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Abstract
The focus of this paper is to provide a critical analysis of the implications of privatising public utilities with regard to accountability issues. In addition to the provision of supporting evidence, the paper assesses how privatisation of public utilities affects accountability. Privatisation of public utilities has two main effects on accountability. Efforts to privatise public utilities lead to demotivation on the part of the government.
The responsibility of the government is to investigate and respond to the demands of the public. When public utilities are privatised, the private sector takes up the role of providing the various services needed by members of the public. In addition to the government, efforts to privatise public utilities demotivate the entire public. The public sector lacks the resources and the mandate to mobilise resources and rouse for quality services.
The private sector ends up holding the public at ransom, inflating the costs charged on the government and, in extension, the public. In the process of legislating, some politicians may be biased and favour the issue of privatising public utilities. In most cases, they are the ones who benefit as most of the private companies that end up taking up the role of providing public services belong to them.
By privatising public utilities, the government reduces the role of members of the public in ensuring that the services provided are of high quality. The development has various effects as far as accountability is concerned. At the end of the day, the consumers pay more for the same services.
Introduction
Privatisation initiatives are mechanisms and components that fall under the broader liberalisation strategies and policies adopted by governments around the world. The main objective of privatisation initiatives is the formulation and implementation of policies aimed at restructuring the economy.
The major aim of such restructurings is to control the economy, especially if it has become inefficient and inebriated with corruption and other economic problems. The driving force behind the government’s decision to undertake such a policy is, in most cases, its ‘heavy’ involvement in the public sector. Resource privatisation, as a policy, is not an ancient phenomenon.
It is one of the most recent and most revolutionary innovations in economic policies. While this idea seems restricted to majority of the developed nations, a significant number of developing countries in the world find the initiative more applicable to their economies compared to other policies. All over the world, nations and governments regard the idea as a financial desire and a growth strategy.
However, while the idea continues to gain more ground and acceptability in most nations, some policy makers look at it from an accountability perspective. Most of the issues raised by these policy makers with regard to the honesty of the idea revolve around accountability issues.
They are also concerned with the credibility of the move, as well as the level of involvement among the three parties or stakeholders, namely the government, the private sector, and consumers of public utility goods and services.
Papadopoulos & Curtin (2012) state that the formulation and implementation of privatisation policies involves both complete and partial disposal of public utilities, as well as such assets as state-owned land. It also involves the privatisation of industries and businesses that were, for a long time, under the control of the government.
According to economists and other professionals, such as philosophers and political scientists, there are several theories explaining privatisation in ancient and contemporary economies.
According to Anjum (2012) and Hindmoor & Bell (2009), privatisation occurs when the government makes the decision to reduce its involvement in the management of some public resources. Through such an initiative, the government releases some of the resources and assets to the private sector.
In some of the arrangements entered into with the various stakeholders, the private sector is mandated to control part of, or the entire, resource base. The aim is to enhance the provision of services and goods to the end users like consumers and other citizens in the country.
According to Funnell (2001) and Savas (1987), privatisation, basically, involves an arrangement where competitiveness and efficiency are improved as far as the provision of public services and goods is concerned. Going by its early definition, the privatisation policy required the wholesale transfer of public assets and functions from the government to the private sector.
In contemporary society, it involves contracting a private investor to help the government in the provision of goods and services to the general public. On their part, Ellman (2006) and Hart (2003) define the concept as an arrangement where the government agrees to transfer its assets and services to investors in the private sector.
In a nutshell, the fundamental nature of privatising public utilities is to increase the participation of the general public (read private investors) in the production and delivery of goods and services in the society.
In one of their articles, Young & MacDonald (2000) question the rationality of the government in formulating and implementing privatisation policies. The scholars put the government to task given that, in most cases, it has at its disposal all the resources and mechanisms needed to satisfy the needs of the citizens. There are a number of theories explaining the pressures that force the government to take such initiatives.
According to Public Services Research Unit [PSIRU] (2006), there are four major reasons why the government may privatise most of the public utilities under its control. The four are populist, commercial, pragmatic, and ideological reasons.
According to the populist theory, there is always a felt and real need for the society (through the government) to give the citizens high quality goods and services using the available resources. Individuals in the society feel they have the right to access high quality services, such as health, water, and sanitation among others.
Privatisation initiatives help to empower such individuals and ensure that they have access (and control) over resources in the society. For example, when citizens buy shares (through initial public offers) in a power generating company that was under the control of the government, they end up controlling power generating resources in the country.
The second factor that pushes governments to privatisation involves commercial pressures. Analysts and supporters of privatisation initiatives argue that such policies help in setting up more businesses in an economy (Manubhai1998). Scholars, who support the commercial theory (Hess, Adams 2000; Ellman 2006,) argue that the state should give up its control over some resources. The reason for this is the size of the government.
The entity takes up a significant part of the economy. As a result, the provision of goods and services should be left in the hands of private firms. Private firms, given their commercial orientation, stand a better chance, compared to the government, to effectively utilise resources in improving the quality of life for the citizens.
According to pragmatist theorists, the aim of privatisation is to help improve the functionality of the government. An argument derived from this supposition asserts that privatisation policies lead to cost-effectiveness in the utilisation of public resources.
Uhr (2005) illustrates that the ideology behind the privatisation of resources by the government is related to the aim of helping in streamlining its operations and introducing a tendentious and effective public sector.
According to pragmatists, privatisation helps the government to continue growing and expanding to effectively make the needs of the citizens available to them. Most of the decisions made by the government are political in nature. As a result, such decisions are less trustworthy compared to those made in a free market economy.
Most of the arguments in support of privatisation initiatives maintain that societal dynamics force the government to rely on the private sector to help in meeting the needs of the citizens.
Specifically, the government relies on the private sector to provide the citizens with goods and services associated with public utilities. Based on this argument, Tiernan (2007) holds that the government may choose to contract the help of private investors in the local, regional, or international market.
Anjum (2012) asserts privatisation is associated with various benefits. For example, the leadership structure adopted in the private sector ensures that individuals are highly rewarded for their contribution in the development of the organisation, leading to high levels of motivation.
As such, increasing the number of firms in the private sector (through privatisation) increases the number of motivated individuals in the society as more people are employed in these private firms. However, the private sector is annoyed by job insecurities and such other issues.
In spite of this, the performance of private firms is significantly higher compared to that of the government. On the contrary, the public sector is associated with job security, but the employees lack incentives to improve their performance.
Ellman (2006) and Sarfraz (1998) are of the view that public utility, as a concept, is not clear defined. It includes, but not limited to, such items and assets as telephone services, road transport, rail transport, water services, insurance services, banking services, sewerage disposal, health care, education, electricity, postal services among others.
Under privatisation, the government mandates the private sector to take up some of its roles. The roles include providing the public with various goods and services. In one of the strategies used in privatisation of public utilities, the government may hire private investors and mandate them to handle the resources.
In such a case, the government gives up control to the private sector. Alternatively, the government may contract the services of the private investor, but retain the financial and political responsibilities to the citizens as far as control of the resources is concerned. In another arrangement, the state may grant the private sector the responsibility of enhancing performance in service delivery.
In either case, the function of the government revolves around regulating the operations of the service provider. Another strategy involves contracting the services of other stakeholders, for example the employers. Through such an arrangement, the government shifts its welfare burden to the service provider. The government may offer incentives or subsidies to both the citizens and the service providers in any of the three mechanisms.
In spite of its supporters’ spirited fight, a number of criticisms are pointed against the privatisation of public utilities. The individuals opposed to the idea of privatisation, both in developed and developing countries, regard such initiatives as a plot to sell off public utilities to private brokers.
In addition, the employees in most of these countries are against privatisation. In his article, Funnell (2001) illustrates that privatising public utilities may lead to loss of jobs and increased bureaucracy because of lack of accountability from the government.
There are various implications of privatisation of public utilities in relation to accountability. Hess & Adams (2000) identify one of the implications as the lack of effective mechanisms to impose penalties.
The others are price fluctuations, lack of guidelines to inform compensations and redress of complaints, as well as transparency issues. Other scholars are concerned with public participation, equitable access to public utilities, and the rise of monopolies.
According to Taylor & Balance (2005), it is important for the public to get involved in the decision making process. Before the government makes the decision to implement a project, it is important to enhance public involvement through their representatives. The policies advanced by the government in such cases enhance transparency in the management of state resources.
The consumers are directly involved as they participate in the management of the resources. Ellman (2006) is of the view that a lot of emphasis is placed on accountability and transparency as far as privatisation of public utilities is concerned. Two of the major concerns, according to the author, revolve around policies relating to public services and decision making process.
Active public involvement in the decision making process is one of the prerequisites of privatisation, which helps to improve service delivery through competition. As a result, the major concern in the process of formulating privatisation policies is whether or not the public is fully involved in the initiative.
Kanesalingam (1991) suggests that the government, through the public policies, should involve the citizens in the delivery of goods and services related to public utilities. It is the citizens who are aware of the services that will satisfy their needs. It is important to ensure participation of the public through informed debates.
The debates are very important as they are forums through which the public gets the opportunity to make their opinion known. It is only through the support of the government that the public can be represented in such debates.
Another major concern with regard to privatisation of public utilities is the frequent changes in the prices of goods and services provided by private investors. Evidence from the Australian Government (2006) shows that most private investors in both developed and developing nations tend to increase the prices of their goods and services.
One of the justifications provided is that investors in the private sector have to contend with the costs associated with monitoring and evaluation. Given that the major objective of the investors is to make profits, they pass the costs to the consumers to cushion their profit margins.
Apart from the issue of public involvement to ensure transparency, Hart (2003) and Manubhai (1998) notes that there are other factors that needs to be taken into consideration when privatising public utilities. They include, among others, basic responsibilities, social policy, equity, and universal access to public utilities.
Most of the problems that arise from privatisation affect the disadvantaged members of the community, such as the poor and the marginalized groups. The individuals who do not use the utilities may also be affected by the privatisation initiatives. It is observed that the sectors regarded as unprofitable in the economy are largely ignored by private investors and service providers who are profit oriented.
The same goes for geographical locations that are regarded as uneconomical. The reason why private investors ignore these regions is because of the perception that they are remote and less economically viable. As a result, they end up cutting down or even shutting down utilities in these areas, denying citizens access to services.
There are various real life examples used to illustrate the relationship between accountability and privatisation of public utilities. In 2009, the US government made efforts to liberalise and privatise its airline sector. The management of some airlines was left in the hands of private investors.
Because of remoteness and unprofitability of some routes, a number of airlines withdrew their services. The people leaving in these regions were highly inconvenienced. Another example is the privatisation of ActewAGL and United Water in 1995 by the Australian government (Australian Government 2006).
As a private company, United Water was mandated to initiate cost saving measures and increase the volume of water sold. However, there are various accountability issues that continue to bedevil this sector. The issues revolve around increase in water prices and standardized measures to address the quality of the commodity, as well as discharge of wastewater.
In conclusion, it is important to point out that the government should be fully responsible for certain public utilities like gas, water, electricity and other universal services. The government should ensure that there is continued supply of these critical services to the citizens.
References
1 Anjum, T 2012, Privatisation of public utilities: a consumer perspective, Consumer Rights Commission of Pakistan, Kabul.
2 Australian Government 2006, Department of Prime Minister: discussion paper on the role of the private sector in the supply of water and wastewater services, London House of Publishing, London.
3 Ellman, W 2006, Does privatising public service provision reduce accountability?, Universitat Pompeu Fabra, Spain.
4 Funnell, W 2001, Government by fiat: the retreat from responsibility, UNSW Press, Sydney.
5 Hart, O 2003, ‘Incomplete contracts and public ownership: remarks, and an application to public-private partnerships’, Economic Journal, vol. 113, pp. 69-76.
6 Hess, D & Adams, M 2000, ‘Alternatives to competitive tendering and privatisation: a case study from the Australian health industry’, Australian Journal of Public Administration, vol. 59 no. 1, pp. 49-59.
7 Hindmoor, A & Bell, S 2009, Rethinking governance: the centrality of the state in modern society, Cambridge University Press, Melbourne.
8 Kanesalingam, V 1991, Introduction to privatisation: trends and experiences in South Asia, Macmillan, New Delhi.
9 Manubhai, S 1998, ‘Public services and the new role of the states and the government’, Liberal Times, vol. 6, no. 4, pp. 9-12.
10 Papadopoulos, H & Curtin, D 2012, Accountability and European governance, McGraw-Hill, London.
11 Public Services Research Unit 2006, Pipe dreams: the failure of the private sector to invest in water services in developing countries, World Development Movement, London.
12 Sarfraz, K 1998, ‘Regulatory issues in Pakistan telecommunication’, The Pakistan Development Review, vol. 4, pp. 873-882.
13 Savas, S 1987, Privatisation: the key to better government, Chatham House Publishers: Chatham.
14 Taylor, A & Balance, T 2005, Competition and economic regulation in water: the future of the European Water industry, IWA Publishing, London.
15 Tiernan, A 2007, Power without responsibility, UNSW Press, Sydney.
16 Uhr, J 2005, Terms of trust: arguments over ethics in Australia, UNSW Press, Sydney.
17 Young M & MacDonald, D 2000, ‘Land and water, interstate water trading: a two year review’, Journal of Government Responsibility, vol. 3, pp. 122-134.
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