Advertisement

Policy Sciences

, Volume 37, Issue 2, pp 159–183 | Cite as

Reframing privatisation: Deconstructing the myth of efficiency

  • Steve R. Letza
  • Clive Smallman
  • Xiuping Sun
Article

Abstract

In the context of ongoing scandals about public versus private ownership, we review the rise and fall of British nationalised industries, and the subsequent rise of privatisation based on perception of market-based efficiency as a means of improving public service. We evaluate the theoretical and empirical arguments around privatisation and find that the argument of privatisation as a vehicle for efficiency gains is a myth. Instead, we suggest that efficiency is not solely a matter of ownership, but requires a complex interplay of social and commercial variables to make it possible. We call for a more inventive and flexible approach in the search for efficiency in the public sector.

Keywords

Public Sector Economic Policy Public Service Complex Interplay Efficiency Gain 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

Preview

Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.

References

  1. Akram, T. (2003). ‘Formulation of a model of ineffective privatisation in the context of developing countries’, Journal of Financial Management & Analysis 16: 27.Google Scholar
  2. Alchain, A. A. (1965). ‘Some economics of property rights’, II Politico 30: 816–829.Google Scholar
  3. Alchain, A. A. (1977). Economic Forces at Work. Indianapolis: Liberty Press.Google Scholar
  4. Alchain, A. A. and H. Demsetz (1972). ‘Production, information costs, and economic organisation’, American Economic Review 62: 777–795.Google Scholar
  5. Appelbaum, E., T. Bailey, P. Berg and A. L. Kalleberg (2000). Manufacturing Advantage. Why High Performance Work Systems Pay Off. London: Cornell University Press.Google Scholar
  6. Appelbaum, E. and R. Batt (1994). The New American Workplace: Transforming Work Systems in the United States.New York: ILR Press.Google Scholar
  7. Appelbaum, E. and P. Berg (2000). ‘High performance work systems: Giving workers a stake’, in M. M. Blair and T. A. Kochan, eds., The New Relationship: Human Capital in the American Corporation. Washington, DC: Brookings Institution Press, pp. 102–144.Google Scholar
  8. Ashworth, M. H. and P. Forsyth (1984). British Airways. London: Institute for Fiscal Studies.Google Scholar
  9. Bilimoria, D. (1997). ‘Perspectives on corporate control: Implications for CEO compensation’, Human Relations 50: 829–858.Google Scholar
  10. Birie, M. (1985). Dismantling the State: The Theory and Practice of Privatisation. Dallas: National Centre for Policy Analysis.Google Scholar
  11. Bishop, M. (1994). ‘Survey: corporate governance’, The Economist 29 January, pp. 3–18.Google Scholar
  12. Bishop, M. and J. Kay (1988). Does Privatisation Work? Lessons from the UK. London: London Business School Centre for Business Strategy.Google Scholar
  13. Bishop, M. and D. Thompson (1992). ‘Regulatory reform and productivity growth in the UK's public utilities’, Applied Economics 24: 1181–1190.Google Scholar
  14. Bond, P. (2003). The new apartheid: New Internationalist.Google Scholar
  15. Borcherding, T. (1977). ‘The sources of growth in public expenditures’, in T. Borcherding, ed., Budgets and Bureaucrats: The Sources of Government Growth. Durham: Duke University Press.Google Scholar
  16. Boycko, M., A. Shleifer and R. W. Vishny (1996). ‘A theory of privatisation’, Economic Journal 106: 309–319.Google Scholar
  17. Broadbent, J. and R. Laughlin (2003). ‘Control and legitimation in government accountability processes: The Private Finance Initiative in the UK’, Critical Perspectives on Accounting 14: 23–48.Google Scholar
  18. Brown, K., N. Ryan and R. Parker (2000). ‘New modes of service delivery in the public sector: Commer-cialising government services’, International Journal of Public Sector Management 13: 206.Google Scholar
  19. Buchanan, J. M. (1972). Theory of Public Choice. Ann Arbor: University of Michigan Press.Google Scholar
  20. Buchanan, J. M. (1978). The Economics of Politics. London: Institute of Economic Affairs.Google Scholar
  21. Burton, J. (1987). ‘Privatization: The Thatcher case’, Managerial and Decision Economics 8: 21–29.Google Scholar
  22. Chandler, A. (1977). The Visible Hand. Cambridge: Belknap Press.Google Scholar
  23. Chandler, A. (1990). Scale and Scope. Cambridge: Belknap Press.Google Scholar
  24. Clark, A. (2004). ‘UK's air traffic control chief sacked’, The Guardian 18 March.Google Scholar
  25. Coase, R. H. (1937). ‘The nature of the firm’, Economica 4: 386–405.Google Scholar
  26. Cook, G. (1992). Privatisation in the 1980s and 1990s. Oadby: Hidcote.Google Scholar
  27. Cox, A. and J. Sanderson (1997). ‘The political economy of Britain since 1939’, in C. A. S. Lee and J. Sanderson, eds., The Political Economy of Modern Britain. Cheltenham: Edward Elgar, pp. 1–44.Google Scholar
  28. Crompton, G. and R. Jupe (2003). ‘“such a silly scheme”: The privatisation of Britain's railways 1992–2002’, Critical Perspectives on Accounting 14: 617–645.Google Scholar
  29. Curwen, P. (1986). Public Enterprise: A Modern Approach. London: Wheatsheaf.Google Scholar
  30. Daßler, T., D. Parker and D. S. Saal (2002). ‘Economic performance in European telecommunications, 1978–1998: A comparative study’, European Business Review 14: 194–209.Google Scholar
  31. Dewenter, K. L. and P. H. Malatesta (2001). ‘State-owned and privately owned firms: An empirical analysis of profitability, leverage and labour intensity’, American Economic Review 91: 320–334.Google Scholar
  32. Dick, B. W. (1987). Privatisation in the UK: The Free Market Versus State Control.Layerthorpe: Longman.Google Scholar
  33. Diokno-Pascual, M. (2003). Power splurge: New Internationalist.Google Scholar
  34. Donahue, J. D. (1989). The Privatisation Decision: Public Ends, Private Means.New York: Basic Books.Google Scholar
  35. Donald, D. and A. Hutton (1998). ‘Public purpose and private owenership: Some implications of the Great Capitalist Restoration for the politicization of private sector firms in Great Britain’, Journal of Economic Issues 32: 457–464.Google Scholar
  36. Dunsire, A. (1986). ‘A cybernetic view of guidance, control and evaluation in the public sector’, in F.-X. Kaufmann, G. Majone, V. Ostrom and W. Wirth, eds., Guidance, Control and Evluation in the Public Sector. The Bielefeld Interdisciplinary Project.New York: Walter de Gruyter, pp. 327–346.Google Scholar
  37. Dutton, D. (1991). British Politics Since 1945: The Rise and Fall of Consensus. Oxford: Basil Blackwell.Google Scholar
  38. Dyck, A. (2001). ‘Privatisation and corporate governance: Principles, evidence, and future challenges’, World Bank Research Observer 16: 59–84.Google Scholar
  39. Economist (1998a). ‘The end of privatisation?’ The Economist 11 June.Google Scholar
  40. Economist (1998b). ‘In search of a way’, The Economist 22 October.Google Scholar
  41. Economist (1999). ‘The painful privatisation of South Africa’, The Economist 9 September.Google Scholar
  42. Economist (2001a). ‘India's sluggish privatisation: Unproductive’, The Economist 6 September.Google Scholar
  43. Economist (2001b). ‘Iranian privatisation: A mess’, The Economist 19 July.Google Scholar
  44. Economist (2002a). ‘Grab and smash’, The Economist 12 September.Google Scholar
  45. Economist (2002b). ‘The politics of privatisation: Arequipa's anger, Peru's problem’, The Economist 20 June.Google Scholar
  46. Economist (2002c). ‘Privatisation in Europe: Coming home to roost’, The Economist 27 June.Google Scholar
  47. Economist (2003). ‘Private passions’, The Economist 17 July 2003.Google Scholar
  48. Ehrlich, I., G. Gallais-Maonno, Z. Liu and R. Lutter (1994). ‘Productivity growth and firm ownership: An analytical and empirical investigation’, Journal of Political Economy 102: 1006–1038.Google Scholar
  49. Ellwood, W. (2003). The great privatisation grab: New Internationalist.Google Scholar
  50. Estache, A. (2001). ‘Privatization and regulation of transport infrastructure in the 1990s’, The World Bank Research Observer 16: 85.Google Scholar
  51. Estrin, S. and V. Pérotin (1991). ‘Does ownership always matter?’, International Journal of Industrial Organisation 9: 55–72.Google Scholar
  52. Foster, C. D. (1992). Privatisation, Public Ownership and the Regulation of Natural Monopoly. Oxford: Blackwell.Google Scholar
  53. Foster, C. D. (1994). ‘Rival explanations of public ownership, its failure and privatisation’, Public Administration Review 72: 489–503.Google Scholar
  54. Froud, J. (2003). ‘The private finance initiative: risk, uncertainty and the state’, Accounting, Organizations and Society 28: 567–589.Google Scholar
  55. Furubotn, E. G. and S. Pejovich (1972). ‘Property rights and economic theory: A survey of the recent literature’, Journal of Economic Literature 10: 1137–1162.Google Scholar
  56. Furubotn, E. G. and S. Pejovich (1974). The Economics of Property Rights. Cambridge: Ballinger.Google Scholar
  57. George, A. (2003). Crime pays: New Internationalist.Google Scholar
  58. George, S. (1999). ‘A short history of neoliberalism’, in Conference on Economic Sovereignty in a Globalizing World.New York: United Nations Global Policy Forum.Google Scholar
  59. Giddens, A. (1998). The Third Way: The Renewal of Social Democracy. Cambridge: Polity Press.Google Scholar
  60. Goodman, J. B. and G. W. Loveman (1991). ‘Does privatisation serve the public interest?’, Harvard Business Review: 26–38.Google Scholar
  61. Goodsell, C. (1994). The Case for Bureaucracy: A Public Administration Polemic. Chatham, NY: Chatham House.Google Scholar
  62. Gourvish, T. (2002). British Rail 1974–97: From Integration to Privatisation. Oxford: Oxford University Press.Google Scholar
  63. Grose, V. L. (1990). Managing Risk: Systemic Loss Prevention for Executives. Englewood Cliffs, NJ: Prentice Hall.Google Scholar
  64. Hall, D. (2003). The ‘B’ word: New Internationalist.Google Scholar
  65. Hart, O. (1995). ‘Corporate governance: Some theory and implications’, The Economic Journal 105: 678–689.Google Scholar
  66. Hartley, K., D. Parker and S. Martin (1991). ‘Organisational status, ownership and productivity’, Fiscal Studies 12: 46–60.Google Scholar
  67. Haskel, J. and S. Szymanski (1993). ‘The effects of privatisation, restructuring and competition on productivity growth in UK public corporations’, Department of Economics, Queen Mary and Westfield College, University of London.Google Scholar
  68. von Hayek, F. (1949). ‘Economics and knowledge’, in: F. von Hayek, ed., Individualism and Economic Order. London: Routledge & Kegan Paul.Google Scholar
  69. Herman, E. S. and L. Lowenstein (1988). ‘Efficiency effects of hostile takeovers’, in J. Coffee, L. Lowenstein and S. Rose-Ackerman, eds., Knights, Raiders and Targets: The Impact of the Hostile Takeover.New York: Oxford University Press.Google Scholar
  70. Hirschmann, A. O. (1970). Exit, Voice and Loyalty: Responses to Decline in Firms, Organizations and States. Cambridge, MA: Harvard University Press.Google Scholar
  71. Hood, C. C. (1995). ‘The “New Public Management” in the 1980s: Variations on a theme’, Accounting, Organizations and Society 20: 93–109.Google Scholar
  72. Hood, C. C. (1996). ‘Where extremes meet: “SPRAT” versus “SHARK” in public risk management’, in C. C. Hood and J. D. K. C, eds., Accident and Design: Contemporary Debates in Risk Management. London: UCL Press, pp. 208–228.Google Scholar
  73. Hutton, W. (1995). The State We're In. London: Jonathan Cape.Google Scholar
  74. Jackson, P. M. and C. Price (1994). ‘Privatisation and regulation: A review of the issues’, in P. M. Jackson and C. Price, eds., Privatisation and Regulation: A Review of the Issues. Essex: Longman Group Ltd., pp. 1–34.Google Scholar
  75. Jensen, M. C. (1993). ‘The modern industrial revolution, exit, and the failure of internal control systems’, Journal of Finance 48: 831–880.Google Scholar
  76. Jensen, M. C. and W. Mechling (1976). ‘Theory of the firm: Managerial behaviour, agency costs and capital structure’ Journal of Financial Economics 3: 305–360.CrossRefGoogle Scholar
  77. Jones, T. (1993). ‘Privatisation and market structure in the UK gas industry’, In T. Clarke and C. Pitelis, eds., The Political Economy of Privatisation. London: Routledge, pp. 108–124.Google Scholar
  78. Kaplan, R. S. and D. P. Norton (1992). ‘The balanced scorecard–measures that drive performance’, Harvard Business Review: 71–79.Google Scholar
  79. Kaplan, R. S. and D. P. Norton (1993). ‘Putting the balanced scorecard to work’, Harvard Business Review: 135–147.Google Scholar
  80. Kaplan, R. S. and D. P. Norton (1996). ‘Using the balanced scorecard as a strategic management system’, Harvard Business Review: 75–85.Google Scholar
  81. Kay, J. A. and D. J. Thompson (1986). ‘Privatisation: A policy in search of a rationale’, The Economic Journal 96: 19–32.Google Scholar
  82. Kelsey, J. (1993). Rolling Back the State: Privatisation of Power in Aotearoa/New Zealand.Wellington, NZ: Bridget Williams Books.Google Scholar
  83. Kouwenhoven, V. (1993). ‘The rise of the public private partnership: Amodel for the management of public–private cooperation’, in J. Kooiman, ed., Modern Governance: New Government–Society Interactions. London: Sage, pp. 119–130.Google Scholar
  84. Kreuger, A. O. (1990). ‘Government failures in development’, Journal of Economic Perspectives 4: 9–23.Google Scholar
  85. Latham, M. (1999). ‘The corporate monitoring firm’, Corporate Governance 7: 12–20.Google Scholar
  86. Lavoie, D. (1985). Rivalry and Central Planning. Cambridge: Cambridge University Press.Google Scholar
  87. Letza, S. and C. Smallman (2001). ‘Est in aqua dulci non invidiosa voluptas’, ‘In pure water there is a pleasure begrudged by none’, Critical Perspectives on Accounting 12: 65–85.Google Scholar
  88. Martin, S. and D. Parker (1995). ‘Privatization and economic performance throughout the UK business cycle’, Managerial and Decision Economics 16: 225–237.Google Scholar
  89. Martin, S. and D. Parker (1997). The Impact of Privatisation: Ownership and Corporate Performance in the UK. London: Routledge.Google Scholar
  90. McCormick, R. E. and R. E. Meiners (1988). ‘University governance: A property rights perspective’, Journal of Law and Economics 31: 423–442.Google Scholar
  91. Megginson, W. L., R. C. Nash and M. van Randenborgh (1994). ‘The financial and operating performance of newly privatised firms’, Journal of Finance 49: 403–452.Google Scholar
  92. Miller, H. T. and J. R. Simmons (1998). ‘The irony of privatisation’, Administration and Society 30: 513–533.Google Scholar
  93. Morgan, D. R. and R. E. England (1988). ‘The two faces of privatisation’, Public Administration Review 48: 979–987.Google Scholar
  94. Navajas, F. H. (1984). Managerial Incentives and Control in Public Enterprises. Unpublished PhD, Oxford University.Google Scholar
  95. New Internationalist (2003). Privatisation: The facts: New Internationalist.Google Scholar
  96. Niskanen, W. A. (1971). Bureaucracy and Representative Government. Chicago: Aldine.Google Scholar
  97. Niskanen, W. A. (1973). Bureaucracy: Servant or Master? London: Institute of Economic Affairs.Google Scholar
  98. Ogden, S. G. and F. Anderson (1999). ‘The role of accounting in organisational change: promoting per-formance improvements in the privatised UK water industry’, Critical Perspectives on Accounting 10: 91–124.Google Scholar
  99. Parkinson, J. (1995). ‘The role of “exit” and “voice” in corporate governance’, in S. Sheikh and W. Rees, eds., Corporate Governance and Corporate Control. London: Cavendish.Google Scholar
  100. Parsons, T. (1951). The Social System.New York: The Free Press.Google Scholar
  101. Pollock, A. (2003). Bad medicine: New Internationalist.Google Scholar
  102. Pound, J. (1993). ‘The rise of the political model of corporate governance and corporate control’, New York University Law Review 68: 1003–1071.Google Scholar
  103. Pryke, R. (1982). ‘The comparative performance of public and private enterprise’, Fiscal Studies 3: 57–84.Google Scholar
  104. Puxty, A. G. (1997). ‘Accounting choice and a theory of crisis: The case of post-privatisation British Telecom and British Gas’, Accounting, Organisation and Society 22: 713–735.Google Scholar
  105. Rees, R. (1984). ‘A positive theory of public enterprises’, in M. Marchand, P. Pestieau and H. Tulkens, eds., The Performance of Public Enterprises: Concepts and Measurement. Amsterdam: New Holland.Google Scholar
  106. Rescher, N. (1996). Process Metaphysics. Albany: State University of New York Press.Google Scholar
  107. Rorty, R. (1991). Objectivity, Relativism, and Truth. Cambridge: Cambridge University Press.Google Scholar
  108. Rose, R. (1989). ‘Privatization as a problem of satisficing and dissatisficing’, American Review of Public Administration 19: 97–118.Google Scholar
  109. Ross, S. A. (1973). ‘The economic theory of agency: The principal's problem’, American Economic Review 62: 134–139.Google Scholar
  110. Rowthorn, B. and H.-J. Chang (1993). ‘Public ownership and the theory of the state’, in T. Clarke and C. Pitelis, eds., The Political Economy of Privatisation. London: Routledge, pp. 54–69.Google Scholar
  111. Roy, W. G. (1997). Socialising Capital. Princeton: Princeton University Press.Google Scholar
  112. Saal, D. S. and D. Parker (2001). ‘Productivity and price performance in the privatized water and sewerage companies of England and Wales’, Journal of Regulatory Economics 20: 61.Google Scholar
  113. Sanderson, J. (1997). ‘Britain in decline? A statistical survey of Britain's relative economic performance since 1950’, in A. Cox, S. Lee and J. Sanderson, eds., The Political Economy of Modern Britain. Cheltenham: Edward Elgar, pp. 45–62.Google Scholar
  114. Shaoul, J. (1997). ‘A critical financial analysis of the performance of privatised industries: the case of the Water Industry in England and Wales’, Critical Perspectives on Accounting 8: 479–505.Google Scholar
  115. Shaoul, J. (2003). ‘A critical analysis of the Private Finance Initiative: Selecting a financing method or allocating economic wealth?’, Critical Perspectives on Accounting (in press).Google Scholar
  116. Shleifer, A. (1998). ‘State versus private ownership’, Journal of Economic Perspectives 12: 133–150.Google Scholar
  117. Simon, H. A. (1997). Administrative Behaviour.New York: The Free Press.Google Scholar
  118. Smallman, C. (2000). ‘Challenging the orthodoxy in risk management’, in E. Coles, D. Smith and S. Tombs, eds., Risk Management and Society. London: Kluwer Academic Publishers, pp. 53–79.Google Scholar
  119. Steelman, T. A. and R. L. Wallace (2001). ‘Property rights and property wrongs: Why context matters in fisheries management’, Policy Sciences 34: 357–379.Google Scholar
  120. Stewart, M. (1986). Keynes and After. Harmondsworth: Penguin.Google Scholar
  121. Stigler, G. J. (1961). ‘The economics of information’, Journal of Political Economy 69: 213–225.CrossRefGoogle Scholar
  122. Stigler, G. J. (1967). ‘Imperfections in the capital market’, Journal of Political Economy 75: 287–292.Google Scholar
  123. Stiglitz, J. E. (1982). ‘The inefficiency of the stock market equilibrium’, Review of Economic Studies 49: 241–261.Google Scholar
  124. Stiglitz, J. E. (2000). ‘The contributions of the economics of information to twentieth century economics’, Quarterly Journal of Economics 115: 1441–1478.Google Scholar
  125. Swann, D. (1988). The Retreat of the State: Deregulation and Privatisation in the UK and US.New York: Harvester Wheatsheaf.Google Scholar
  126. Tullock, G. (1979). ‘Bureaucracy and the growth of government’, in The Taming of Government. London: Institute of Economic Affairs.Google Scholar
  127. Veljanovski, C. (1987). Selling the State: Privatisation in Britain. London: Weidenfeld and Nicolson.Google Scholar
  128. Vickers, J. and G. Yarrow (1988). Privatisation: An Economic Analysis. Cambridge: Cambridge University Press.Google Scholar
  129. Vickers, J. and G. Yarrow (1991). ‘Economic perspectives on privatisation’, Journal of Economic Perspectives 5: 111–132.Google Scholar
  130. Villalonga, B. (2000). ‘Privatisation and efficiency: Differentiating ownership effects from political, organisational, and dynamic effects’, Journal of Economic Behaviour and Organisation 42; 43–74.Google Scholar
  131. Williamson, O. E. (1975). Markets and Hierarchies: Analysis and Antitrust Implications.New York: Free Press.Google Scholar
  132. Williamson, O. E. (1985). The Economic Institutions of Capitalism.New York: Free Press.Google Scholar
  133. Wolf, C. (1988). Markets and Governments. Cambridge, MA: MIT Press.Google Scholar
  134. Wright, R. (1999). ‘Corporate governance goes global: Riding the rising tide’, Impact 3: 2–9.Google Scholar
  135. Ya rrow, G.(1986). ‘Privatisation in theory and practice’, Economic Policy 2: 324–364.Google Scholar
  136. Zingales, L. (2000). ‘In search of new foundations’, Journal of Finance 55: 1623–1653.Google Scholar

Copyright information

© Kluwer Academic Publishers 2004

Authors and Affiliations

  • Steve R. Letza
    • 1
  • Clive Smallman
    • 2
  • Xiuping Sun
    • 3
  1. 1.Centre for Director Education, Leeds Business SchoolLeeds Metropolitan University, Bronte Hall, Beckett ParkLeedsUK
  2. 2.Commerce DivisionLincoln UniversityCanterburyNew Zealand
  3. 3.Lecturer in Business Strategy, Leeds Business SchoolLeeds Metropolitan University, Bronte Hall, Beckett ParkLeedsUK

Personalised recommendations