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Research Paper on Privatization

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Sample Research Paper on Privatization


The debate over state ownership vs. privatization has long been around. Despite the new wave of proclamations following the rise of Margaret Thatcher (Martin, 1997) and fall communism in Soviet Union and Eastern Europe (Radygin, 1995), arguments over private versus public ownership persist. This tendency appeared partly due to failure of Russian privatization efforts, and the outcomes of voucher privatization and infrastructure privatization in various developing countries. The wave of globalization has also produced the backlash against the concept of privatization producing the growing number of controversial arguments and debates. This paper aims to analyze the historical shift from nationalization to privatization and unveil the controversies related to this shift.


In the historical context it makes sense to look at the last ten years, which have brought profound changes to our life and progress. The world has changed a lot during this time and the intellectual framework used to approach the development has also changed considerably. State ownership was quite popular among the developed nations in the 1930’s, 1940’s and 1950’s. The developing countries caught the wave in the postwar period. In industrialized nations state ownership was perceived as the remedy for market failures and was compared with monopoly and externalities, which were quite widespread at that time. However, the developing countries were observing the illusionary success of state ownership and acted correspondingly by setting up planning commissions to guide their economies. In many cases the state took over control beyond guidance and into actual ownership of enterprises and production. Such was the era of nationalization perceived in entirely different manner today as a totally false approach that produced corruption and economic failure (Hemming, 1988).

The main argument of the developing nations in favor of state-owned enterprises (SOEs) was that this type of economic relations facilitates planned development and “economic independence”. Although the state ownership was attacked back in the works of Hayek and Friedman, these theories did not gain recognition until the 1960’s and 70’s. At that time prediction was that SOEs will be less efficient than private firms. Later, in 1980’s and 1990’s the theory of the subject matter has shifted from government behavior and corporate governance to questions of state-owned enterprises and privatization. Meanwhile, the governments in both developing and industrialized nations were witnessing the increased number of failures and waste attributed to SOE. These concerns have consequently brought an emerging controversy to the debate on the state ownership merits (Beesley, 1997).

The planning model of SOE approach was seen to have little growth, was resulting in stagnation and finally brought the social economies to collapse. By the 1980s this mistake was realized and countries got actively engaged in the process of privatization worldwide (Beesley, 1997).

The Benefits of Privatization

Now that the process of privatization has reached worldwide and some of the changes resulting from this process have already proved its effectiveness, it is easier to see the obvious benefits of the privatization for the development of economy. The privatization has demonstrated its superiority over nationalization in many different ways. First, it balanced the demand and supply, making production more cost-effective and competitive. Second, it increased the quality of products and services offered on the market. Finally, it provided the opportunity for individual achievement and achievement itself.

Seldom are the cases when state-owned enterprises come up with some brilliant and competitive technologies that almost change the course of history, unless we are talking about arms and weapons. The core of progress is competition, but state-owned enterprise has no interest in it for obvious reasons. Therefore, a country that rejects a process of privatization will end up being in the list of less developed.

Public vs. Private

So far privatization has proved to be a very viable method of restructuring the dead beat economies and putting them back on track. However, with some of the failures mentioned in the beginning, all sides of the issue should be considered, since by no means privatization can serve as a cure for all misfortunes. Unless performed properly, privatization has a tendency to get out of control in exactly the same way as nationalization. For example, while the process of privatization can improve the quality of products and services, it may also result in the growth of prices that no longer will be controlled by the government. The increased liberalization may also cause an erosion of the social security net, since unlike the government, which is obliged to provide a certain minimum of services to its employees, private organizations have no such obligations and therefore may choose not to grant the social security services to their employees (Hemming, 1988).

Privatization also represents a threat to the employment structure and unemployment rate of the country. Private firms are usually concerned with smaller number of personnel then state owned enterprises and therefore they have a tendency to hire young professionals rather than old ones. Thus, privatization inevitably influences the unemployment rate and results in increase of senior population being unemployed.
Besides, when talking about bureaucracy and unethical behavior in state-owned enterprises, the private sector companies may inherit the same tendency if the strong regulation is not imposed. Such were the cases with Mohib Textiles, Paramount Spinning and Schon Bank to name a few. The fact of increased effectiveness and productivity is not always the case when the process of privatization takes place. For example, National Fibres became less profitable after it was privatized (Beesley, 1997).

Privatization is definitely a positive process and the success of many industrialized countries has proved it. However, when considering the option of privatization, it is important that all aspects and outcomes of this process are being anticipated. By no means should privatization be taken to extreme without certain safeguards, since as any other system, privatization may have its drawbacks same as nationalization did.

One way or another, the government still plays an important role in some areas, where privatization doesn’t reach. Therefore, when turning to the process of privatization, it is important that the government fulfills its role, since the concern otherwise will be not the process itself, but the shift of this role to the private sector.


Politics defines the principles of a proper social system, including the proper functions of government. Living in society is a value to man if it is the right kind of society. The wrong kind, like any wrong course of action, is a threat to man, and can be fatal. There is only one standard in defining the “right” social system: the extent to which individual rights and private enterprise are developed. The social system with the strict all-embracing government control and no respect for individual rights and needs is a system, where man is taken for no more than a cannon fodder and community is praised in a form of a faceless crowd of men serving to each other and to no-one in particular. “The mass of men serve the state thus, not as men mainly, but as machines, with their bodies”, writes Thoreau. The Soviet Union was one of those countries who have inherited such system. The result speaks for itself. Such system failed and didn’t last even for one century.

Whenever changes occurred in the course of our history, those nations that were able to adapt to these changes quickly ended up doing better in terms of living standards and overall development. Changes that occurred during the shift from nationalization to privatization are no exception. The fact that the process of privatization failed in Russia is not a reason enough to consider that privatization itself is not effective, many other examples prove the opposite. It would be an extreme to state that the role of government is not important. Good educational and environmental policies can actually enhance economic growth. However, when the state controls the production and dictates the market demand and supply, such system will sooner or later fail for its inefficiency. In the end, privatization is not only an economically beneficial process, but it’s the only right moral way to create a man-centered environment and make the government serve to the man rather than vice versa.

1. Beesley, Michael. Privatization, Regulation and Deregulation. Routledge, 1997.
2. Hemming, Richard. Privatization and Public Enterprises. International Monetary Fund (IMF), 1988.
3. Martin, Stephen; Parker, David. The Impact of Privatization: Ownership and Corporate Performance in the United Kingdom (Industrial Economic Strategies for Europe S.). Routledge, 1997.
4. Radygin, A. Privatization in Russia: Hard Choice, First Results, New Targets (New Series). Centre for Research into Post-Communist Economies, 1995.
5. Thoreau, Henry David. Resistance to Civil Government, or Civil Disobedience. Retrieved at: http://www.vcu.edu/engweb/transcendentalism/authors/thoreau/civil/

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