The liberal view of economics has taken root in the large majority of the world. Conventional liberal wisdom holds that the private sector is more efficient and client-orientated than the public sector. Therefore, the many of the goods and services traditionally delivered by the public sector could actually be delivered better if the private sector were to do so.
Privatization as a government tool has gained enormous popularity in the past decades. In Europe, European policy and legislation has called for many degrees of liberalization, including the privatization of many state-owned companies. And indeed, many companies have already been privatized.
Privatization in the common day and age often takes on a more problematic form: after the relatively straightforward privatization of the past decades, the remaining objects nominated for privatization are often services which serve a distinct public interest. The option of privatizing such services have become significantly less straightforward than before and no longer is efficiency-gain argument enough to warrant privatization. Well-known examples include the railways, electricity production and transportation and telecom companies.
Before one opts to privatize, a number of fundamental questions have to be addressed.
• What goal is to be achieved by privatization?
• What are the tasks of this new organization?
• How competitive is the market for this activity (competitors, working of market forces at the demand and supply side)?
• Are the products/services quantifiable and how should we compensate?
• How capital intensive is the activity; can the new organization survive?
• Can the new organization survive in the market in terms of personnel and organization?
• What are the financial risks? Could these be insured and covered by private entities?
• What will be the impact of failure of the activity after the privatization has been completed? (political and social risks)
• Can the government guarantee quality, accessibility and supervision?
The underlying trade-off for the government is to balance efficiency gain with the loss of direct steering mechanisms in the provision of (semi-) collective goods. Regardless of the fact that the government has opted to privatize service provision, the general public will always hold the government responsible when it fails to provide collective goods to its citizens. This necessitates a thorough analysis of the to be privatized service and the ways in which the government is able to continue to guarantee collective goods provision.