The Privatisation Phenomenon and Its Relevance to Developing Countries

By Jiban K. Mukhopadhyay

Summary

In this Forum of Free Enterprise booklet, Jiban K. Mukhopadhyay, an economist with Tata Services Ltd., surveys the global wave of privatisation of the 1980s and argues for its relevance to developing countries like India. He opens with ‘The Genesis’, tracing public ownership back to the spread of socialism in Britain and France from around 1830 — noting that the British Labour Party’s nationalisation doctrine drew on the Fabian socialism of Jevons, John Stuart Mill and Sidney Webb rather than Karl Marx — and crediting Herbert Morrison as the ‘father of nationalisation’ whose norms shaped post-war public ownership across Western Europe.

The central section is a global survey of the privatisation reversal. Britain under Mrs Thatcher is presented as the pioneer, having raised some $23 billion by selling all or part of thirteen companies (British Telecom, British Gas, British Aerospace, Britoil and others) and roughly doubling the number of British shareholders. Mukhopadhyay then catalogues parallel programmes in France (the most enthusiastic pursuer under Chirac), Italy, Spain, Sweden, West Germany, Japan, the USA and Canada, and notes that even the Soviet Union and China were experimenting with market-based reforms. He marshals data on the poor profitability and heavy fiscal burden of state-owned enterprises (SOEs), particularly in developing countries.

Turning to relevance, Mukhopadhyay poses a series of pointed questions — whether loss-making SOEs should keep being subsidised in fiscally precarious economies, and whether ideological commitments should override financial common sense — and answers that privatisation, while ‘not an absolute panacea’, is one of the pragmatic remedial measures available. He quotes the Amex Bank Review on the growing worldwide respect for the efficiency of privately managed companies and the free-market view that markets allocate resources more rationally than governments, concluding that in developing countries privatisation makes sense for industries that have been successfully nurtured under state ownership.

Key points

• Privatisation is framed as a sweeping global counter-revolution to the earlier wave of nationalisation.

• Nationalisation doctrine is traced to Fabian socialism (Jevons, J. S. Mill, Sidney Webb), not Karl Marx, with Herbert Morrison as the ‘father of nationalisation’.

• Britain under Mrs Thatcher is the pioneer, raising ~$23 billion by selling 13 companies and roughly doubling its shareholder base.

• France (under Chirac), Italy, Spain, Sweden, West Germany, Japan, the USA and Canada are pursuing privatisation; even the USSR and China are experimenting with market reforms.

• State-owned enterprises, especially in developing countries, are chronically unprofitable and a heavy drain on government resources.

• Mukhopadhyay asks whether loss-making SOEs should keep being subsidised and whether ideology should override financial common sense.

• He treats privatisation as a pragmatic remedial measure, ‘not an absolute panacea’.

• He concludes privatisation makes sense for developing-country industries already successfully nurtured under state ownership.

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