Economic Integration

IV. Nationalization, Privatization, Deregulation

• IV. Nationalization, Privatization, Deregulation
• The A-S model—limited role of the government and protection of property rights, the EM is characterized by a greater amount of public enterprise, although in recent years European countries have begun to initiate privatization and deregulation. The regulated mkts were largely in transportation, utilities and banking; deregulation started with opening of European gas and electricity mkt to competition.
• 1) Public ownership
• In early post war years the choice of gov’t affected the extent of public enterprise. Social democratic and trade union gov’t favored nationalization and conservative gov’ts opposed it. Hence, nationalization were followed by privatizations of major industries.
• Reasons for nationalization—ideology, national security, maintain employment, regulate natural monopolies, provide for external benefits in industries such as health care.
• F. Mitterrand (socialist): extensive nationalization in France in early 1980s in industry (iron and steal, metals, chemicals), transportation and largest remaining private banks.
• Problems—many of the nationalized industries fail to turn a profit and require subsidies. However, they were often nationalized to pursue goals other than profit maximization.

2.) Nationalizations were followed by privatizations of major industries.

• 2.) Nationalizations were followed by privatizations of major industries.
• in mid 1980s when the conservatives returned to power, policy then reversed: privatization of several large companies
• Privatization pursued in Britain under Margaret Thatcher (several industries sold to stockholders):
• the first privatization of large company British Telecom, British Gas, British Airways, Rolls-Royce, British Steel, British Coal, and British Rail.
• Some have become profitable. Raised revenue for budget and created new group of stockholders.
• Benefits of privatization
• performance improvement (sales, profitability), sustained employment- British airways became more innovative and profitable after privatization.
• Critics say that the government sold the assets too cheaply, that profits are excessive, and that firms should not be allowed to exercise monopoly power.