Privateer-ization

Privatization, also spelled privatisation, can mean different things including moving something from the public sector into the private sector. It is also sometimes used as a synonym for when a heavily regulated private company or industry becomes less regulated. Government functions and services may also be privatized; in this case, private entities are tasked with the implementation of government programs or performance of government services that had previously been the purview of state-run agencies. Some examples include revenue collection,, and.

Another definition is the purchase of all of a  company by private investors, or the sale of a  or  to private investors. In the case of a for-profit company, the shares are then no longer traded at a, as the company became private through ; in the case the partial or full sale of a or  to private owners shares may be traded in the public market for the first time, or for the first time since an enterprise's previous. The second such type of privatization is the of a, , or  in order to form a.

Etymology
 magazine introduced the term "privatization" (alternatively "privatisation" or "reprivatization" after the German Reprivatisierung) during the 1930s when it covered 's. It is not clear if the magazine coincidentally invented the word in English or if the term is a loanword from the same expression in German, where it has been in use since the 19th century.

Definition
The word privatization may mean different things depending on the context in which it is used. It can mean moving something from the public sphere into the private sphere, but it may also be used to describe something that was always private, but heavily regulated, which becomes less regulated through a process of. The term may also be used descriptively for something that has always been private, but could be public in other jurisdictions.

There are also private entities that may perform public functions. These entities could also be described as privatized. Privatization may mean the government sells state-owned businesses to private interests, but it may also be discussed in the context of the privatization of services or government functions, where private entities are tasked with the implementation of government programs or performance of government services. has written that: "Private entities [in the US] provide a vast array of social services for the government; administer core aspects of government programs; and perform tasks that appear quintessentially governmental, such as promulgating standards or regulating third-party activities." Metzger mentions an expansion of privatization that includes health and welfare programs, public education, and prisons.

Pre-20th century
The history of privatization dates from, when governments contracted out almost everything to the private sector. In the private individuals and companies performed the majority of services including tax collection, army supplies , religious sacrifices and construction. However, the also created —for example, much of the grain was eventually produced on estates owned by the Emperor. Some scholars suggest that the cost of bureaucracy was one of the reasons for the.

Perhaps one of the first ideological movements towards privatization came during 's golden age of the. came into prominence for the first time at a state level, and it advocated the principle of  (無為), literally meaning "do nothing". The rulers were counseled by the Taoist clergy that a strong ruler was virtually invisible.

During the, most of Europe was still by and large following the economic model. By contrast, the in  began once more to practice privatization, especially with regards to their manufacturing industries. This was a reversal of the earlier policies, which had themselves overturned earlier policies in favor of more rigorous state control.

In Britain, the privatization of common lands is referred to as (in Scotland as the  and the ). Significant privatizations of this nature occurred from 1760 to 1820, preceding the in that country.

20th century onwards
The first mass privatization of state property occurred in between 1933–1937: "It is a fact that the government of the National Socialist Party sold off public ownership in several state-owned firms in the middle of the 1930s. The firms belonged to a wide range of sectors: steel, mining, banking, local public utilities, shipyard, ship-lines, railways, etc. In addition to this, delivery of some public services produced by public administrations prior to the 1930s, especially social services and services related to work, was transferred to the private sector, mainly to several organizations within the Nazi Party."

privatized its in the 1950s, and the  government embarked on large-scale privatization, including sale of the  in  to small investors in public share offerings in 1961. However, it was in the 1980s under in the United Kingdom and  in the United States that privatization gained worldwide momentum. Notable privatization attempts in the UK included privatization of (1982),  PLC (1982),  (1984),  ferries (1984),  (gradually privatized between 1979 and 1987),  (1985 to 1987),  (1986),  (1987),  (formerly, 1988),  (1988),  and the regional water authorities (mostly in 1989). After 1979, tenants in the UK were given the  their homes (at a heavily discounted rate). One million purchased their residences by 1986.

Such efforts culminated in 1993 when British Rail was privatized under Thatcher's successor,. had been formed by prior of private rail companies. The privatization was controversial, and the, as doubling of passenger numbers and investment was balanced by an increase in.

Privatization in Latin America flourished in the 1980s and 1990s as a result of a Western liberal economic policy. Companies providing public services such as, transportation, and were rapidly sold off to the private sector. In the 1990s, privatization revenue from 18 Latin American countries totaled 6% of gross domestic product. Private investment in infrastructure from 1990 and 2001 reached $360.5 billion, $150 billion more than in the next emerging economy.

While economists generally give favorable evaluations of the impact of privatization in Latin America, opinion polls and public protests across the countries suggest that a large segment of the public is dissatisfied with or have negative views of privatization in the region.

In the 1990s, the governments in Eastern and Central Europe engaged in extensive privatization of state-owned enterprises in Eastern and Central Europe and Russia, with assistance from the, the U.S. Agency for International Development, the German , and other governmental and.

Ongoing privatization of relates to that of the national postal service and one of the largest banks in the world. After years of debate, the privatization of Japan Post spearheaded by finally started in 2007. The privatization process is expected to last until 2017. Japan Post was one of the nation's largest employers, as one-third of Japanese state employees worked for it. It was also said to be the largest holder of personal savings in the world. Criticisms against Japan Post were that it served as a channel of corruption and was inefficient. In September 2003, Koizumi's cabinet proposed splitting Japan Post into four separate companies: a bank, an insurance company, a postal service company, and a fourth company to handle the post offices and retail storefronts of the other three.

After the Upper House rejected privatization, Koizumi scheduled for September 11, 2005. He declared the election to be a referendum on postal privatization. Koizumi subsequently won the election, gaining the necessary and a mandate for reform, and in October 2005, the bill was passed to privatize Japan Post in 2007.

's privatization in 1987 involved the largest share offering in financial history at the time. 15 of the world's 20 largest public share offerings have been privatizations of telecoms.

In 1988, the policy of  started allowing privatization of the centrally planned economy. Large privatization of the Soviet economy occurred over the next few years as the country dissolved. Other countries followed suit after the  introduced non-communist governments.

The United Kingdom's largest public share offerings were privatizations of and  during the 1980s under the  government of, when many state-run firms were sold off to the private sector. The privatization received very mixed views from the public and the parliament. Even former Conservative prime minister was critical of the policy, likening it to "selling the family silver". There were around 3 million shareholders in Britain when Thatcher, but the subsequent sale of state-run firms saw the number of shareholders double by 1985. By the time of her resignation in 1990, there were more than 10 million shareholders in Britain.

The largest public shares offering in France involved.

Egypt undertook widespread privatization under. He was later overthrown in the, the public called for re-nationalization as the privatized firms were accused of practicing with the old regime.

Medicare and Medicaid managed care
In the United States, under the  the government pays a managed care organization (MCO) a fixed amount called the "capitated rate" for all medical services received by a beneficiary in a given period. Enrollment in the programs has increased substantially since 1990; in 2002 60% of Medicaid beneficiaries and 12% of beneficiaries were being treated by MCOs. Private sector involvement in Medicare and Medicaid is not limited to MCOs; private doctors, hospitals, nursing homes provide medical care; reimbursement claims are processed by private intermediaries; and peer review organizations, utilization review committees and accreditation organizations like are staffed by private medical personnel.

Welfare privatization
Homeless shelters and food banks are run by private organizations, who also provide treatment services, operate Head Start programs and work with child welfare agencies. Privatization of welfare system expanded in 1996, when the Aid to Families with Dependent Child (AFDC) program was replaced with the Temporary Aid to Needy Families (TANF) program. Welfare services that are often privatized include workforce development, job training and job placement are often privatized.

Public education
There is also some private sector involvement in the public education system including s, (EMOs), and  programs. EMOs are usually for-profit and manage charter schools and sometimes traditional public schools as well. The United States Supreme Court upheld school voucher programs against an challenge in .

Private prisons
In the US, private prison facilities housed 12.3% of all federal prisoners and 5.8% of state prisoners in 2001. Contracts for these private prisons regulate prison conditions and operation, but the nature of running a prison requires a substantial exercise of discretion. Private prisons are more exposed to liability than state run prisons.

Foreign affairs
Both for-profit and non-profit entities are tasked with various responsibilities related to the US budget such as providing emergency humanitarian relief,, as well as  efforts. Similarly, private entities have started to perform tasks that have traditionally been regarded as falling within the government's diplomatic and military authority like participating in peace negotiations, military training, intelligence gathering and other security services or combat-related missions. Many of the military interrogators at were provided by a private contractor and lacked formal military training; this was subsequently identified as a contributing factor to detainee abuse at the prison by the.

The United Nations uses private subcontractors as well, and in some cases, "failed states" have relied on private entities extensively for a range of tasks including building critical infrastructure, managing social services programs and using during the course of armed conflicts.

US Constitution
The United States Constitution only constrains and, with few exceptions, "erects no shield against merely private conduct, however discriminatory or wrongful". Gillian Metzger writes: "Adequately guarding against abuse of public power requires application of constitutional principles to every exercise of state authority, regardless of the formal public or private status of the actor involved: 'It surely cannot be that government, state or federal, is able to evade the most solemn obligations imposed in the Constitution by simply resorting to the corporate form' and thereby transferring operation of government programs to private hands'"

Even if private actors cannot be held accountable through the traditional constitutional mechanism, they may be bound by other regulatory or contractual requirements. might be another avenue of protection, and some may argue that this protection could be even more effective as public agencies and employees usually enjoy some degree of immunity from civil liability.

Forms of privatisation
There are five main methods of privatization:
 * : shares sale on the.
 * : asset divestiture to a strategic investor, usually by or through the  model.
 * : distribution of vouchers, which represent part ownership of a corporation, to all citizens, usually for free or at a very low price.
 * : start of new private businesses in formerly socialist countries.
 * 1)  or : distribution of shares for free or at a very low price to workers or management of the organization.

The choice of sale method is influenced by the and the political and firm-specific factors. Privatization through the stock market is more likely to be the method used when there is an established capital market capable of absorbing the shares. A market with high liquidity can facilitate the privatization. If the capital markets are insufficiently developed, however, it would be difficult to find enough buyers. The shares may have to be underpriced, and the sales may not raise as much capital as would be justified by the fair value of the company being privatized. Many governments, therefore, elect for listings in more sophisticated markets, for example,, and the , and  stock exchanges.

Governments in and  more often resort to direct asset sales to a few investors, partly because those countries do not yet have a stock market with high capital.

Voucher privatization occurred mainly in the in Central and Eastern Europe, such as, , the , and. Additionally, privatization from below had made important contribution to economic growth in transition economies.

In one study assimilating some of the literature on "privatization" that occurred in Russian and Czech Republic transition economies, the authors identified three methods of privatization: "privatization by sale", "mass privatization", and "mixed privatization". Their calculations showed that "mass privatization" was the most effective method.

However, in economies "characterized by shortages" and maintained by the state bureaucracy, wealth was accumulated and concentrated by "gray/black market" operators. Privatizing industries by sale to these individuals did not mean a transition to "effective private sector owners [of former] state assets". Rather than mainly participating in a market economy, these individuals could prefer elevating their personal status or prefer accumulating political power. Instead, outside foreign investment led to the efficient conduct of former state assets in the private sector and market economy.

Through privatization by direct asset sale or the stock market, bidders compete to offer higher prices, generating more revenue for the state. Voucher privatization, on the other hand, could represent a genuine transfer of assets to the general population, creating a sense of participation and inclusion. A market could be created if the government permits transfer of vouchers among voucher holders.

Secured borrowing
Some privatization transactions can be interpreted as a form of a and are criticized as a "particularly noxious form of governmental debt". In this interpretation, the upfront payment from the privatization sale corresponds to the of the loan, while the proceeds from the underlying asset correspond to secured interest payments – the transaction can be considered substantively the same as a secured loan, though it is structured as a sale. This interpretation is particularly argued to apply to recent municipal transactions in the United States, particularly for fixed term, such as the 2008 sale of the proceeds from Chicago parking meters for 75 years. It is argued that this is motivated by "politicians' desires to borrow money surreptitiously", due to legal restrictions on and political resistance to alternative sources of revenue, viz, raising taxes or issuing debt.

Results of privatisation
Literature reviews find that in competitive industries with well-informed consumers, privatization consistently improves efficiency. The more competitive the industry, the greater the improvement in output, profitability, and efficiency. Such efficiency gains mean a one-off increase in, but through improved incentives to innovate and reduce costs also tend to raise the rate of. Although typically there are many costs associated with these efficiency gains, many economists argue that these can be dealt with by appropriate government support through and perhaps [citation needed]. Yet, some empirical literature suggests that privatization could also have very modest effects on efficiency and quite regressive distributive impact. In the first attempt at a social welfare analysis of the British privatization program under the Conservative governments of and  during the 1980s and 1990s,  points to the absence of any productivity shock resulting strictly from ownership change. Instead, the impact on the previously nationalized companies of the UK productivity leap under the Conservatives varied in different industries. In some cases, it occurred prior to privatization, and in other cases, it occurred upon privatization or several years afterward.

A study by the found that the UK rail network (which was privatized from 1994–97) was most improved out of all the 27 EU nations from 1997–2012. The report examined a range of 14 different factors and the UK came top in four of the factors, second and third in another two and fourth in three, coming top overall.

Privatizations in Russia and Latin America were accompanied by large-scale corruption during the sale of the state-owned companies. Those with political connections unfairly gained large wealth, which has discredited privatization in these regions. While media have widely reported the grand corruption that accompanied those sales, studies have argued that in addition to increased operating efficiency, daily petty corruption is, or would be, larger without privatization, and that corruption is more prevalent in non-privatized sectors. Furthermore, there is evidence to suggest that extralegal and unofficial activities are more prevalent in countries that privatized less.

A 2009 study published in  medical journal initially claimed to have found that as many as a million working men died as a result of economic shocks associated with mass privatization in the former and in  during the 1990s, although a further study revealed that there were errors in their method and "correlations reported in the original article are simply not robust." Historian, a specialist in ancient history, posits that and wealth concentration in the top percentile "had been made possible by the transfer of state assets to private owners."

In Latin America, there is a discrepancy between the economic efficiency of privatization and the political/social ramifications that occur. On the one hand, economic indicators, including firm profitability, productivity, and growth, project positive results. On the other hand, however, these results have largely been met with a negative criticism and citizen coalitions. This criticism highlights the ongoing conflict between varying visions of economic development. emphasizes the societal concerns of self-regulating markets through a concept known as a "double movement". In essence, whenever societies move towards increasingly unrestrained, free-market rule, a natural and inevitable societal correction emerges to undermine the contradictions of capitalism. This was the case in the.

Privatization in Latin America has invariably experienced increasing push-back from the public. Some suggest that implementing a less efficient but more politically mindful approach could be more sustainable.

In India, a survey by the (NCPCR) —Utilization of Free Medical Services by Children Belonging to the Economically Weaker Section (EWS) in Private Hospitals in New Delhi, 2011-12: A Rapid Appraisal—indicates under-utilization of the free beds available for EWS category in private hospitals in Delhi, though they were allotted land at subsidized rates.

In Australia a "People's Inquiry into Privatisation" (2016/17) found that the impact of privatisation on communities was negative. The report from the inquiry "Taking Back Control" https://d3n8a8pro7vhmx.cloudfront.net/cpsu/pages/1573/attachments/original/1508714447/Taking_Back_Control_FINAL.pdf?1508714447 made a range of recommendations to provide accountability and transparency in the process. The report highlighted privatisation in healthcare, aged care, child care, social services, government departments, electricity, prisons and vocational education featuring the voices of workers, community members and academics.

Opinion
Arguments for and against the controversial subject of privatization are presented here.

Support
Studies show that private market factors can more efficiently deliver many goods or service than governments due to. Over time, this tends to lead to lower prices, improved quality, more choices, less corruption, less, and/or quicker delivery. Many proponents do not argue that everything should be privatized. According to them, s and could be problematic. However, prefer that every function of the state be privatized, including  and.

Proponents of privatization make the following arguments:
 * Performance: state-run industries tend to be . A political government may only be motivated to improve a function when its poor performance becomes politically sensitive.
 * Increased efficiency: private companies and firms have a greater incentive to produce goods and services more efficiently to increase profits.
 * Specialization: a private has the ability to focus all relevant human and financial resources onto specific functions. A state-owned firm does not have the necessary resources to  its goods and services as a result of the general products provided to the greatest number of people in the.
 * Improvements: conversely, the government may put off improvements due to political sensitivity and special interests—even in cases of companies that are run well and better serve their customers' needs.
 * Corruption: a state-monopolized function is prone to ; decisions are made primarily for political reasons, personal gain of the decision-maker (i.e. "graft"), rather than economic ones. Corruption (or issues) in a state-run corporation affects the ongoing asset stream and company performance, whereas any corruption that may occur during the privatization process is a one-time event and does not affect ongoing cash flow or performance of the company.
 * Accountability: managers of privately owned companies are accountable to their owners/shareholders and to the consumer, and can only exist and thrive where needs are met. Managers of publicly owned companies are required to be more accountable to the broader community and to political "stakeholders". This can reduce their ability to directly and specifically serve the needs of their customers, and can bias investment decisions away from otherwise profitable areas.
 * Civil-liberty concerns: a company controlled by the state may have access to information or assets which may be used against dissidents or any individuals who disagree with their policies.
 * Goals: a political government tends to run an industry or company for goals rather than  ones.
 * Capital: a privately held companies can sometimes more easily raise investment capital in the financial markets when such local markets exist and are suitably liquid. While interest rates for private companies are often higher than for government debt, this can serve as a useful constraint to promote efficient investments by private companies, instead of cross-subsidizing them with the overall credit-risk of the country. Investment decisions are then governed by market interest rates. State-owned industries have to compete with demands from other government departments and special interests. In either case, for smaller markets, may add substantially to the cost of capital.
 * Security: governments have had the tendency to "bail out" poorly run businesses, often due to the sensitivity of job losses, when economically, it may be better to let the business fold.
 * Lack of market discipline: poorly managed state companies are insulated from the same discipline as private companies, which could go bankrupt, have their management removed, or be taken over by competitors. Private companies are also able to take greater risks and then seek bankruptcy protection against creditors if those risks turn sour.
 * Natural monopolies: the existence of does not mean that these sectors must be state owned. Governments can enact or are armed with  and bodies to deal with anti-competitive behavior of all companies public or private.
 * Concentration of wealth: ownership of and profits from successful enterprises tend to be dispersed and diversified -particularly in voucher privatization. The availability of more investment vehicles stimulates capital markets and promotes liquidity and job creation.
 * Political influence: nationalized industries are prone to interference from for  or  reasons. Examples include making an industry buy supplies from local producers (when that may be more expensive than buying from abroad), forcing an industry to freeze its prices/fares to satisfy the electorate or control, increasing its staffing to reduce , or moving its operations to.
 * Profits: corporations exist to generate profits for their shareholders. Private companies make a profit by enticing s to buy their products in preference to their competitors' (or by increasing for their products, or by reducing costs). Private corporations typically profit more if they serve the needs of their clients well. Corporations of different sizes may target different market niches in order to focus on marginal groups and satisfy their demand. A company with good  will therefore be incentivized to meet the needs of its customers efficiently.
 * Job gains: as the economy becomes more efficient, more profits are obtained and no government subsidies and less taxes are needed, there will be more private money available for investments and consumption and more profitable and better-paid jobs will be created than in the case of a more regulated economy.

Opposition
Opponents of certain privatizations believe that certain should remain primarily in the hands of government in order to ensure that everyone in society has access to them (such as law enforcement, basic, and basic ). There is a when the government provides society at large with public goods and services such as  and disease control. Some national constitutions in effect define their governments' "core businesses" as being the provision of such things as justice, tranquility, defense, and general welfare. These governments' direct provision of security, stability, and safety, is intended to be done for the common good (in the public interest) with a long-term (for posterity) perspective. As for, opponents of privatization claim that they aren't subject to fair competition, and better administrated by the state.

Although private companies will provide a similar good or service alongside the government, opponents of privatization are careful about completely transferring the provision of public goods, services and assets into private hands for the following reasons:
 * Performance: a democratically elected government is accountable to the people through a legislature, Congress or, and is motivated to safeguarding the assets of the nation. The profit motive may be subordinated to social objectives.
 * Improvements: the government is motivated to performance improvements as well run businesses contribute to the State's revenues.
 * Corruption: government ministers and civil servants are bound to uphold the highest ethical standards, and standards of probity are guaranteed through codes of conduct and declarations of interest. However, the selling process could lack transparency, allowing the purchaser and civil servants controlling the sale to gain personally.
 * Accountability: the public has less control and oversight of private companies.
 * Civil-liberty concerns: a democratically elected government is accountable to the people through a, and can intervene when civil liberties are threatened.
 * Goals: the government may seek to use state companies as instruments to further social goals for the benefit of the nation as a whole.
 * Capital: governments can raise money in the financial markets most cheaply to re-lend to state-owned enterprises.
 * Cuts in essential services: if a government-owned company providing an essential service (such as the water supply) to all citizens is privatized, its new owner(s) could lead to the abandoning of the social obligation to those who are less able to pay, or to regions where this service is unprofitable.
 * Natural monopolies: privatization will not result in true competition if a exists.
 * Concentration of wealth: profits from successful enterprises end up in private, often foreign, hands instead of being available for the common good.
 * Political influence: governments may more easily exert pressure on state-owned firms to help implementing government policy.
 * Profit: private companies do not have any goal other than to maximize profits. A private company will serve the needs of those who are most willing (and able) to pay, as opposed to the needs of the majority, and are thus anti-democratic. The more is, the lower the, as people will attempt to buy it no matter the price. In the case of a price elasticity of demand of zero (perfectly inelastic good), the demand part of supply and demand theories does not work.
 * Privatization and poverty: it is acknowledged by many studies that there are winners and losers with privatization. The number of losers—which may add up to the size and severity of poverty—can be unexpectedly large if the method and process of privatization and how it is implemented are seriously flawed (e.g. lack of transparency leading to state-owned assets being appropriated at minuscule amounts by those with political connections, absence of regulatory institutions leading to transfer of monopoly rents from public to private sector, improper design and inadequate control of the privatization process leading to ).
 * Job loss: due to the additional financial burden placed on privatized companies to succeed without any government help, unlike the public companies, jobs could be lost to keep more money in the company.
 * Reduced wages and benefits: a 2014 report by In the Public Interest, a resource center on privatization, argues that "outsourcing public services sets off a downward spiral in which reduced worker wages and benefits can hurt the local economy and overall stability of middle and working class communities."
 * Inferior quality products: private, for-profit companies might cut corners on providing quality goods and services in order to maximize profit.

Economic theory
In economic theory, privatization has been studied in the field of. When contracts are complete, institutions such as (private or public) property are difficult to explain, since every desired incentive structure can be achieved with sufficiently complex contractual arrangements, regardless of the institutional structure (all that matters is who are the decision makers and what is their available information). In contrast, when contracts are incomplete, institutions matter. A leading application of the incomplete contract paradigm in the context of privatization is the model by, , and (1997). In their model, a manager can make investments to increase quality (but they may also increase costs) and investments to decrease costs (but they may also reduce quality). It turns out that it depends on the particular situation whether private ownership or public ownership is desirable. The Hart-Shleifer-Vishny model has been further developed in various directions, e.g. to allow for mixed public-private ownership and endogenous assignments of the investment tasks.