Privatization in UK - Assignment Example

Privatization in UK Introduction The UK has been on the first line of privatization and it has seen thehighest number if privatization among its peer nations (Osborne, 2013). The government has privatized many firms and even whole sectors such as the railways sector in the UK. The philology behind this privatization is that it helps in improving the service delivery and creating a market environment that makes production and delivery of services more efficient thus benefiting the economy at large and the individual as well. In this paper, the efficacy of the UK privatization is the focus. One of the UK public firms that have gone through privatization is the Royal mail (Seymour, 2012). With the privatization of the royal mail, there have been problems that have come up. For instance, postage rates have been going up at the expense of the consumers. This confirms one of the fears that most people have of privatization. With privatization, bad service always follows as the private companies start engaging in rent seeking activities where profit comes first. Private firms pledge the highest allegiance to the shareholders and not the consumers. As a result, as they seek to increase their profits and make the shareholders happy, they are likely to ignore some elements that should give the best products and services to the consumers. This has been evident in most UK privatized firms such as the Royal Mail and the British Airways. When private for profit firms manages such services, the result is that the firms are likely to start cutting corners in order to affect their bottom-line in a positive way. As they try to seek to avoid costs, they are likely to invest less in infrastructure and this leads to poor service. The other negative impact of privatization in the UK is the increased cost of living as the private owners seek to look for profits and start increasing the cost of services and goods. As has been seen, these private firms are more concerned with the making of profits. As privatization has increased, UK citizens have had to pay even more for products and services. The private firms have been in a position where they are able to not control the market and determine new prices as they seek to increase their bottom-line. Privatization therefore is a blessing to the private companies and it is now easier to see why so many private firms are so eager to get a piece of the cake of privatization (OECD, 1998). Ever since the Margaret Thatcher government introduced privatization as an experiment to see how it would affect the economy, many private firms have been eager to get into this bandwagon of private firms that have received a cake of the national assets. This has led to the push for the privatization of other critical services such as health (NHS), gas, and electricity in UK. This has not worked the advantage of the public (Martin & Parker, 1997). For instance, since the privatization of the NHS, the series at most hospitals have been worse than they were. The inefficiency of privatizations is not the only problem, it is also that the way the privatization is done in most cases is in a corrupt, and this may be the reason why the privatizations have not been successful (OECD, 2003). Poor wages Ever since the proliferation of privatization started in the late 1970s, the relationship between the household incomes and household necessary expenditure has widened over this period (Parker, 2013). Although the salaries for people who work for these privatized firms have increased over the years, the high rates of inflation cancels this out and therefore the net effect in the economy is that the economy has done even worse. In general, the high rate of privatization has led to worse economic conditions for most individuals (David, 2003). Their profit seeking leads to increased cost of living in the economy. Accountability One more issue that has come up with the privatization is the fact that there is no clear way for the public to hold these privatized firms to account because these firms do not pledge their allegiance to the electorate as the public firms do (Hauss & Haussman, 2012). The privatized firms only seek to impress the shareholders and so their priorities are not to help the citizens but to help advance the interests of the public. This then goes against the theory that are there about how privatization helps the economy to do better to the advantage of the public. With public firms, the public can hold them accountable because they have the right to use democratic processes to determine how managers manage these firms. With the privatized firms however, this is not possible and their mangers run them the way their shareholders want. Not only that, it is good to note that once the government privatizes these firms, the process of restoring them into the hands of the government once it is clear that the privatization is not working is always a difficult, sometimes impossible process (Richardson, 1990). The idea that the market forces in the private sector are likely to lead to these firms operating better and thus transferring the benefits to the public seems to be more applicable in theory but not in practice. Those who support the privatization of the public institutions based on this idea assume that the theories about privatization in theory will be practical. However, there are issues that make it hard for the theory behind privatization to translate into the practical world (Buxton, Chapman, & Temple, 2005). This has become evident in the UK for the last few years where the public has not been able to get the advanatages of privatization. In fact, instead of them benefiting from the privatization, what has happened is that the public witnessed the decline of public services as the cost of accessing these services has increased (Young & Finge, 2012). A very good example of how the privatization has failed in UK is the British Rail privatization (McCormick, 2012). The British rail was one of the public sector properties to be in privatization in the UK. Since its privatization, government subsidies have risen from around £1bn an year in the late 1980s to about £6bn in 2006-2007 (Kirby, 2014). Although critics should only analyze this issue in the context of how inflation could have led to this big difference, it is still a big indication that not all is well. This is the opposite of what the people who dreamt about the idea expected. The proponents of the privatization intended to make the public organizations to become profitable and at the same time contribute more positively to the economy (Doganis, 2005). It was also supposed to help improving the service delivery to the public. However, the privatization of the British rail has not achieved any of these and instead of it being profitable; it does not even make enough to sustain its own operations. Job losses One other major indication of the losses of the privatizations of the many UK public organizations is the loss of jobs. Since the privatization of the public firms, there has been an increase in the unemployment rates in the UK economy. However, other factors have increased unemployment rates. This unemployment cannot be solely because of the privatization. Retrieved from; http://www.economicshelp.org/blog/6744/unemployment/the-uk-unemployment-mystery/ Regardless of the fact that the privatization is not the only cause of increasing unemployment rates in UK, it is still an indication that privatization has failed. In fact, one of the promises of privatization was that it would improve the economy in all aspects including reducing the unemployment rates. There seems to be no evidence that privatization has any positive advantages. Yet, even in the light of this, = public organizations continue to be privatized (Guinan & Hanna, 2013). What is worse, not only does the privatization of the public institutions not effective in healing the economy in UK, the concerned people do it in a corrupt and dishonest way, leading to the tax payers losing a lot of money. A good example is the privatizations of the Royal Mail, which is one of the latest privatization processes in the UK. In this transaction that was carried out by a number of private consulting firms and banks, the taxpayer could have lost at least £6bn. This loss came along because of an undervaluation of the shares of the Royal Mail before selling them off at a throwaway price. Most people then to believe this was a fraudulent transaction and that those responsible wanted to fleece the public of the taxpayer money that the public needs so much in order for them to receive services especially in these hard times. This and other privatizations that have happened in the near past have led to the government losing billions of pounds. Privatization also leads to the profits of these firms gong to the foreign countries. This is because some of these private firms that buy UK public firms are business owned by foreigners (John, 2012). As a result, when they make profit, these profits then go to foreign countries thus the UK public ends u losing even more. This is not acceptable considering that some of these firms still get subsidies from the government and the taxpayers of the UK finance these subsidies Conclusions It is very clear that the benefits of privatization are not easy to achieve. Despite there being so many potential benefits for privatization in theory, these benefits do not materialize. This means either that the privatization process is not being benefiting from the right way of doing it or that the theoretical benefits of privatization do not have the possibility of materializing into real benefits that the public can feel at the macroeconomic level. This is especially when the public does not gain the benefits that are supposed to come from the privatization. It is clear that the supporters of the privatization of UK public organizations did not think the process well enough to have it implemented din a successful way. This means that it is necessary for the government to rethink the strategy and have a way to evaluate the current strategy and find if it is possible to make it even better. Reference list: Buxton, T., Chapman, P., & Temple, P. (2005). Britains Economic Performance. London, UK: Routledge. David, P. (2003). The Impact of Privatization: Ownership and Corporate Performance in the United Kingdom. London, NY: Routledge. Doganis, R. (2005). Airline Business in the 21st Century. London, UK: Routledge. Guinan, J., & Hanna, M. (2013, November 05). Privatisation, a very British disease . Retrieved April 17, 2015, from Our Kingdom: https://www.opendemocracy.net/ourkingdom/joe-guinan-thomas-m-hanna/privatisation-very-british-disease Hauss, C., & Haussman, M. (2012). Comparative Politics: Domestic Responses to Global Challenges. London, UK: Cengage Learning. John, M. (2012). Contemporary Britain: Contemporary States and Societies series. London, UK: Palgrave Macmillan. Kirby, H. (2014, April 12). Privatisation: the good, the bad, and the ugly. Retrieved April 17, 2015, from The Guardian : http://www.theguardian.com/politics/2013/apr/12/privatisation-good-bad-ugly Martin, S., & Parker, D. (1997). The Impact of Privatisation: Ownership and Corporate Performance in the UK. London, UK: Psychology Press. McCormick, J. (2012). Comparative Politics in Transition. London, UK: Cengage Learning. OECD. (1998). Corporate Governance, State-Owned Enterprises and Privatisation. Paris, FR: OECD Publishing. OECD. (2003). Privatising State-Owned Enterprises An Overview of Policies and Practices in OECD countries: An Overview of Policies and Practices in OECD countries. Paris, FR: OECD Publishing. Osborne, A. (2013, April 08). Margaret Thatcher: one policy that led to more than 50 companies being sold or privatised. Retrieved April 17, 2015, from The Telehraph: http://www.telegraph.co.uk/finance/comment/alistair-osborne/9980292/Margaret-Thatcher-one-policy-that-led-to-more-than-50-companies-being-sold-or-privatised.html Parker, D. (2013). The Official History of Privatisation, Vol. II: Popular Capitalism, 1987-97. Londin, UK: Routledge. Richardson, J. (1990). Privatisation and Deregulation in Canada and Britain. London, UK: IRPP. Seymour, R. (2012, April 02). A short history of privatisation in the UK: 1979-2012 . Retrieved April 12, 2012, from The Guardian: http://www.theguardian.com/commentisfree/2012/mar/29/short-history-of-privatisation Young, O., & Finge, M. (2012). Limits to Privatization: How to Avoid Too Much of a Good Thing : a Report to the Club of Rome. London, UK: Earthscan. Read More