Public Ownership
Public Ownership – this is where the government own businesses
There are arguments for public ownership which include if goods are seen as public goods then the most efficient way for resources to be allocated may be through the market
If externalities exist in the market the government may choose to provide the goods for consumers e.g. education, healthcare
Advantages
- Provides jobs which are usually protected so reduces unemployment
- Finite resources such as water and energy can be guaranteed and controlled
- Able to provide essential services to the whole country
Disadvantages
- Higher costs for the government which means higher taxes
- Inefficiency – public organisations are often inefficient due to diseconomies of scale
- Government and political interference may reduce efficiency of operations
Public Goods
These are services that are provided by the government
Pure public goods have the following characteristics:
- Non excludability – everyone can consume the goods whether they pay or not
- Non rivalry in consumption – consumption by one person doesn’t reduce consumption for others
- Examples – street lighting, national defence
Privatisation of Markets
Privatisation occurs when organizations that are owned by the public are transferred to private individuals
During the 1980s there was intense privatisation of companies in the UK including: British Airways, British Gas and British Petroleum
When businesses are privatised it allows for increased competition therefore monopoly power can be removed
Advantages
- Provides revenue for the government
- Reduces trade union power
- Can increase investment as businesses can use capital from sale of shares
- More incentives to increase efficiency therefore economic welfare is increased
- More competition brings more choice for the subject
Disadvantages
- Unemployment may result as businesses try and reduce costs
- Monopoly power may still exist
- Private sector may fail to allocate resources according to social costs and benefits
Regulation of Markets
Regulation is the control of the market through rules
Many privatised companies are regulated by watchdogs e.g. Ofcom and BT
Regulators ensure that the new companies don’t exploit their monopoly power and try and simulate competition allowing the companies to have a smooth transition into the private sector
They become involved in activities such as price capping
Deregulation of Markets
- This is the act of removing rules and restrictions in the market
- The aim of deregulation is to open up the market and increase competition
- Deregulation aims to increase contestability of markets
- Those in favour of deregulation argue it results in lower prices for consumers, increases investment and in the long term can lead to increased economic growth
