Peer 1 Sophie

Question #2: What is privatization? What are the impacts in a European context? Do you think that these policies were/are wise?

Privatization is something that has played a major role in the development and progression of European politics, policy making, and governance. It envelops the transfer of industry, business, or a service from a public ownership to a private ownership, hence privatization. This process helps governments save money and in the process, increase the efficiency because private companies can move certain goods much more efficiently and quicker. Other ways that privatization works is in increased pressure on the market, less political intervention, trade unions have less power, private enterprises have a larger degree of opportunities, and it works directly with the government’s financial needs. It has always played an important role in European governments, trailing back to the 1980’s with Margaret Thatcher. 

In the European context, privatization has done a lot, firstly the reasoning introduced by supporters of this concept do not align with the evidence presented that privatization only helps profitable firms be sold at undervalued prices. Privatization in Europe has sparked an influx of government corruption with many instances of nepotism and conflicts of interest. Also many who actually win concessions and buy formerly privatized assets are state-owned companies. “In terms of setting a value on assets selected for privatization, the main choice was between having the assets valued by bureaucrats or letting the market decide” (Mair, Laver, & Gallagher, 2011, p. 483). Privatization has brought up many questions about the value of these public turned private companies as well as whether the instated policies thus far have been wise or not. 

Countries that have introduced and established privatization policies include Britain, Czech Republic, Poland, Hungary, etc. With mixed responses to the introduction and establishment of privatization and policies in these countries, I would argue that these policies are not wise. Not just on an economical level with privatization leading to more efficiency though solely on the shoulders of these private companies, this process also encourages less government involvement. It reduces the role the government plays in the economy which can lead to some pros but ultimately may not be beneficial. These policies that are instilled result in more cons than pros and while they may show good results in some concentrated countries or areas of governance, I don’t believe that the benefits justify the detriments. 

Peer 2 David 

Question 2

     Privatization is the transfer of commodities from the public sector to the private sector, giving the ability for these assets to be privately owned. An example of how privatization can affect Europe is in Great Britain during Margaret Thatcher’s leadership. The conservative party that won in 1979 didn’t win the election promoting mass privatization, but the privatization happened gradually. The denationalization of profitable British companies such as British Aerospace and Britoil garnered positive benefits as they contained the ability to sell at discounted floatation prices during a bull market. The Conservative leadership also sold large amounts of the stock of public housing. The successes of these privatization movements helped the party get reelected in 1983, and the following party manifest increased the commitment to further privatization. This resulted in the conservative’s continued privatization of public companies, including British Telecom, British Steel, the British Airports Authority, British Airways, Rolls-Royce, and the Rover Group. In 1992 the total privatization profits were equal to 12% of the British GDP. 
    Central and Eastern Europe policies in the 1990s were aimed at significant privatization of public assets. The post-communist countries face different issues regarding the privatization of their perspective governments. The first issue was choosing which state assets should be privatized and what was these assets value. The second issue was who would have the ability to attain these assets. The third issue was what resources could be used to obtain these assets. Countries like the Czech Republic handles these issues by making it their primary objective to get state enterprises to private citizens. After the private citizens receive them, they could be traded, and the market would be able to determine these assets’ value. Each of the adult citizens in the Czech Republic was given investment vouchers by paying registration fees that could be exchanged for shares in companies. Citizens could choose where their vouchers would be used, and risk-averse citizens could obtain shares in safe and stable companies. Other Czech citizens could use their vouchers for riskier companies and potentially garner greater returns with safety trades. Hungary attacked these issues by giving a more significant role to the managers and employees of this enterprise. 
    Privatization has pros and cons that can be seen throughout several different industries. Private companies often operate more efficiently and prove the acceleration of technology. Larger wages can be obtained that will attract more qualified candidates. Cons of privatization throughout different industries include the threat of monopolization. This creates the elimination of competition in the market, allowing the monopoly to control the price. Regulations can also be insufficient, and responsibilities are blurred. In Eastern Europe, privatization has been associated with increases in sales revenues and labor productivity that result in fewer jobs. Negative examples of privatization are France having to return water to a public commodity. 

Sources:

Claessens, Stijn, and Simeon Djankov. Privatization Benefits in Eastern Europe. Journal of Public Economics, vol. 83, no. 3, 2002, pp. 307324., https://doi.org/10.1016/s0047-2727(00)00169-9.