PRIVATIZATIONTOPICSThe Welfare StateThe Welfare StateThe crisis of the Welfare StateForeign debt crisisThe foreign debt crisisSlide 8The Neoliberal stateThe Neoliberal StatePrivatization ForcesTypology of G & SSlide 13Forms of privatization (The case of Education)A political view of privatizationSlide 16PRIVATIZATIONTOPICS•The welfare State •The crisis of the Welfare State •The foreign debt crisis in developing countries•The neo-liberal State•Privatization forces•Typology of goods and services•Forms of Privatization •A political view of privatizationThe Welfare State •According to J. O’Connor the State tries to fulfill two basic but contradictory functions: 1) Accumulation (conditions for capital to be profitable) and 2)Legitimization (social harmony) •State expenditures have a double character that correspond to the State’s two basic functions of accumulation and legitimization •Thus expenditures take the form of social capital and social expensesThe Welfare State•Social capital expenditures are considered inputs and they are required for profitable capital accumulation (output) and they take the form of:1. Social consumption (investment that lowers the reproduction costs of labor and increase the rate of profits: social insurance) 2. Social investment (projects and services to increase productivity of labor: roads and education) •Social expenses : projects and services required to maintain the social harmony to fulfill the legitimization function of the State (e.g. safety net for the poor)The crisis of the Welfare State•The crisis of the Welfare State can be traced to the 1970s world’s recession, induced by high oil prices. •The capacity of the Welfare State to fulfill one of its basic functions (accumulation) was questioned. •The surged simultaneously of high inflation and unemployment (stagflation) questioned severely Keynesian macroeconomic management. •Economic policy shifted from Keynesianism (fiscal policy and demand side) to monetarism (interest rates and supply side).Foreign debt crisis •Developing countries all over the world borrow heavily due to low interest rates and high liquidity generated by petrodollars. •Investment in many cases went to unproductive areas (subsidies, white-elephant projects) •As interest rates begin to increase due to monetary policies in the developed world the ability to repay loans was questionable. •The IMF and the World Bank offered advice to developing countries to undertake structural adjustment policies in exchange for financial aid and debt restructuringSMALL OIL EXPORTER COUNTRIES Saudi ArabiaKuwait QatarBahrainSMALL OIL EXPORTER COUNTRIES Saudi ArabiaKuwait QatarBahrainDEVELOPED WORLDUSAWestern EuropeJapan Canada DEVELOPED WORLDUSAWestern EuropeJapan Canada LARGE OIL EXPORTER COUNTRIESMexicoNigeriaIran IraqVenezuelaRussiaIndonesiaLARGE OIL EXPORTER COUNTRIESMexicoNigeriaIran IraqVenezuelaRussiaIndonesiaOIL IMPORTER COUNTRIESBrazilArgentinaKorea OIL IMPORTER COUNTRIESBrazilArgentinaKorea OIL OILOIL OIL$$$ $$$ $$$Credit$$$CreditPetrodollarsInteresInteresInteresThe foreign debt crisis•Top ten borrowers as Dec.1982 FROM private banks (Wood 1986:258) •Debtor $ billions1 Mexico 62.9 2 Brazil 60.53 Venezuela 27.54 Argentina 25.75 S. Korea 23.36 Phillipines 12.67 Chile 11.68 Indonesia 10.09 Malaysia 8.710 Nigeria 8.5•International Reserves Assets of Selected OPEC countries (Aliber 1987:142)•Millions of US DollarsYear S.Arabia Kuwait 1950 0 501960 167 721970 543 1171976 26,900 1,7021980 23,437 3,928 1984 24,748 4.,590Aliber 1987:142The Neoliberal state Y = C + I + G + (X-M) •Consumption (the market as exchange and allocation mechanism) •Investment (create new opportunities for capital accumulation) •Government (reduce its share by cutting social expenses and adopting fiscal discipline) •Net exports: capital becomes global and the world becomes a giant network of suppliers and producersThe Neoliberal State•Promotion of the primacy of private property rights (pre-eminent in relation to other rights) •The market as a panacea (allocation of G & S by means of private mechanisms). •Deregulation & privatization of the economy •Transformation of the tax structure (burden place on wages rather than capital) •Downsizing of government •Reduction of national debt (fiscal discipline)Privatization ForcesINFLUENCE EFFECT REASONINGPragmatic Better government Search for more cost-effective public servicesEconomic Less dependence on governmentAllowing more people to provide for their own needsIdeological Less government Too much government on people’s life Commercial More business opportunitiesCrowding out private sector thus less government new business opportunitiesPopulist Better society Public should be able to have choicesSources E.S. Savas 2000: 6Typology of G & S Individual goodsToll GoodsconsumptionindividualJoint Feasible Exclusion InfeasibleCommonpool goodsCollectivegoodsSource: E.S. Savas 2000:44-45Private car Sea water Bottled waterWater in undergroundaquiferTaxi servicewater from well in town squareBus servicePiped water Turnpike Highway City streetTypology of G & S Individual goodsToll GoodsconsumptionindividualJoint Feasible Exclusion InfeasibleCommonpool goodsCollectivegoodsSource: Adapted from E.S. Savas 2000:44-45The WelfareState The Neo-liberalStateForms of privatization (The case of Education)Government Service (Conventional public school system) Grants (private colleges get government grant for every enrolled student) Government vending (Local public schools accept out-of-district pupils and is paid by parentsVouchers (Tuition voucher for elementary school, GI bill for colleges) Intergovernmental-agreements (pupils go to school in the next town; sending town pays receiving town) Free market (Private school)Contracts (City hires private firm to conduct vocational training) Voluntary service (parochial schools) Franchises (school charters) Self-service (Home schooling)Sources E.S. Savas 2000: 88A political view of privatization•P.A. and Economics treat privatization as a choice among means to achieve a social goal. •Privatization becomes essentially a technical decision based on issues such as exclusion and joint consumption of the good •Privatization should be seen as a political decision which takes the form of a strategy to realign institutions and decision making to foster the interest of some groups over competing