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Free market economics: Privatisation

Tom White

17th September 2013

 Many of you starting out on Economics programmes will quickly hit on this topic. Is it wise to take a 'free market' or Laisser Faire approach to organising the economy? Or should the government be controlling key parts of the economy? This theme is likely to run through the course, as you go on to consider the ways in which government intervention in the economy can make things better - or worse.
 Here's the ideal topic to get you thinking. Are industries best managed when they are in the hands of the government (which is often described as nationalised)? Or is it better for them to be run as regular private businesses - that is privatised?

You probably already know that the Royal Mail is likley to be privatised very soon. That has generated lots of public debate. Can you think of any points that would fit into a for/against series of arguments? Should the government sell the business (or 'float' it on the Stock Exchange)?

One very simple argument in favour of privatisation is that is can raise much needed funds on behalf of the taxpayer. The Chancellor will be very pleased that a recent government sale of a 6% stake in the Lloyds Banking Group raised a tidy sum. That won't generate much controversy - few people think the government should control a big slice of the banking industry - though more people probably think that now than they did 5 years ago, when large parts of the banking sector were bailed out or taken over by the government to prevent a wider collapse!

Here's a handy link to the history of recent privatisations. Note how The Guardian refers to privatisations as 'sell offs'. That probably reveals that the newspaper has a rather dim view of the process, having greater trust in the government's ability to successfully fund, run and control enterprises.

For 30 years or more, Economists have generally had less faith in governments, and possibly more in markets. Shaking up firms through privatisation programmes is often discussed under the heading of supply side economics, which is covered here (and with a quiz too).

Tom White

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