistance?

 What are the legal constraints?

 Which provides more choice?

 What are the risks and hazards?

Privatization in Sri Lanka

In
 late 1989, a dozen years after accepting the need for a more market directed economy, Sri Lanka
completed its first successful sale of a public company. In the five years since that event, over forty
additional sales of companies have taken place, along with greater private sector involvement in bus
transportation, tea plantations and some other, less extensive, government activities

Con…
 Privatization has been pursued aggressively in Sri Lanka since 1989. By mid-1994, 43 enterprises
in the industrial sector and 92 bus depots in the public transport sector had been privatized.

 By 1997, the number rose to 75, with several plantation companies and large utility-oriented
industries such as telecommunications and gas being privatized

Preparations for Privatization

 Privatization was announced as a state policy in 1987 with a view to reducing the financial
burden some SOEs posed on the government as well as to improve efficiency, profitability and
productivity.

 In preparation for privatization, certain steps were taken by the government from the early
1980s. Among these were:
Con…
 Improving the commercial orientation of the SOEs

 Allowing the private sector to compete in commercial activities by abolishing public

 sector monopolies

 Transferring management of some loss making public enterprises to the private sector

 under a contract system

 Franchising certain parts of public enterprises to the private sector

 Closing down of several non-economical enterprises.

Con…
 In setting up the legal and institutional framework for privatization, the following was done:

 two legal enactments were passed in parliament. These were the Public Corporations

 Act No. 22 of 1987 for the conversion of government owned business units into public
corporations and the Public Company Act No. 23 of 1987 for the conversion of public
corporations and government owned business units (G.O.B.U) into public companies.

Con…
 The public companies so formed were relatively free to determine their employment levels, pay
scales and were only partially subjected to government tender and investment approval
procedures.

Reading List – LWVUS

 Consensus Questions – Introduction

 Strategies for Best Practice

 State Level Privatization 2011

 Privatization: The Public Policy Debate

 The Legal Framework of Transparency and Accountability within the Context of Privatization

 Deregulation of Railroads

 Privatization of a Publicly Owned Waste Water Treatment Plant

 Subcontracting Public Education

 Privatization of Prisons
Reading List – Other
 Decentralization in U.S. Public Higher Education – Sections on Governance, Privatization and
Deregulation and Choosing Privatization (Larson 2003)

 Government Privatization: History, Examples, and Issues (Commission on Government

Forecasting and Accountability 2006)

 Privatization: Lessons Learned by State and Local Governments (U.S. General Accounting Office
1997)

 The Meaning of Privatization (Starr 1988)