Privatisation

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State Provision (or Nationalisation)

The state can provide a a number of goods and services for consumers. This is called state provision.

State provision

The government either provides state provisions itself (e.g. state education) or provides free goods or services to the public that it's bought from the private sector (e.g. private health services offered free to NHS patients).
The government pays for goods/services through tax revenues. It then offers them to the public for free.
Examples:
- The National Health Service (NHS).
- Police service.
- Secondary school education.

Advantages of state provision

State provision can reduce inequality by redistributing money from the wealthy to the poor. This is something the market doesn't always do.
Without state provision, some services might not exist as they aren't profitable.
- E.g. some train routes that aren't profitable do not exist.
Value judgements need to be made about what the state can and can't provide well.

Disadvantages of state provision

Without a drive for profit, there is less incentive to make a service as efficient as possible. The economic incentives for efficiency could be eroded.
There is an opportunity cost of providing one service over another.
With asymmetric information, there is a risk of government failure.

Privatisation

The government owns public firms and industries. Privatisation sees publicly owned firms/industries become privately owned firms/industries. Governments may privatise to boost competition.

What is privatisation?

Examples of what privatisation entails include:
- Public Private Partnerships (PPPs) - when a firm in the private sector completes a project for the government that benefits the public (e.g hospitals are often leased to the government by private firms which own the building).

Advantages of privatisation

The incentive for profit means that resources will be allocated more efficiently.
When the government sell off their enterprise, they will gain revenue that can be put to alternative use.

Disadvantages of privatisation

The drive for efficiency means that an element of humanity might be lost. Efficiency may come in the way of delivering a fair service.
There is a moral argument against providing some services profitably.
- E.g should we be able to pay for better healthcare than others?
Safety and spending on safety measures may be worse in privatised industry that are judged only on profits.

Examples of Privatisation

Here are some examples of privatisation in practice:

Privatisation of Royal Mail

The Royal Mail was an entirely publicly held firm until 2013 when the government sold 60% of its stake to private investors and gave away 10% in shares to employees, leaving the government with 30%.
The government sold the rest of its shares in 2015, and in total raised £3.3bn.
The government argued that selling Royal Mail would allow it to raise funds to make the investment required to fend off new competition. The government used the money to pay off some of the UK's debt.

Contracting out

Governments contract out the provision of various services. The government then pays for the contract and distributes as if it had been publicly provided.
By contracting certain jobs out, the government can get jobs done by specialist firms who service other customers and benefit from economies of scale.
But by contracting out certain jobs, the government becomes reliant on other firms. There are risks that a firm with a contract goes bankrupt or faces strikes from its workforce.

Tendering

Governments can put out jobs to tender, giving prospective suppliers the chance to bid for contracts to supply goods or services.
Tendering is a competitive process with firms giving their best offers in order to win contracts.
However, because the tendering process is based on what firms promise they can deliver, it is common for firms to over promise and under provide which can lead to large unexpected costs and reduced quality.

Public-Private Partnership (PPP)

PPPs are when governments and private firms collaborate on a project.
Funding comes from a combination of government payments and the firm being given the rights to earn money from this, on completion.
Any shortfalls between initial costs and the government grant is covered through Public Finance Initiatives which raise money through selling bonds to banks and investors.
The government is responsible for making sure the objectives are met and the firms are responsible for the execution.

Veolia and Suez

Veolia and Suez are two multinational waste collection, disposal and water management companies.
They both work closely with local and national governments across the world and often compete in the tendering for contracts and in being involved in PPPs.
In 2018, Suez's UK projects included the opening of a 'Energy from Waste' plant in Cornwall and Wilton. This is a PPP with the firm working with local councils to bring the project to life.