Different Methods Of Privatization
Various methods of privatizations have attracted widespread discussion in the economic literature concerning the transition process of the former communist countries to market economic systems. Since the privatization of state-owned enterprises and the development of an autonomous private sector are fundamental stages on the transitional process, different methods to privatize state-owned enterprises have been proposed. These proposals can be divided basically into direct and indirect methods of privatization. The direct methods include forms such as public auctions, tenders, public invitations, capital privatization and employee and management buy-outs. Indirect methods include different distribution schemes elaborated to privatize a large bundle of state-owned enterprise in one mass-privatization program.
In deciding which method of privatization to employ, first we have to consider the tradeoffs between efficiency and redistribution. In economic history and theory, the efficiency versus distribution tradeoffs has sparked endless discussions. It can be traced as far back to Aristotle and his question concerning how big the state and the redistribution through it should be. This applies to the privatization process as well. On one hand there is a general consensus that privatization is Pareto-improving through efficiency enhancing ownership transformation. On the other hand the same process is influenced by the concepts of fairness and distributional consequences of the methods applied. In addition, political and administrative constraints play a major role in restraining best choices and enforcing a search for second-best solutions to overcome the shortcomings and deal with the number and size of state-owned enterprises to-be-privatized. According to the traditional categorization of policy objective (Musgrave, 1959), efficiency, macroeconomic stability and distributional equity can be achieved independently within the framework of a neoclassical model. The privatization process, however, does not permit strict separation of efficiency from distribution issues since methods applied affect both issues in opposite direction. Read more
Retrospect: Developments before Currency Debates
During the 18th century England was nominally on a bimetallic standard (consisting of silver and gold), however, the mint price of silver was intentionally undervalued to keep it out of circulation and thus a de facto gold standard functioned: banknotes issued both by the Bank of England and country banks were convertible into gold upon request. Thus, the circulating medium consisted of paper currency and gold coin, while bills of exchange and deposits were widely used means of payment in wholesale transactions. Since the Bank of England had the monopoly on note issue in the London area and the monetary system’s reserves consisting of gold bullion were concentrated in its vaults, it operated in fact as a central bank.
Due to the Napoleonic Wars and the ensuing growing debt that the Bank of England was obliged to undertake on behalf of the British Government to finance war campaigns, the banking system’s gold reserves started to decrease through both an external and internal drain, deterioration that peaked with a run on the banks in 1797 created by the fear of a French invasion. The French who actually did land in Wales were quickly captured, but the suspension of convertibility of Bank of England notes into gold was about to last 24 years. The events following the suspension act, notably two rounds of inflation in 1798-1803 and 1808-1811 and the issue of restoring convertibility itself later on, gave rise to numerous debates with respect to the monetary policy, if any, to be followed by the Bank of England to ensure the stability of the system. Read more
