Privatization is Indispensable for Growth and Globalization

Monday, June 2, 2008

Abdolreza Ghofrani 

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Every nation is seeking welfare and prosperity, and governments usually make their outmost attempts to secure the best interests of their people. This will be supposedly feasible mainly through economic growth and is a path that all governments have followed for a long time.

No matter what the economic system, the prime goal of any government is that the people be better off. To achieve that goal there are different ways and means, depending on the economic policies a certain country adopts.

Some countries have chosen state controlled economy. That is, the state, or public sector, predominantly oversight all economic sectors and decisions rest on the central government. In this system, the private sector's role is minimal.

On the other extreme, we do have economic systems in which the public sector duties are limited to defense and security of the country and protecting citizens' certain rights and the state do not interfere in economic affairs. The so-called market economy with differences depending on specific circumstances, is working.

Which system is more effective in assisting a country to achieve the goals it has set for growth and prosperity? The issue has dominated debates in academic centers, and it has been studied by various political systems and scholars. There have been pros and cons for both systems and no inclusive answer has yet been found. Many books have been written on the topic, and hundred of speeches have been delivered and seminars and conferences have been held to address the issue. It is noteworthy that in 1940s prominent British economist John Maynard Keynes emphasized the directive role of the government or so-called welfare government despite the fact that he supported market economy.

Undoubtedly, no system is perfect. Each system has its own advantages and flaws. However, we need to focus on the approaches the world has so far adopted. Despite of all these theories, as mentioned earlier, market economy is now in use and it is the primary system every country employs to secure the best interests of its people. Interestingly, the World Trade Organization (WTO) that replaced GATT after Uruguay Round is based on market economy and emphasizes minimal government involvement.

Having all this in mind, privatization now is a key factor to integrate into the world trade and eventually into the process of globalization. The conceptual definition of privatization can inherently shed light on the path that one may take. What is privatization? Privatization is the implementation of a decision to sell companies owned by the state to private individuals/ companies.

At the first glance it seems that privatization will lead ex-public sector commercial enterprises to work more active with better efficiency, higher productivity, and improving product quality in a competitive market. Based on the latest definitions made by world economists, the advantages and disadvantages of privatization can be listed as the following:

*Faster growth because of the competition;
*Encouraging innovations;
*Effective & time bound results;
*Increase of cost affectivity;
*Quality improvement;
*Making possible more services to the public;
*Promotion of productivity;
*Significant Growth in the business.

* Probable threat of lay offs;
* It cuts back the work to gain more benefit;
*Increasing unemployment;
*Possible bankruptcy because of low profitability;
*Lack of ethical / human morals due to being merely business minded

Does privatization inherently lead to market economy or the ways and means are the key factors? Studying the expertise of countries that have set foot on the path leading to privatization sounds helpful, but what concerns Iran is quite different.

Iran is a big country in the Middle East, being gifted with great capabilities and of course massive natural resources that can help the process of growth. It is now a couple of years that privatization has been the motto of economic circles as well as the scholars in the country.

Given the importance of the issue, certainly this debate will continue over the months to come and newspapers will focus on the private sector and market economy. So far so good.

Now there is no single person ranging from top officials to lowest level, who may have his own doubts that privatization and market economy is indispensable, because now the economic growth of the country is at stake. In existing circumstances, however time and action is very important. It seems the privatization has been debated more than enough. So the further the action be postponed, not only the challenges will be more difficult, but it's adversely impacts will do no good to the economy as well as our foreign trade relations. Its first and most pressing effect is domestic lower manufacturing as well as slowdown of industrial process to which authorities attach importance.

Internationally, with the absence of a strong and efficient private sector, the interaction with the world and integrating with global economy will be out of reach. Now the benefits of privatization are pretty clear and the economic, legal and social grounds for action are prepared and moreover its indispensability is mostly reaffirmed; then as to why cannot we make it? What is the actual problem? Is there any missing ring in this chain? We already pointed out that privatization has its own hurdles but it is not an impossible job. Moreover there is neither a missing ring nor any ambiguity.

There are different general and specific issues in the process of privatization:

-For privatizations, prerequisites need to be provided by the governments including redefining rules and policies. To facilitate the privatization, many countries apply tools including removing the restrictions, tax exemptions, and productivity rewards for successful businesses. Simultaneously, some state control policies such as selling state corporations bonds in stock markets through real value pricing, prevention of companies and particularly big corporations from misconduct and if necessary discipline them are unavoidable. Moreover, the economic and political stability is a key factor in encouraging investment by the private sector.

- Privatization is not a sector-dependent or cross-sectional project but it should be looked upon in a national perspective. So an inclusive work attempt on the part of the public and private sectors as well as the relevant agencies and the people is necessary. In other words, a national will is essential.

- Every sector or economic variables has its particular job and responsibilities to do with the coordination of others. So let's not just blame others for any failure in finishing the work to which they assigned to perform. It does not mean we turn a deaf ear to flaws and drawbacks. But, conversely, we need to look further upon those problems and work to remove the impediments. We also, through coordination and interaction, should develop the advantages.

-This process that must have launched decades ago, cannot be done right away. We should take our time. However since the legal and economic means and ways are already there, and more important the experience for this development do exist, this certainly will contribute to cut short the long time for privatization we needed ten or twenty years before.

-We should move with having realities in mind. The priority must be given to relative small and medium enterprises (SME) with the directives from the governments in order to prevent them from digression. So we have to do away with very ambitious plans that may force us to slowdown or come to a complete halt. Industrialization and privatization are two sides of the same coin. It is not just a claim or mere theory. Taking a look on developed nations through the past century and emerging industrial and new developed countries in the course of recent decades proves this. With more than 1.2 billion population and absolutely centralized economy, China not only managed to relatively privatize its economy within a decade and being integrated into world trade, but has been so active in world interactions that now concerns the economists. China, has had outpaced the United States in foreign direct investments (FDI) for years.

Now that the other countries could have achieved this goal, taking stock of these experiences will ease our work. The operational mechanisms have already been worked out; the five year development plan is very good means and provide a good opportunity for doing this great job. Five years is pretty long time and we may achieve this goal to some fair extent. At the end of that period, taking stocks of experience and problems, the assessment of our performance will be a great help to accelerate the pace of privatization and eventually the economic growth over the years to come.

The author is a senior international and economic expert.


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