PART IV - Privatization and Deregulation: What Are Their Economic Implications?

Part III: The Implications

Up until this point, this paper has been largely narrative in nature. It has outlined how privatization is a positive tool for governments to utilize to increase the efficiency and profitability of select firms and industries and how deregulation could reap economic benefits for a country, depending on a series of factors. What is unexplored however, are the effects of privatization and deregulation on the political economy, and what that ultimately means for governments and societies. As with anything, one could look upon these implications in an optimistic or a pessimistic manner.

The Optimist - The case for an optimistic outcome from privatization and deregulation is an easy one to make. If privatization and deregulation are continually utilized, governments will run more efficiently. This efficiency will mean governments can work towards balanced, and even profitable budgets. This means a nations taxes will be lowered or the surplus will be reinvested into remaining government services. For example, countries with public health care systems would see improvements through extra funding. Education could be improved and perhaps post-secondary education could be subsidized meaning more people are able to get a higher education. Likewise, areas such as infrastructure could be continually improved and modernized, bringing in more businesses, jobs and increases to overall prosperity. The balance between government and business would be a harmonious one. Governments would be fiscally sound and therefore strong, and businesses would have a very stable, low risk environment to operate in. Socially, people would benefit from reduced service costs and would likely see an improvement in the quality of these services as well. They would benefit from a strong political system and strong business sector. Purchasing power would increase and innovation would flourish. Overall, people would experience a significant improvement in their quality of life.

The Pessimist - One who looked upon this changing relationship between the public and private spheres with less favour may have the following argument. The benefits of privatization and deregulation will be utilized by the government to increase efficiency, but this relationship will grow to become unbalanced. The government will rely too heavily on the private sector to carry out essential services like trash collection or transportation. Businesses will realize this and begin to raise the price of services. The government will then either have to resume their old, inefficient methods of service delivery (something they may not be capable of doing after the sale of an industry) or lose certain business sectors in their countries. This means the political- economic power balance will shift to favour the business sector. Business will therefore raise prices to maximize profits, which has a significant effect on the average consumer. Businesses may also choose to utilize off shore tax shelters meaning that the government will receive little to no tax revenue from the liquidated service. Perhaps over time, monopolies and oligopolies will develop, further increasing the power of the business sector. Socially, prices would skyrocket for essential services inducing extreme consumer saving, further limiting the tax revenue for the government. The government will scramble to introduce reform but may be unable to do so as fiscal issues arise from reduced tax revenue. Overall it is a dismal outlook on what privatization could do.

Which outcome is more likely? That is anyone’s guess. Outlined here are two possible scenarios based on the likelihood that governments will continue to utilize privatization (and possibly deregulation if conditions are suitable) based on their positive effects on select industries.

Conclusion

In review, as neoliberal principals urge governments to reassess their presence in the sphere of production, privatization and deregulation will continue to be utilized. Privatization proves to be a positive tool for governments to utilize to increase the efficiency and profitability of select firms and industries. The economic benefits of increased efficiency and profitability far outweigh the risk of corruption, and/or the development of wealth inequality. Deregulation proves to be a promising means of improving consumer welfare, but the success of deregulation is dependent on a long list of country specific factors. The question that remains is whether or not governments should utilize these tools. As I have outlined the use of these tools could lead to a very prosperous future, or just as likely, an unbalanced political economy in favour of business and profit. The true outcome will depend on what societies demand of their governments and how governments deal with those demands. The true next step is, what should we demand?

By,

Calen Siddall

Picture titled, "Brisbane City by Night", taken by Lenny K Photography on March 14, 2016 obtained through Creative Commons.