The philosophy of privatization - an overview
By Dr. Abdulaziz M. Al-Dukheil
Privatization refers to the transfer of an economic activity from the government to the private sector domain for economic, social or political reasons, when the government finds that: (1) Its objectives of performing that work have been achieved, or (2) The private sector is capable of carrying out that work in a better way and with less cost.
The objectives of the government are either achieved totally or partly and may change from time to time i.e. what used to be strategic in the past might not be so today. The financial resources of the government are also subject to change, from affluence to insufficiency. All or parts of these variables inspire the government to look for another alternative to perform these works. The only alternative is the society with its economic and social institutions.
If we confine the issue to the works that might have a market and a price, i.e. which can be sold to the public for a specific price, that means we have defined privatization in its pure economic concept.
In this economic context, the concept of privatization appears to be a management theory that suggests that the private management of the economic resources is better than the government management either due to rationalization of costs or increase in productivity. This theory is based on the punishment and reward principle, which represents one of the human individual instincts which orient the individual’s behavior towards better performance. This instinct apparently does not operate in the public sector where collective responsibility erodes individual accountability.
A historical review of the government vis-à-vis the private sector economic management confirms this theory.
In order to achieve high economic performance, of which private sector economic management is believed to be capable, work should be based on profitability. This means existence of a market where the commodity is sold and purchased at a price higher than its production cost.
For this profitability condition to be fulfilled other social objectives will be affected, the most important of which is equality among all the citizens, in the ownership of goods and services. The right to acquire a commodity or a service is associated with the ability of the individual to pay the market price in order to obtain that service or commodity, and not to his or her “right” as a citizen in that society. Here appears an important political and social issue, which relates to the rights of the citizen.
These rights have many aspects, we are concerned here with the economic ones, which comprise the following salient issues as the minimum level of education and of housing, the minimum level of health care and of income.
Philosophically, the minimum level is defined as the sufficient amount for maintaining the human being’s dignity. This level varies according to place and time. The minimum levels of the rights of the citizens express the social solidarity or the social insurance, which is guaranteed by the social contract for the citizen who has accepted to live in that society, belong to it and defend it.
These economic minimum levels, in addition to the political, legal and other levels, are guaranteed by the state to the citizen. This guarantee here means that the government commits itself to perform all aspects relating to planning, financing, management and the necessary follow-up for achieving these rights.
Since all citizens are equal in respect of these rights in virtue of their equality in citizenship and belonging to the society, market mechanism, in its classical shape, will not serve to manage and produce these services pertaining to the rights of citizens. That is because these services, which are based on equality in terms of worthiness and distribution, are not subject to the market law where worthiness and distribution are associated with the purchasing power of the individual and not with the rights associated with citizenship.
The concept of social equity in several societies follows this trend, which is a trend and a philosophy that does not contradict with the liberal concept of free economic system referred to as capitalism.
The government is concerned with the basic limits of the economic rights of citizens while the private sector offers what is above these basic limits. Based on this principle, I say that privatization in the Kingdom of Saudi Arabia can target the following aspects:
1. Pure Economic Institutions and Activities:
These are the activities that have a regular economic market through which the private sector can operate to produce and distribute these commodities and services. The government must quit these activities after they have established themselves and grown. These are some of the institutions producing these kinds or services and activities: Saudi Aramco, remaining government holdings in SABIC, remaining government holdings in SAPTCO, remaining government holdings in Saudi Telecom Co., railway, sport clubs, radio and television, press institutions (supervision and subsidies) and any other companies, establishments or agencies, which produce goods or services that are not basic necessitates and have a market where they can be sold.
2. Mixed Economic Activities:
These are the activities, which have or may have a market. But, on the other hand, they are commodities and services, the minimum level of which must be secured for each citizen because it constitutes an important element for establishing the material and intellectual base for the development of human being. Therefore, such commodities and services are listed among the basic economic commodities and services required for maintaining the basic life requirements for a human being.
The government can allow the private sector to participate in the production and distribution of such commodities and services. The government may secure the basic funds and, in return, direct the process to make sure that the commodities and services have found their way to the people who need them within the limits of citizenship right. The private sector can provide part of the funds needed to increase the quantity and quality of these goods and services beyond the minimum level for the public. The market for this segment of the products is different and the price is higher. Such services include education, health, housing, employment, water, electricity and municipal services.
3. Pure Government Activities:
These are the activities that are subject only to the management of the state in their production and distribution because they are public commodities that have no market. Furthermore, these commodities and services do not lend themselves to the power of wealth for ownership and distribution but rather, to the right of the citizen. Such services are to be provided to all the people on equal basis regardless of any social, cultural or purchasing power differences. These activities include law, defense, national security and social care for those who are unable to work due to health reasons or old age and do not have relatives to look after them.
(The comments and opinions in this article do not necessarily reflect MEBG’s views and editorial position)
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