When the government transfer responsibility to the private sector it is known as?

Introduction

Educational privatization is a term that has become widely used in the early part of the twentieth century. To those unfamiliar with the term, it may connote a shift to private schools. However, the term has come into wider usage largely because of a variety of forms of increased involvement of nongovernment entities in the sponsorship, financing, and provision of education. For example, one dimension of this trend is that of charter schools in the US, where some 4000 public schools have been given considerable autonomy in operation and management, including maintaining their own governing boards. However, there are many other examples of privatization including government schools operated under contract by private entities which include for-profit firms and universities or private schools that receive government funding. At the same time, many countries require private fees as well as other private expenditures by parents to attend public schools. All share in common some dimension of privatization in contrast to a purely public concept of education where schooling is provided and funded exclusively by public authorities.

In this article we delineate a range of different forms of privatization and set out criteria for evaluating their consequences. We begin by referring to four different forms of schooling: home schooling, private schools, charter schools, and public schools.

The Impact of Privatization on the Civil Service

As part of the process of ‘reshaping the state,’ the size, structure, and functions of the civil service are in transition, with independent public and private entities and agencies performing what used to be civil service tasks. Other functions have been ‘privatized,’ ‘marketed,’ or ‘outsourced’: running prisons, computer services, or even recruitment to the civil service itself. Privatization in its narrow, technical sense is the transfer of assets, services, and goods from the ownership and/or management and/or financing by state and substate governmental organizations to market organizations, or to organizations of the nonprofit sector. From a broader perspective, privatization is a new ideological definition of state responsibility aimed at shifting the boundaries between public and private (or market) allocation. The premise behind this approach is that goods and services are produced more efficiently and with less opportunity for corruption by private organizations. Based on these assumptions, a wide range of public services has been privatized since the 1980s in many countries, thus reducing the role and responsibility of the state, particularly the intervention of the executive branch, in economic and social affairs (Galnoor, 2011: pp. 150–158).

Privatization and outsourcing have led to increasing ambiguity about the boundaries of responsibility between the private and public sectors, as well as to some attempts at cooperation between the two. Another outcome has been the growth of a powerful third sector that has appropriated many areas traditionally considered the responsibility of the state, either willingly or out of necessity. The results of these processes in many countries have been that government ministries and local authorities virtually ceased functioning in certain areas, while private and voluntary organizations operate in their stead. The broader context is society's transitions from one based on a civil orientation that places heavy obligations on the state to one based on a consumer orientation that perceives its citizens as clients. This has resulted in increased regulation, but in many cases, privatization did not produce real competition or better, cheaper services. The ability of the state to regulate lagged behind the increased power and expertise of the bodies in charge of privatized and contracted-out goods and services. In addition, the assumption that privatization will reduce corruption has not been at all substantiated. Areas of privatization can be categorized as follows:

The Privatization of Public Goods: the government's exit from activities such as road building, mining, and communications. The assumption is that privatization will lead to increased competition and thus greater efficiency and improved services. Examples are the sale of government-owned corporations, such as oil refineries, ports, roads, and railways. Privatizations such as these evoke questions about the transparency of the process, the appropriate compensation for public assets transferred, the danger of creating private monopolies accountable to no one, the balance between beneficiaries and losers, the violation of labor rights and agreements, and the effectiveness of postprivatization regulation.

The Privatization of Public Services: usually contracting out health services, education and welfare previously delivered by the state or local authorities. This type of privatization comes about because of a gradual reduction in services, cutbacks in funding, creating gaps often filled by private providers, for example, cutbacks in law enforcement have led well-to-do homeowners to install security cameras and employ private security firms.

The Privatization of Operations: appears under different names such as outsourcing, partnerships, franchises, subcontracting, and voucher distribution. This type of privatization may be full or partial, involving either the acquisition of private services by the government or the transfer of operations to the private or voluntary sector. The responsibility remains in the hands of the state, sometimes effectively regulating the delivery of the product or the services, and sometimes helplessly watching its deterioration. These arrangements, prevalent in the business sector, are often motivated by a desire to scale down the public sector or increase so-called ‘flexibility’ in management and employment. Privatization of operations can lead, however, to the violation of workers' rights, as may occur when work is outsourced to private service contractors. If outsourcing involves the transfer of policy making out of the civil service, one must consider the potential injury to the public and particularly to helpless people.

Thus, privatization has been a profound reform in the structure and functions of the civil service, raising many questions about the role of the state and its regulation performance.

Privatisation and Consumer Sovereignty

Privatisation is another key component of the neoliberal approach and has been adopted by a growing number of countries, particularly over the last two decades (see article Privatisation of Housing: Implications for Well-Being). This trend is in stark contrast to the traditional postwar policy orientation based on expansion of the welfare state, planned development, and public-sector-led economic growth.

In a broad sense, privatisation occurs when the state transfers ownership or control over previously government-owned and -managed operations to the private sector. It has been extensively experimented with by different levels of government, and can take several forms. In the housing sector, privatisation has been associated with the sale of public and social rented housing and the contracting-out of management functions. This approach to privatisation was a particularly important theme in the UK housing agenda introduced by the Thatcher government elected in 1979. The ‘Right to Buy’ programme introduced a uniform national scheme whereby tenants of local authority housing and select housing associations were granted a ‘right to buy’ the property they occupied at a discounted rate. The size of the discount was positively related to the length of tenancy, and was as much as 70% of the market value in some instances. Applicants were given the right to buy their existing dwelling as well as the right to a 100% mortgage from the local authority at a rate of interest fixed by the Treasury (see article Privatisation of Social Housing).

Advocates of the privatisation of public housing maintain that private markets offer housing consumers a wider array of choices. Managers of public housing, on the other hand, are less responsive to consumer preferences. Furthermore, privatisation is believed to enhance consumer well-being through property ownership. Individuals who are owner-occupiers are able to exercise more control over the use of their dwelling, and through investing money in housing maintenance and improvements, they are also better placed to accumulate wealth. Governments of all persuasions tend to encourage the accumulation of wealth in housing by extending tax expenditures to owner-occupiers (see article Access and Affordability: Homeowner Taxation).

Privatisation programmes were subsequently introduced by a number of countries including the Netherlands, France, and Australia, among others, in an effort to promote increased homeownership. In the United States, however, privatisation efforts followed a somewhat different trend to that of other Western countries. While the Reagan government shared Thatcher’s pro-market views, it sought to increase the role and influence of the market by deregulation and liberalisation rather than the sale of public housing. This reflects the traditionally smaller public housing tenure in the United States.

Introduction

Privatisation of housing has become a global phenomenon, adopted more or less enthusiastically in one form or another in many different countries, for a variety of reasons. In some countries it has been the defining narrative of housing over the last 20 or 30 years. Places as diverse as the United Kingdom, Romania, and China have pursued a wide variety of privatisation policies. In the space available here, it is only possible to provide an outline sketch of the sorts of measures that have been implemented around the world, and to identify in broad terms the implications for well-being. Part of the difficulty inherent in writing about privatisation of housing is that the concept itself is not only multifaceted but also contested. Moreover, each country started from a different position and proceeded in its own way, at its own pace.

Impact on the Enterprise Sector

Privatization did not lead to more efficient and better run enterprises in Russia. The first reason was the nature of the privatization program itself. Some 15 000 industrial enterprises were ‘mass-privatized,’ with control often going to insiders. In the ‘loans-for-shares’ scheme carried out in late 1995, Russian banks lent the government money collateralized with the shares of valuable companies in oil, metals, and telecoms, with the proviso that if the loans were not repaid, the banks would acquire the shares. The loan size was determined via auctions that were not transparent and suspected to be rigged.9 In the circumstances, good corporate governance would take a long time to emerge.

The next two reasons all but ensured that enterprises were not going to restructure and further that the incentives for managers would be biased toward asset stripping. The first was the punishing macroeconomic environment described above. No manager however good can operate in a situation where real interest rates are in excess of 50% and the real exchange rate is appreciating rapidly over a prolonged period. The second was equally compelling but much more pernicious: the proliferation of soft budgets via the so-called nonpayments system.10

Nonpayments consisted of two parts: (1) arrears, or overdue payments, which grew from 15% of GDP at the end of 1994 to an astonishing 40% of GDP at the end of 1998 and (2) growing use of noncash settlements (NCS) in enterprise operations. NCS included barter, typically in a chain involving several enterprises facilitated by an intermediary; offsets or the mutual cancelation of arrears, of which the most common kind was the provision of goods and services in lieu of tax payments, known as ‘tax offsets’; and veksels or promissory notes issued by enterprises, banks, or the government. Nonpayments grew rapidly between 1995 and 1998 and became entrenched as the most common way for enterprises to conduct business – in effect becoming a new form of industrial organization. This happened roughly in the following sequence.

Initially, nonpayments was a survival response by enterprises. Those in heavy industry or the old military–industry complex were apt to have the highest share of sales in the form of barter and those selling fast-moving consumer goods the lowest, as confirmed by enterprise surveys.

Subsequently, nonpayments grew spectacularly over 1995–98 coinciding with the high real interest rates and real appreciation of the ruble engendered by the stabilization program. The analysis in Commander and Mumssen (1999) suggests that this was more than coincidence; the high real interest rates caused a distinct preference for barter and other forms of NCS. Interestingly enough, the government itself became a primary instigator. Over the 1995 to mid-1998 disinflation, NCS accounted for as much as 50% of spending by regional governments, while money surrogates and tax offsets averaged over 20% for federal government noninterest spending. The government's example was quickly emulated by enterprises, giving them an excuse to deliberately run up tax arrears that could be settled at a lower cost through offsets (which incorporated tax forgiveness through the use of inflated prices when taxes were paid in kind). This was a major factor legitimizing tax arrears and contributing to the persistent shortfall of cash taxes over 1996–98.

Nonpayments morphed into an entrenched habit when profitable cash-rich enterprises joined the bandwagon. They gamed the system, running up tax arrears which could then be settled at a discount in kind; bought monetary surrogates from struggling enterprises – which had received these from the government in exchange for their unsaleable goods – at a discount, then redeemed them at full face value to pay their taxes; and most perniciously, shifted profits to intermediaries set up and owned by them through arbitrary transfer pricing. This was an ideal environment in which to strip enterprise assets for personal enrichment and led to a vicious circle: with its taxes flagging, inadequate expenditure control, and sky-high real interest rates, the government intensified its own use of arrears and monetary surrogates.

What were the government's motives? Apart from its desire to economize on cash because of the high real interest rates, it wanted to prevent mass bankruptcy among manufacturing enterprises struggling with the rigors of the stabilization program. While never explicitly articulated, various government actions suggested an attempt to keep enterprises afloat and avoid open unemployment at all cost. Such actions included interference by regional governors in preventing nonpaying enterprises from being disconnected by the local utility company; customizing tax exemptions, including tax offsets at inflated prices for favored local companies; and giving such companies preference for state orders. The stoppage of directed credits at the beginning of 1995 and curtailment of explicit budgetary subsidies for enterprises at the federal level over the 1995 to mid-1998 disinflation were eventually more than offset by growing implicit subsidies.

Estimates of the size of the subsidies to the manufacturing sector implicit in nonpayments are presented in Pinto et al. (2000a,b). While arrears were treated as a 100% subsidy (it was realistically assumed that no one expected to recover on arrears), a 23% subsidy rate was applied to tax offsets and energy payments on the assumption that in-kind payments inflated prices by 30%.11 Implicit subsidies to manufacturing from the budget and energy sector were estimated at 8–12% of GDP in 1996 and 7–11% of GDP in 1997. Add to this the explicit budgetary subsidy of 8% and total subsidies to manufacturing were 15–20% of GDP in 1996 and 1997. No wonder, asset-stripping intensified and the stabilization collapsed. Thus, nonpayments killed growth and, as we shall see in the next subsection, eventually led to instability in the government's debt dynamics.

Hypersegregation and Social Change

Privatization of what would otherwise be public spaces has driven wider debates about the relative influence of gated communities on social life in urban areas that have, particularly in the European context, traditionally been associated with the diversity and democracy of the street. This privatization raises a broader question about the implications of “forting-up” for the character of Western urban life. Some commentators have argued that this form of hypersegregation represents a new and critical moment in transforming cities with earlier histories of open and democratic public spaces into a series of enclaves that protect affluent residents, while leaving an envious and poorer class of residents outside these protected bubbles. More recent work, however, highlights the increasingly everydayness and banality of gating as it becomes a more pervasive and thus normalized feature of many streetscapes.

As most gated communities are “inserts” into existing residential neighborhoods, their impact on social cohesion will depend on the characteristics of the surrounding neighborhood. An affluent gated community inserted into a suburban area with similar socioeconomic and other demographic characteristics seems likely to cause little disruption. Le Goix's fine-grained analysis of gated communities in the Los Angeles area shows that, even in wealthy neighborhoods, gated developments represent more homogenous territories than do their surroundings and thus lead to further segregation. Evidence from England indicates that if a fortified development is inserted into an established mixed neighborhood this can also cause difficulties of integration as the walls and gating imply that the area is unsafe and additional security is required, provoking resentment among the residents outside. Where developers provide and market a secured enclave within a more deprived neighborhood, this move is likely to have a deleterious effect on social cohesion. The residents of such gated communities will usually avoid contact with local residents by sealing themselves off and not using local facilities so that the wider neighborhood derives little benefit from their presence. This type of gated community can be distinguished from the ordinary process of gentrification of deprived areas, due to its deliberate architecture of isolation. On the other hand, retro-gated social housing estates that have appeared in some urban areas appear to merge into their neighborhood surroundings, and their residents will share similar characteristics with others in the wider area.

What role does the government play in the private sector?

Who is responsible for the private sector?

When a government transfers the assets of a company from the public sector to the private sector it is an example of group of answer choices?