Microeconomic reform

1
Microeconomic reform

• Topic 6

2
Overview

• Government ownership
• Corporatisation
• Privatisation
• Other issues in regulation

3
Why shouldnt the government own and operate all
supermarkets?
4
Corporatisation of government business
enterprises (GBEs)

• Set clear non-contradictory objectives
• Measure GBE performance
• Benchmark performance
• Separate out regulatory functions
• Give managers the power to manage
• Limit government interference
• Require competitive neutrality

5
Privatisation

• What are the arguments for privatising a
  corporatised GBE?
• What are the arguments against privatisation?
• Privatisation and social spillovers
• If private profit maximising actions lead to
  undesirable social consequences then the options
  are to privatise and regulate or to keep in
  government ownership and NOT maximise profits.
• (e.g. the disposal of toxic waste)

6
Privatisation and regulation v public ownership
and corporatisation

• If profit maximising activities have no bad
  spillovers keep private without specific
  regulation.
• If regulate then tend to reduce profit incentives
  get problems with regulation
• If government ownership get performance problem.
  Corporatisation can give better performance but
  undermine original reason for government ownership

7
Bottom line

• If need to highly regulate private firm to avoid
  bad side-effects of profit maximisation may be
  better if government owned
• If government owned but want to provide strong
  profit incentives may be better off private.

8
Other issues in regulation

• Do firms owe society anything beyond the market
  (corporate social responsibility)
• are the banks making obscene profits?
• should Kinnears have told its workers in
  advance?
• should developed countries labour standards be
  applied in LDCs (is Nike a hero or villain)?