Microeconomic Policy

Microeconomic Policy

A New Perspective

Clem Tisdell and Keith Hartley

This thoroughly accessible textbook shows students how microeconomic theory can be used and applied to major issues of public policy. In this way, it will improve their understanding of both microeconomic theory and policy and also develop their ability to critically assess them. Clem Tisdell and Keith Hartley have expanded upon their previous successful work on microeconomics. As a result, this new book is considerably updated with substantial chapter revisions, as well as new chapters dealing with business management, ownership, environmental issues, public choice, defence, conflict and terrorism.

Chapter 10: Ownership of Enterprises: Public or Private?

Clem Tisdell and Keith Hartley

Subjects: economics and finance, industrial economics


INTRODUCTION: DOES OWNERSHIP MATTER? There has been a continuing controversy about the role and relevance of ownership as the major determinant of the performance of firms, industries and economies. Left-wing political parties often prefer state ownership of the means of production, which enables governments to intervene to determine prices, outputs, wages and employment throughout the economy. In contrast, right-wing political parties favour private ownership as a means of achieving efficiency objectives. They criticise state ownership for its inefficiencies, financial losses, crowding-out effects and its poor record on innovation. The implication is that these adverse economic effects will be removed under private ownership. The debate between state and private ownership raises the general question of whether ownership is an important determinant of economic performance. This question needs answering in two stages. First, consideration needs to be given to whether economic theory offers different predictions about the impact of ownership on economic performance; and second, empirical work is needed to determine the accuracy of these predictions. Consider the following ‘story’. After the privatization of previously state-owned enterprises it is observed that both productivity and profitability rise dramatically. The official explanation offered is that employees have become shareholders in the newly-privatized companies and that they want their companies to succeed; that their companies have been released from the detailed controls of central government and given the freedom to manage their companies; and that they have been exposed to the commercial disciplines of the customer...

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