History of privatization

1.1. Historical background

The history of privatization is dated back to the ancient Roman times. In the Roman Republic, private individuals and companies ('publicani') fulfilled virtually all of the state's economics requirements. The state contracted out for tax collection, supplying the army, etc.

In the middle-ages, the Catholic Church also implemented a special type of privatization: landlords and tenant farmers completed the task of the state together.

The industrial revolution in the 18th century brought the next emergence of privatization, but privatization and its counterpart nationalization in our terms were first used at the time of the Great Depression and after the 2nd World War.

The recent period of privatization history is dated from the 1970s. Margaret Thatcher, the former president of the United Kingdom, started to privatize the biggest companies in the UK (mainly telecommunication companies). The end of the Soviet era in Eastern Europe caused a 'big boom' in respect of privatization: the initially socialist economies had to be reformed into capitalization, and therefore, privatization has been used as one of the most important transitional tool.

The signing of the Maastricht Treaty has resulted in a new wave of privatization in the Western European countries, too. Huge amount of publicly owned assets were privatized in Germany, France and other European states during the 90s.

Privatization and nationalization intermittently succeeded each other throughout the history, depending on the given economic situation. Privatization occurred in several countries at the same time.

1.2. Theory of privatization

The definition of privatization can be formulated in several ways. Some literature uses the description of transferring governmental ownership to the private sector. Other papers emphasize the role of the private sector in providing services and facilities that are normally regarded as the responsibility of the public sector. Another possible definition that occurred is the usage of the private sector in government management. Privatization is of primary interest due to the implicit assumption that private control increases efficiency. Privatization attempts to change the factors of production to increase output and reallocate resources in order to maximize the value of it.

However, there is no exact definition of privatization, all the mentioned and other omitted descriptions include a central concept of shifting governmental assets and/or tasks to the private sector.

This paper does not aim at giving an overview on advantages and disadvantages of public ownership. The choice between nationalization and privatization is not discussed here, neither. Nevertheless, the explanations of different privatization methods also include some basic comparative analyses, mainly based on the question of efficiency, pricing, profits and welfare effects.

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