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Pa315 lecture12 privatization-narration
- 1. PA 315 Government Business Relations California State University San Bernardino College of Business & Public Administration Dr. Anna Ya Ni
- 2. Agenda Privatization Various forms of privatization Limitations of privatization
- 4. Economic Development Strategies Privatization Definition: “the practice of delegating public duties to private organizations” (Dohanue 1989) Public duties? Government functions Government services Government facilities
- 5. Forms of Privatization: Deregulation The process by which governments remove, reduce, or simplify restrictions on business and individuals in order to (in theory) encourage the efficient operation of markets. Positive example Deregulation of the airline industry Negative example California energy crisis
- 6. Forms of Privatization: Contracting out The hiring of private-sector firms or nonprofit organizations to provide goods or services for the government. e.g., Defense contracts The predominant form of privatization in the US
- 7. Forms of Privatization (GAO 1997) Asset Sale: the transfer of ownership of government assets, commercial-type enterprises, or functions to the private sector. e.g., GovSales Franchises: a concession or privilege government grants to a private organization to conduct business in a particular market or geographical area e.g., Highway 91 Express Lanes; Cable franchise
- 8. Government Corporations: separate legal entities that are created by Congress, generally with the intent of conducting revenue-producing commercial-type activities, and that are generally free from certain government restrictions related to personnel and procurement. e.g., Community Development Financial Institutions Fund; Overseas Private Investment Corporation (OPIC); Federal Deposit Insurance Corporation (FDIC); Amtrak Grants (or subsidies): a sum of money (or a privilege or rights) government gives to private organizations to encourage their involvement in accomplishing public purposes e.g., the funding of low-income housing, or tax subsidies, R&D grants or tax credits. Forms of Privatization (GAO 1997)
- 9. Forms of Privatization (GAO 1997) Lease: the arrangement of government granting the temporary possession or use of (lands, facilities, etc.) to private organizations, usually for compensation at a fixed rate and with service and profit restrictions. e.g., lease of airport Public-Private Partnerships: (sometimes referred to as a joint venture) a contractual arrangement formed between public- and private-sector partners that can include a variety of activities that involve the private sector in the development, financing, ownership, and operation of a public facility or service.
- 10. Voluntarism: activities conducted through either a formal agency volunteer program or a private nonprofit service organization. Vouchers: government financial subsidies given to individuals for the purchase of specific goods or services from the private or public sector. e.g., Food stamps, housing vouchers Forms of Privatization (GAO 1997)
- 11. The Limits of Privatization The single most important characteristic that separates the public and private sectors — SOVEREIGNTY: Coercive power Power to go to war Immunity from suit except by their permission Power to disavow debts Right to establish the rules for protection and transference of property (eminent domain) Indivisibility
- 12. The Limits of Privatization Additional factors to consider National security (e.g., CIA, embassies) Public safety Accountability issues Management capacity Possibility of corruption
- 13. Office of Management & Budget (OMB) Circular A-76 Purpose. This circular establishes federal policy for the competition of commercial activities. Policy. The longstanding policy of the federal government has been to rely on the private sector for needed commercial services. To ensure that the American people receive maximum value for their tax dollars, commercial activities should be subject to the forces of competition.
- 14. OMB Circular A-76 Commercial Activities A commercial activity is a recurring service that could be performed by the private sector and is resourced, performed, and controlled by the agency through performance by government personnel, a contract, or a fee-for-service agreement.
- 15. OMB Circular A-76 An inherently governmental activity: is an activity that is so intimately related to the public interest as to mandate performance by government personnel. Inherently Governmental activities require the exercise of substantial discretion in applying government authority and/or in making decisions for the government normally fall into two categories: The exercise of sovereign government authority or the establishment of procedures The processes related to the oversight of monetary transactions or entitlements.
- 16. 16 Summary Comments Government’s strategies for economic development Industrial recruitment Entrepreneurial strategies Privatization (deregulation) Dominant political ideology plays a role Liberal states should be more disposed toward entrepreneurial strategies (policy based). Conservative states should be more disposed to industrial recruitment strategy and deregulation (case-by-case strategy).
- 17. End of Lecture
Editor's Notes
- Hello, Welcome to this online lecture!
- In this lecture, we are going to introduce the concept of privatization, various forms of privatization and the limitations of privatization.
- What is privatization?
- Privatization refers to the practice that government delegates public duties to private sector organizations. Such public duties may include: government functions, such as prison, HR, accounting, planning, government services, such as waste collection, cable services, social services and government owned facilities, including airport, train station, stadiums, highways, and so on.
- One form of privatization is deregulation, which refers to the process by which governments remove, reduce, or simplify restrictions on business and individuals in order to (in theory) encourage the efficient operation of markets. Deregulation has been often pursued by government as an economic development strategy. The impact of deregulation is often mixed. There are positive examples, such as the deregulation of the airline industry in the 1970s. However there are also negative examples, such as the California energy crisis in the 1990s. Detailed descriptions of the examples can be found in your assigned reading for this class. Privatization goes beyond economic development purpose. There are many forms of privatization not aiming at economic development, but they provide opportunities for firms to do business with government.
- The most popular form of privatization in the United States is contracting out, the hiring of private-sector firms or nonprofit organizations to provide goods or services for the government. For example, defense contracts from government have largely encouraged the development of the arms industry in the nation. In addition to military products and service, government also contracts out many services, such as waste collection, human service, social services, and so on.
- Asset sale is the transfer of ownership of government assets, commercial-type enterprises, or functions to the private sector. Asset sale was very important as a tool of privatization in many countries in the past, such as the UK, Russia, and China, but in the US, it is much less important as the US does not have a lot of state-own enterprises like those countries. Franchise is a concession or privilege government grants to a private organization to conduct business in a particular market or geographical area. For example, your city may grant franchise the cable service to one firm, making it the privileged provider of such service in the jurisdiction.
- There are also government corporations, which are often created by Congress to conduct commercial activities. For example, the Community Development Financial Institutions Fund, a wholly owned government corporation within the U.S. Department of the Treasury, promotes economic revitalization and development in distressed urban and rural communities throughout the United States. The overseas private investment corporation helps US firms invest in less developed countries and areas. The Federal Deposit Insurance Corporation was created to maintain the stability of and public confidence in the nation's financial system. All these organizations operate like a business but serve a government function. Grants (or subsidies) are a sum of money government gives to private organizations to encourage their involvement in accomplishing public purposes, such as funding for low-income housing, tax subsidies, R&D grants, and so on.
- Lease is the arrangement of government granting the temporary possession or use of (lands, facilities, etc.) to private organizations, usually for compensation at a fixed rate and with service and profit restrictions. For example, airport is often owned by government, but is leased to airlines. Public-Private Partnerships or PPP, which was introduced previously is also a form of privatization that often involve the private sector in the development, financing, ownership, and operation of a public facility or service.
- Voluntarism refers to the activities conducted through either a formal agency volunteer program or a private nonprofit service organization. Some of you might have volunteered in some public services, such as national park service, library service, community service, and so on. Vouchers are government financial subsidies given to individuals for the purchase of specific goods or services from the private or public sector. Food stamps, housing vouchers, school vouchers are the common examples.
- Government privatizes a variety of public duties, however could all government duties be delegated to private companies? Definitely not. Some scholars point out that privatization cannot go beyond any duties related to sovereignty, which is the single most important characteristic that separates the public and private sectors. As a sovereign state, government is subject to no other authority. It posses coercive power, the power to go to war, the immunity from suit except by their permission, power to disavow debts, and the right to establish the rules for protection and transference of property (such as the eminent domain). A sovereignty is also indivisibility.
- In addition, privatization may also raise up many undesirable issues, such as threats to national security or public safety, accountability issues, management issues, as well as the opportunity for corruption.
- The office of management & budget, which oversees the operation of the executive branch, promulgated the Circular A-76 to establish guidelines for privatization, especially contracting out. The policy emphasizes federal government’s reliance on the private sector for needed commercial services and encourages government agencies considering contracting out commercial activities.
- The commercial activities are recurring services that could be performed by the private sector and is resourced, performed, and controlled by the agency through performance by government personnel, a contract, or a fee-for-service agreement.
- However, the Circular also specifies that there are inherently government activities should not be privatized. Those Inherently Governmental activities require the exercise of substantial discretion in applying government authority and/or in making decisions for the government. They normally fall into two categories: The exercise of sovereign government authority or the establishment of procedures and The processes related to the oversight of monetary transactions or entitlements.
- Up till now, we have introduced three government strategies for economic development: Industrial recruitment, Entrepreneurial strategies, and Privatization (deregulation). The dominant political ideology often plays a role in a jurisdiction's choice of economic development strategies. Some studies found that politically liberal states, or democratic states are more likely to adopt policy-driven entrepreneurial strategies, as they generally prefer the use of government for social purposes. Liberal citizens and leaders are more accepting change in general and economic intervention in particular. Political conservative states, or republican states, are more likely resort to industrial recruitment or deregulation as those strategies require less initiative on the part of government agency and assume that government decisions will remain subordinate to those of the private sector.
- This is the end of the lecture. Thanks for your participation.