Railtrack as the Ultimate Failure of Privatisation

Railtrack as the Ultimate Failure of Privatisation

The word Privatisation has been used in a variety of contexts, ranging

from returning state owned companies to the private sector,

contracting out services to the private sector and liberalisation and

deregulation. Although the most common definition of Privatisation is

the idea that involves transferring the production of goods and

services from the public sector to the private sector.

Privatisation generally involves two main objectives. Firstly there is

the objective to reduce the role of the government in economic affairs

and share ownership of the public. The other main objective is to make

public organizations operate in a more cost effective manner,

essentially the public asset is sold because it is felt that the

private sector could more effectively provide that service.

The main arguments for Privatisation are that historically, with

communist countries, the state is not a good decider of how to

distribute factors of production. The bureaucratic processes involved

with decision making prevent efficiency gains which arise through the

market mechanism.

Since organisations have been freed from political interference, they

are now able to focus more on long-term objectives without having to

keep voters on their side. As well as this industrial relations and

productivity should improve as companies recognise that they have no

government funding to fall back onto.

Another argument for privatisation is that the government wanted to

create more competition, many state-owned companies were monopolies

which exploited the public. Privatisation has introduced competition,

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...s (1986), British Airways (1987).

Privatisation it seems only works well in industries with less

regulation, which have the potential to work more efficiently with

less interference. However some industries are regulated because they

have the potential to exploit the customer, these industries would be

more difficult and dangerous to privatise. Privatisation depends on

the right set of internal and external factors to work successfully.

Good management, workers, communication and motivation are essential

as well as external factors such as the amount of help from the

government to get it underway, the competition in the new private

market, the customer response to the new system. Without these key

factors to drive the process of privatisation, then it maybe

unsuccessful, and this is simply what happened with Railtrack.