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.  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.  If being privatized, the company will be focused on ‘making profits’ rather than ‘serving the people’.  Private firms may lack trustworthiness in taking care the people from lower income class.  In this sense, public ownership is required to ensure accountability and pubic interests in particular the services or utility is crucial for citizens. 

PA302        (2)                                                         CHAN Sau-fung (S05012153)

  1. Insufficient capital for investments

                        All public utilities require an enormous amount of investment, especially initial investment.  For instance, the construction of an electric power company is very capital-intensive.  The company has to spend a lot for the construction and maintenance of transmission towers, poles and power lines.  Once it is in operation, it becomes continually cheaper to add extra consumers.  It would be difficult for others to complete in the same area as the set up of another transmission towers, poles and power lines is considered to be wastage.  Therefore, public utility companies have a tendency to become ‘natural monopolies’.  Besides, as public utilities require huge investment and take a number of years before they can recover their investments, private individuals may not be able to gather this amount of capital and has no interest to invest as it takes long to recover.  

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                        To tally with the ideologically consideration mentioned above, if these companies are owned by private enterprise, they can make lots of money due to their monopoly in nature.  It is in fact inconsistent with the socialists’ ideology for maintaining social equity and equality.  The only possible way is for the government to own and run the industry.  Even if the government makes some profits, they belong to public rather than the organization itself.

Why has privatization of public enterprise taken place?

                        Privatization encompasses that many ways in which the private sector assumes functions that were ...

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