Privatization in economic theory

Maja Drakic

doi:10.2298/pan0701103d

Abstract

In reality privatization has never occurred according to the handbook rules of ordinary market transactions. Not even in advanced market economies can privatization transactions be described by the Walrasian or Arrowian, or Leontiefian equilibrium models, or by the equilibrium models of the game theory. In these economies transactions of privatization take place in a fairly organic way ? which means that those are driven by the dominance of private property rights and in a market economy. But despite this fact Western privatization also some peculiar features as compared to ordinary company takeovers, since the state as the seller may pursue non ? economic goals. Changes in the dominant form of property change positions and status of many individuals and groups in the society. That?s why privatization can even less be explained by ordinary market mechanisms in transition countries where privatizing state-owned property have happened in a mass scale and where markets and private property rights weren't established at the time process of privatization began. In this paper I?ll discuss and analyze the phenomenon of privatization in context of different economic theories arguing that empirical results go in favor of the public choice theory (Buchanan, 1978), theory of "economic constitution" (Brennan and Buchanan 1985), (Buchanan and Tullock, 1989), and theory of "collective action" (Olson, 1982). These theories argues that transition from one economic system into another, for example transition from collectivistic, socialistic system into capitalism and free market economy with dominant private property, will not happen through isolated changes of only few economic institutions, no matter how deep that changes would be. In other words privatization can not give results if it's not followed by comprehensive change of economic system because privatized companied wouldn't be able to operate in old environment.

Highlights

Despite the fact that property rights are the keystone of an economic system and provide the basis for trade and a market economy, until 1960s there almost was no theoretical work on the central role they play in economic development
Privatization on the West is usually related to public goods, so-called „natural monopolies“, utilities, sector of telecommunication and energy, but these transaction look pretty simple in comparison to the privatization in transition economies, which was supposed to attain complex set of economic, political and
The question being raised here is why are privatization transactions so different from ordinary market transaction, even those in which the object of exchange is some extremely valuable good? If the buyer and the seller of state property are guided with same motives as buyer and seller as unique piece of art, features of privatization transaction can be similar to the features of the transaction on auction type markets

Summary

Introduction

Despite the fact that property rights are the keystone of an economic system and provide the basis for trade and a market economy, until 1960s there almost was no theoretical work on the central role they play in economic development. Maja Drakić rights as a given and their economic analysis lied on the assumption that the western-style rules and norms regarding the use and allocation of property were present This assumption is usually valid in developed capitalistic world, but not in the areas where those institution are absent. When we speak on property rights and privatization in economic terms, as many other economic ideas, this one was discussed in Adam Smith’s work. Development of market mechanisms is immanent to the societies with dominant private property, while plan and command economy operate in societies where collective property prevails.7 From this point of view, privatization is the key stone and basic foundation of transition processes. Privatization on the West is usually related to public goods, so-called „natural monopolies“, utilities, sector of telecommunication and energy, but these transaction look pretty simple in comparison to the privatization in transition economies, which was supposed to attain complex set of economic, political and

Microeconomic analysis of privatization market

11 See more

Theories of organic evolution of property rights