Privatization can create victims
Public enterprises in Less Developed Countries (LDCs) are often expected to pursue social objectives, which can range from subsidies to particular consumer groups, assisting certain regions, and creating and maintaining employment. Thus, in addition to economic and financial performance, consideration must be given to the public enterprise sector's performance in fulfilling “non-economic” objectives.
Fully privatized services make no distinction between a wealthy consumer and a poor consumer. In LDCs it means that the poor cannot afford to pay for privatized services and are often left out. Thus, in a sense, as far as the poor are concerned, consumers of public goods and services are necessarily victims of privatization since they can no longer use that services unless other provision is provided.
However, as long as the statement does not mention who are the concerned here among consumers of public goods and services, there are possibly some consumers who do not necessarily have only a negative impact but could benefit from privatization, with improvements in the quality of goods and services. Although all consumers of public goods will equally have a negative impact in terms of cost, there is also a positive impact for only the wealthy consumers, who are not seriously affected by the increase of cost. Besides, before the transition of ownership from the public to the private sector, as happened in many African countries, they often found themselves financially, technically and managerially unable to sustain public enterprises on the scale that currently exists.
In such a case, public services can no longer be effective, and thus there is no advantage to keeping them going, just because of public demand.
If citizen can enjoy neither efficient public services nor cost-performance, even when the same services are privatized, they can become victims stuck with inefficient services with no prospect of improvement.
In conclusion, for privatization, what matters is not who owns the service but whether or not the process is accompanied by increased market competition. As often mentioned in theory, private enterprise is likely to be more efficient. Since its object is profit making, it will shut down its services when they are no longer needed and begin to suffer persistent loses. The strict management and flexibility in meeting demand, is expected to lead to an improvement in the quality of goods and services. However, although this is the advantage of private enterprise and the expectation of the non-poor consumer, who will begin to pay for the service, the profit-seeking attitude implies no consideration for the poor because they do not fall in the category of prospective customer.
Public enterprises, on the other hand, can be somewhat successful at including the poor in its objectives as they help to create and preserve jobs while their products are subsidized and mean affordable prices for the low-income consumer. Change of ownership to private hands in this case is likely to have more negative impacts, not only on the poor, but also on the society as a whole.
Therefore, consumers of public goods and services are, by and large, victims of this process, although certain consumers benefit from successful privatized services. Support for the poor will inevitably be minimized and inferior when government expenditure in this sector becomes limited.
The concern then is how those loses, in the social context, can be minimized in the process of privatization. Obviously, for those who have no means to pay for new services, other arrangements will be needed. One possibility could be that the government pays the difference between the actual cost and the price paid by the consumer.
Careful study of the full impact of privatization and various recipes that may not necessarily lead to full privatization would be welcomed. — (Jordan Times)
By Tharwat Awamleh
© 2000 Al Bawaba (www.albawaba.com)