PRIVATIZATION

1. PRIVATIZATION

2. TOPICS • The welfare State • The crisis of the Welfare State • The foreign debt crisis in developing countries • The neo-liberal State • Privatization forces • Typology of goods and services • Forms of Privatization • A political view of privatization

3. The Welfare State • According to J. O’Connor the State tries to fulfill two basic but contradictory functions: 1) Accumulation (conditions for capital to be profitable) and 2)Legitimization (social harmony) • State expenditures have a double character that correspond to the State’s two basic functions of accumulation and legitimization • Thus expenditures take the form of social capital and social expenses

4. The Welfare State • Social capital expenditures are considered inputs and they are required for profitable capital accumulation (output) and they take the form of: • Social consumption (investment that lowers the reproduction costs of labor and increase the rate of profits: social insurance) • Social investment (projects and services to increase productivity of labor: roads and education) • Social expenses : projects and services required to maintain the social harmony to fulfill the legitimization function of the State (e.g. safety net for the poor)

5. The crisis of the Welfare State • The crisis of the Welfare State can be traced to the 1970s world’s recession, induced by high oil prices. • The capacity of the Welfare State to fulfill one of its basic functions (accumulation) was questioned. • The surged simultaneously of high inflation and unemployment (stagflation) questioned severely Keynesian macroeconomic management. • Economic policy shifted from Keynesianism (fiscal policy and demand side) to monetarism (interest rates and supply side).

6. Foreign debt crisis • Developing countries all over the world borrow heavily due to low interest rates and high liquidity generated by petrodollars. • Investment in many cases went to unproductive areas (subsidies, white-elephant projects) • As interest rates begin to increase due to monetary policies in the developed world the ability to repay loans was questionable. • The IMF and the World Bank offered advice to developing countries to undertake structural adjustment policies in exchange for financial aid and debt restructuring

7. OIL SMALL OIL EXPORTER COUNTRIES Saudi Arabia Kuwait Qatar Bahrain OIL DEVELOPED WORLD USA Western Europe Japan Canada LARGE OIL EXPORTER COUNTRIES Mexico Nigeria Iran Iraq Venezuela Russia Indonesia $$$ $$$ Petrodollars Credit Interes Interes Credit Interes $$$ $$$ OIL IMPORTER COUNTRIES Brazil Argentina Korea OIL OIL The foreign debt crisis

8. Top ten borrowers as Dec.1982 FROM private banks (Wood 1986:258) Debtor $ billions 1 Mexico 62.9 2 Brazil 60.5 3 Venezuela 27.5 4 Argentina 25.7 5 S. Korea 23.3 6 Phillipines 12.6 7 Chile 11.6 8 Indonesia 10.0 9 Malaysia 8.7 10 Nigeria 8.5 International Reserves Assets of Selected OPEC countries (Aliber 1987:142) Millions of US Dollars Year S.Arabia Kuwait 1950 0 50 1960 167 72 1970 543 117 1976 26,900 1,702 1980 23,437 3,928 1984 24,748 4.,590 Aliber 1987:142

9. The Neoliberal state Y = C + I + G + (X-M) • Consumption (the market as exchange and allocation mechanism) • Investment (create new opportunities for capital accumulation) • Government (reduce its share by cutting social expenses and adopting fiscal discipline) • Net exports: capital becomes global and the world becomes a giant network of suppliers and producers

10. The Neoliberal State • Promotion of the primacy of private property rights (pre-eminent in relation to other rights) • The market as a panacea (allocation of G & S by means of private mechanisms). • Deregulation & privatization of the economy • Transformation of the tax structure (burden place on wages rather than capital) • Downsizing of government • Reduction of national debt (fiscal discipline)

11. Privatization Forces Sources E.S. Savas 2000: 6

12. Typology of G & S Feasible Exclusion Infeasible Individual goods Common pool goods Private car Sea water Bottled water Water in underground aquifer Taxi service water from well in town square Bus service Piped water Turnpike Highway City street individual consumption Joint Collective goods Toll Goods Source: E.S. Savas 2000:44-45

13. Typology of G & S Feasible Exclusion Infeasible Individual goods Common pool goods individual The Neo-liberal State The Welfare State consumption Joint Collective goods Toll Goods Source: Adapted from E.S. Savas 2000:44-45

14. Forms of privatization (The case of Education) Sources E.S. Savas 2000: 88

15. A political view of privatization • P.A. and Economics treat privatization as a choice among means to achieve a social goal. • Privatization becomes essentially a technical decision based on issues such as exclusion and joint consumption of the good • Privatization should be seen as a political decision which takes the form of a strategy to realign institutions and decision making to foster the interest of some groups over competing interests • The above view is the same as O’Connor which states that class struggle is present in the budgets and public finance of the State.

16. A political view of privatization • From a political stand point privatization can be understood best by distinguishing among three types: • Pragmatic (It takes place in areas that have been already de-politicized) • Tactical (It occurs in situations that are directly political. Privatization is not an end it is a mean to achieve political goals such as getting elected) • Systematic (It represents and ideological and structural shift as it happened in some developing countries and former communist economies)