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Briefly explain the economic arguments, which have supported the continued privatisation of the transport sector in the UK since 1979

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Introduction

Briefly explain the economic arguments, which have supported the continued privatisation of the transport sector in the UK since 1979. Privatisation refers to a transfer of ownership from the public to private sector. The structural and operational changes in transport since 1979, were initially carried out by a government which has inherited many transport problems and which was determined to pursue certain economic policies. These were based on a deliberate commitment to reduce government involvement in the economy, the public sector services providing 'value for money', and a need to cut back on public expenditure. The first argument is that privatisation will expose the different industries within transport, to market forces, from which will flow the benefits of greater efficiency, faster growth and greater responsiveness to the needs of the consumer. ...read more.

Middle

In doing so it will be competing with other firms for funds, and thus must be seen capable of using the funds profitably. Lastly it will have accountability to shareholders. Shareholders will want a good return on their shares and thus will put pressure on the company to perform well. The market has corporate control and thus provides incentives for private firms to be efficient. In nationalised industries managers may frequently be required to adjust their targets for political reasons. At one time they may keep prices low as part of a government drive against inflation. Privatisation frees the company from these constraints and allows it to make more rational economic decisions and plan future investments with greater certainty. ...read more.

Conclusion

Cuts in taxation are not only popular politically, but also are seen as a means of increasing incentives to work invest and therefore stimulate increased output in the economy. Finally there is the argument of increased share ownership. This is a largely political and ideological argument. The Conservative party believes that the 'true' public ownership is not state ownership. Although in theory everyone in the UK owned the nationalised industries, people did not feel a sense of ownership or participation. Instead the industries were run by 'bureaucrats'. This was not so after privatisation, shares are now owned by members of the public who feel a much greater sense of involvement. In this sense the Conservatives argued that privatisation is really a return of the industries to the public and a form of 'popular capitalism'. ...read more.

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