Theoretical Approaches to Explaining and Understanding Privatisation

The central purpose of this chapter is to review a number of distinct theoretical perspectives which come from the economics and political economy literatures on issues of privatisation and liberalisation. The chapter begins by a consideration of the Austrian approach and the property rights literature and their approaches to markets, private property and competition. This broad approach is the one which most unambiguously promotes the roles of private ownership, competition and unfettered markets, and this is followed by an examination of the neoclassical approach. The neoclassical economics approach is broadly interpreted here and agency theory is encompassed within that approach. The manner in which the neoclassical economics approach addresses issues of competition and privatisation are evaluated. The widespread shift from public ownership to privatisation in the past three decades or so (in, for example, public utilities) raises the question of whether there are convincing explanations based on economic analysis for that shift. The contribution of the Austrian and neoclassical approaches to possible explanations are explored. The notion of efficiency involved in the discussion of privatisation is briefly considered particularly since privatisation is often advocated for its claimed favourable effects on efficiency. The last main section outlines the political economy of privatisation and liberalisation, with an emphasis on the roles of profits, accumulation and finance in the promotion of privatisation.