Privatization has been an issue if much debate during this presidential election. In particular, privatization as it relates to social security reform has been the primary focus. The purpose of this discussion is the provide arguments for privatization and against privatization. The discussion will also cite situations and examples both in America and abroad as to why or why not privatization is a good idea, and why it may or may not work. Let us begin our discussion by defining privatization.
Privatization is defined as the altering of a public enterprise into a private enterprise (Scott). According to a book entitled Privatization and Economic Performance, Privatization is designed to "improve industry performance by increasing the role of market forces." (Bishop et al.) In many cases, privatization comes about after there is a problem in maintaining the financing of the public enterprise. Such is the case with the issue of social security in the United States.
Arguments for privatization
There are many reasons that are often presented as to why privatization is important and essential. According to a book, entitled Privatization and Capital Market Development: Strategies to Promote Economic Growth privatization can be extremely beneficial to a country because it relieves the government of certain obligations. (Ciobanu and McLindon)
Once the government is free of this obligation, they can focus on the fundamental responsibilities of government. (Ciobanu and McLindon) The authors explain that privatization "enables a government to shift its portfolio of interventions out of areas of the economy in which the private sector is able to operate more efficiently and productively." (Ciobanu and McLindon)
The book also explains that the main purpose of government is to for the adequate investment in its citizenry (Ciobanu and McLindon). The authors contend that when the government attempts to take on more responsibility than it can handle, the results can be more harmful than helpful (Ciobanu and McLindon). In addition, the book asserts that as a governments resources decrease and demands of the population increase governments cannot afford to ignore the benefits that privatization can provide (Ciobanu and McLindon).
Proponents of privatization also contend that several factors contribute to the need for and success of privatization in different nations. The authors of the book Privatization and Economic Performance contend that there are three solid reasons for privatization. The book describes these reasons as finance, information and control (Bishop et al.). The authors contend
The financing of both government and the firm is affected by privatization. The government raises finance in the process of disposing of assets; firms are free to raise finance from capital markets. Information is of relevance in setting prices. Competition ensures that prices are consistent with efficient allocation of resources and lowest costs of supply. Even in the absence of competition it has been suggested that privatization may allow prices to be imposed that encourage greater efficiency of supply. Where price mechanisms alone are not adequate then control is of relevance. Changes in ownership are most directly associated with changes in control. Privatization programmes in principle involve a weakening in control exerted by the state and a transfer of control to private investors (Bishop et al.)."
As it relates to social security reform in America, privatization is viewed by many as a cure fir the impeding insecurity of the social security system. Economists have concluded that the current social security system is broken and will not be able to provide retirement funds to American in the future. Some believe that privatization will improve the situation.
An article found in the Journal of Economic Issue, asserts that the privatization of social security system can prove to be beneficial if it is implemented correctly (Niggle).
Arguments against Privatization
One of the main arguments against the privatization of government-operated enterprises is that there is no real financial benefit (Shenk). An article in the Washington Post asserts that privatization is not always better or more cost efficient than public sector programs. The article asserts that although there is a contention that privatization is more beneficial to taxpayers, the actual track record of privatization tells a different story (Shenk). The author explains that privatization can lead to problems with contractors due to a lack of competition, fraud and negligence on the part of the private entity (Shenk).
There is also an inference that because private organizations are market driven, their ability to make a difference is sometimes unpredictable. According to a report published...
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