LYCOS RETRIEVER 
Privatization: Services
built 630 days ago
Privatization advocates tend to focus their arguments on price, rather than service or public policy. This sets up an immediate incentive to destroy middle class jobs that have been created in the public sector. The pressure to come up with the lowest bid ... encourages contractors to seek out subcontractors at ever lower prices, thereby feeding the global search for cheap labor.
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The trend toward privatization, which began with privatization experiments in the UK under Margaret Thatcher and the deregulation of the telecommunications sector in the United States, has attracted the attention of policymakers over the past two decades. Privatization is broadly supported by most academic economists, but the results of actual privatization efforts seem mixed. In the UK, for example, telecom rates fell sharply after privatization, but privatized rail service was widely perceived to have declined dramatically in quality. In this CESifo volume, international experts examine the experiences of 10 EU countries, evaluating the real outcomes of privatization policies in Austria, Denmark, Finland, France, Germany, Ireland, Italy, the Netherlands, Spain, and the UK.
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Supporters of privatization have traditionally argued that it improves the quality of services while lowering costs. Opponents, mostly employees and unions, have countered that any cost savings are the result of lower wages and benefits paid to employees of private contractors. In the 1990s, Daley attempted to overcome employee fears by adopting privatization on a case-by-case basis and structuring contracting to minimize layoffs. For example, the city privatized janitorial services gradually to allow time for the existing workforce to be reduced through attrition. City officials have ... required contractors to give existing city employees first-interview rights.
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The authors cite the sale of Obras Sanitarias de la Nacion to Aguas Argentinas, a private company owned by Lyonnaise des Eaux of France, as one of the best examples of how privatization can help consumers. The IFC report says that Aguas Argentinas has expanded the water network to 600,000 new residents, eliminated water shortages, increased potable water production by 26 percent and improved reliability of service. Aguas Argentinas has promised to cut prices by 27 percent and to invest four billion dollars in improving services over a 30-year period. The IFC, incidentally, provided a US$172.5 million loan Aguas Argentinas in 1994.
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Prevention can ... be achieved through legislation that prohibits, restricts, or raises the costs of privatization. States such as Maryland, California and Massachusetts passed laws that restricted the ability of state agencies to contract out services.
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In general, privatization has proved successful in increasing the efficiency of firms that had suffered from public-sector control. Firms such as British Telecom and British Airways are now much more efficient and provide a better service than they did when owned by the state. On the other hand, privatization (at least in some instances) has not been without its critics. In Britain, many felt a much greater element of competition should have been introduced when British Gas was privatized. Other privatizations of utilities, especially of the water companies, have ... been controversial, as with the proposed privatization of British Rail. Big rises in the share prices of privatized companies have encouraged many to take the view that the businesses were sold off too cheaply.
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