Privatization

An International Review Of Performance

Graeme Hodge

• Publisher: Routledge
• Year: 2018
• ISBN:
  9780429977657
• Edition: 1
• Topic: Politics & International Relations
• Subtopic: Politics
• Index: Politics & International Relations

Contracting out public sector services and divesting public enterprises are reforms that have enjoyed widespread global popularity in recent years. Better services, lower prices and greater accountability are the promises made by politicians, senior executives, and investment companies when functions are moved from the public sector to private enterprise. But in Privatization, Graeme A. Hodge challenges these assumptions. Through an examination of hundreds of international studies on the performance of privatization activities, Hodge demonstrates that privatizing public services is often not the guaranteed panacea portrayed by its political supporters. Importantly, privatization activities can lead to modest gains, but there are also winners and losers in this reform. It therefore deserves far more care and balanced debate than it usually attracts.

PART I
Concepts Underpinning Privatization

1
Introduction

The 1990s are a significant time of change for governments throughout the world. One major economic and social issue in many countries is that of reforming organizations across the public sector. These reforms have been driven by several considerations. Citizens are certainly looking to get more for less from government as a whole. There is increasing pressure from all fronts for reduced funding. Simultaneously, there are also significant community expectations for marked improvements in government practices in terms of economic efficiency and service delivery. Many improvements expected of the public sector are modeled on those of the private sector. For example, a greater customer focus is expected across government. Old methods and procedures are being increasingly challenged, and service delivery practices and standards are being subjected to review.

These drivers of reform are leading to a renewed questioning of not only the practices of government but its structures, processes, and service delivery mechanisms. The very roles and responsibilities of government are being opened up. In providing services, there is now a requirement to benchmark and to openly demonstrate competition and efficiency.

This review follows these pressures for change and the imperatives that are inherent within them. This book aims not to provide a fashionable statement of current trends in service provision, but a careful and measured review of empirical findings in contracting out and the sale of government enterprises. Such a considered review is in keeping with the simultaneous requirements of the public sector both to review service delivery improvement options, and to be held accountable to the public in adopting those changes that clearly do lead to enhanced performance.

Government uses a significant proportion of the resources of a nation. For example, projected government outlays as a proportion of the U.S. gross domestic product (GDP) were around 33.1 percent in 1998, and for Organisation for Economic Cooperation and Development (OECD) countries around 39.2 percent on average.¹ Of this, a significant part is related to the provision and production of goods and services.

Waves of Reform

In the past two decades a series of reforms have flowed through the business sector and through government. In most cases, these reforms have been international in significance. Although their objectives have varied, each has in one way or other claimed to be able to increase productivity and enhance the effectiveness of operations. These reforms have spawned an industry of expert publications including books, manuals, and guidelines—all aiming to ensure that the busy executive is brought up to date with the latest imperative that, if you believe the sales pitch, is now urgently required for the ongoing success of their business.

Whilst clearly not a comprehensive listing, some of these reform waves since the mid-1970s have included the following:

• performance measurement
• management by objectives
• performance budgeting
• program budgeting
• systems analysis
• managerialism
• customer focus/customer service
• total quality management (TQM)
• decentralization/centralization
• corporatization/commercialization
• privatization
• benchmarking
• contracting out
• competitive tendering
• worlds best practice
• business process reengineering
• reinventing government

Layered on top of these reforms have been various others. At the business level, we have seen an increased emphasis on strategic planning, whilst reforms at the level of the work team have included initiatives such as quality circles and outdoor team training. Ongoing microeconomic reforms at the individual level have continued.

Many appear to have led to real improvements in productivity. Articles in industry magazines and newspapers tell of successes. Indeed, few would argue against the need to adopt "best practice" or to "improve quality." However, experience has also taught the seasoned manager that each reform has also been accompanied by other impacts that, once experienced, may in the longer term have slowed down the wholesale application of the reform across all areas of the business. The cumbersome requirements of much of the TQM reform work has, for example, led to a significant slowdown in the pace of this particular reform and in the initiation of other reform movements such as reengineering. In some instances, reforms may have entirely petered out after a flurry of initial enthusiasm and energy. The promise of program budgeting, compared to the meager benefits it delivered, is a case in point here.

In hindsight, we might conclude that whilst the goals of a reform were usually desirable, the mechanisms themselves were often far from perfect. The promised benefits of the reform were theoretical—the actual implementation impacts were not.

A salutary lesson from these waves of reform has been the need to be cognizant of the differences between the structure of beliefs on the one hand, and the empirical knowledge gained to date on the other. The belief that through the improvement of management processes, solutions to complex public policy problems will evolve (managerialism) appears to have differed from the knowledge of the United Kingdom community whose welfare has been managed. The political belief in the superiority of the private sector in terms of efficiency and effectiveness apparently differs from the reality of the United Kingdom's privatized operations. Here, if we believe the press reports, there have clearly been "winners" and "losers." Senior managers (many of whom were privatization supporters), businesses, and investors have nearly always won. Customers served have not received the improvements promised. Indeed, in privatizations around the world, even World Bank research has indicated that customers have gained nothing or have lost more often than not.²

Traditionally, the functions of government included seven areas:³

1. provision of economic infrastructure
2. provision of various collective goods and services
3. resolution and adjustment of conflict groups
4. maintenance of competition
5. protection of natural resources
6. provision of minimum access by individuals to the goods and services of the economy, and
7. stabilization of the economy.

These functions are argued as having considerable persistence over time, and broad political support or acceptance.

The mechanisms for intervention by government are fourfold. These encompass the provision of goods and services through budget funding, the provision of subsidies to people, the direct production of goods and services, and regulation through law.

The current economic environment has been accompanied by community demands for improvements in services offered by the public sector, both in terms of the types of services and sophistication of services. A healthy unwillingness to accept standards of service below those offered by best practice companies elsewhere throughout industry is appearing.

With increased pressures on government budgets, the community is therefore demanding more for their money, in levels of service and service efficiency.

Importantly, the capital requirements of capital intensive growth sectors such as telecommunications and airlines has also well outstripped t...

Table of contents

• Cover
• Half Title
• Title
• Copyright
• Contents
• List of Tables and Figures
• Acknowledgments
• List of Acronyms
• Part I Concepts Underpinning Privatization
• Part II Performance Evaluation Framework
• Part III Empirical Knowledge of Privatization Performance
• Appendix A: Key Statistical Tests
• Appendix B: Literature Review Search Terms for Databases
• Appendix C: Summary of Effect Size Derivations for Privatization as Contracting Out
• Appendix D: Summary of Effect Size Derivations for Privatization as Enterprise Sales
• Notes
• References