privatization

privatization
   Privatization is the act of returning to private ownership a company or concern that is owned by the state, while nationalization is conversely the opposite. In the postwar period up to the Thatcher administration, nationalization remained prevalent. The Thatcher era changed this.
   The validity of nationalization can be explained from the perspective of market failures. Markets are not perfect, because monopoly conditions, externalities and imperfect information can all cause them to be inefficient. Neither do markets distribute in an equitable manner. It was believed that the government had a role to play both in the redistribution of wealth and countering inefficiency. Nationalized industries are also a useful political tool for managing the economy as a whole, especially if using Keynesian demand management economics. It was thought that by investing in public sector projects the government could also stimulate the private sector. Because the nationalized industries in Britain were used as economic tools and many decisions were taken on a political as opposed to an economic level, they were not as commercially viable as they otherwise might have been.
   The Thatcher administration in essence supported this view believing in the primacy of the market, postulating that government intervention would itself distort the market to the detriment of the industries involved. The market would, if left free of regulation, result in the optimum allocation of resources to the benefit of the industry and the economy as a whole. By merely regulating industries, let alone owning them, governments exacerbate rather than eradicate inefficiency. Thus it was that the Thatcher administration embarked upon a programme of privatization. British Telecom was one of the earliest and most significant as it held a dominant market position and as a private concern would be open to exploit its monopoly position. The privatization of British Telecom led to regulatory legislation and a body to monitor the industry. This set the pattern for subsequent privatizations such as British Gas (1986), the water authorities (1989) and the electricity companies. The commitment of the Thatcher administration to the market, to privatization and liberalization (as significant as privatization) has permanently altered the British perception of nationalized industries to the extent that they are unlikely to be a dominant feature of the British economy again.
   Further reading
    Artis, M.J. (ed.) (1992) The UK Economy, London: Weidenfeld & Nicolson.
    Veljanovski, C. (1991) ‘The Political Economy of Regulation’, in G.Dunleavey, B.Gamble and J.Peele (eds), Developments in British Politics 3, London: Macmillan.
   ALASTAIR LINDSLEY

Encyclopedia of contemporary British culture . . 2014.

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