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What are the reasons for governments to own business and assets? Why has privatization of public enterprise taken place? Should public housing and airport in Hong Kong be privatized?

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PA302 (2) CHAN Sau-fung (S05012153) What are the reasons for governments to own business and assets? Why has privatization of public enterprise taken place? Should public housing and airport in Hong Kong be privatized? Reasons for establishing public enterprise Governments have established public enterprises for a variety of reasons. These can include inadequate private supply of goods and services; rescuing private firms if their closure is against the public interest; improving competition; reducing social costs such as environmental externalities; even to protect national sovereignty in some way.1 In fact, there are ideological and practical reasons for maintaining public ownership, its rationale is as follows: 1) Ideological consideration "Socialism" and "communism" are two modern ideologies for discussion of public ownership. Communism can be classified as one particular kind of socialism even though communist ideology differs very much from socialism. Socialists emphasis on the values of equality, social justice and cooperation while communist ideology is based on class struggle or hatred. However, both socialism and communism strongly reject the concept of privatization as it will create inequality and jeopardize social justice. They are in favor of the economic collective system, i.e. government and social ownership as the means of production and distribution. 2) Public Utility is crucial to the well being of citizens A public utility is a business considered so important to the public welfare that it is subject to some form of government regulation or ownership. For example, the industries of railway, electric power, gas and waterworks. ...read more.


Privatization plays a vital role in fostering an equity market. Besides, it can also broaden the wealth and achieve widespread private ownership in society. This objective may be attained by selling ownership rights to the public and employees of public enterprises subject to denationalization instead of to a private firm. 4) Raising Extra-Revenues for the Government To raise revenues for the government is one of the objectives of privatization. This strategy is important in particular when the government PA302 (2) CHAN Sau-fung (S05012153) encounters a financial crisis. Generally speaking, taxes; collect user charges; borrow money from individuals by selling treasury bonds and encourage foreigners to invest in home country are some examples for the government to raise revenues. However, there is a limit to raise the taxes and money from both the domestic and foreign sources. Privatization becomes an important policy for the government to raise money. 5) Curbing Inflation Privatization can be considered as a tool for curbing inflation. The reason is that public enterprises are usually seen as an important factor causing cost-push inflation as it does not work efficiently and effectively and is usually required supplementary funds from general account budget. Privatization eliminates the financial burden of public economic enterprises and hence may control the inflation. 6) Eliminating the problem of 'featherbedding' 'Featherbedding' is quite a common problem in public corporation. Public corporations use to provide terms and conditions for employees above those which could be obtained elsewhere, including the employment of more staff than may be needed. ...read more.


Lastly, it is also a question whether privatization of public housing will resolve the budget deficit in a long run as deficits tend to be cyclical. However, tax revenue, land leases as well as property rents on the other hand is providing a continuous income stream to the government. To conclude, I support privatization but not the complete hands off or the sale of all agency assets. The partial sale of an agency's assets; the contracts of administration or any contracts of services will be a better solution instead particularly if the public utility is crucial to the well beings of the citizens. The involvement of government is essential as it is taking a role as a balance and checking. It has to balance the interests of the public with those of private contractors. The End 1 Public management and administration, an introduction, (3rd edition), by Owen E. Hughes, pg 95. 2 The rationale for privatization, by Prof.Dr. Coskun Can Aktan . http://www.canaktan.org/ckonomi/ozellestirme/aktan-makaleler-ceviriler/ 3 Steel, David R. and David A. Heald, "Privatizing public Enterprises: An analysis of the Government's case" Political Quarterly, July-1982, pp333-49 4 Kent, Calvin A; " Privatization of Public Functions: Promises and Problems: in: Calvin A.Kent (Ed) Entrepreneurship and the Privatizing of Government, London: Quorum Books, 1987 5 The Wall Street Journal " Hong Kong Plans Another Handover" on 16 Oct 2003 6 Legislative Council of the HKSAR, Panel on Economic Services "Report of the delegation of the Panel to study overseas experience in port and airport management, airport privatization and theme park management in April 2004. http//www.legco.gov.hk/yr03-04/English/hc/papers ?? ?? ?? ?? 1 ...read more.

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