Privatisation of State-Owned Enterprises in Argentina
Golden shares were widely used, for example to block the threat of rapid takeovers in the utilities sectors. In continental Europe, privatization has too often been a phrase that has disguised economic reality. Governments have raised money, either for their own coffers or to boost the balance sheets of state-owned companies. But they have rarely forfeited control and have remained inclined to meddle.
From the statement above, the experience of Europe with privatisation leans more on the greater control provided to the private sector in the management and operations of state-owned enterprises and services. However, the government of the respective countries maintain a great degree of participation in order to achieve their goals of regulation and need for profits. In this setting, privatisation is used as a means to increase the revenue of the government without incurring additional expenses using the element of cooperation between the two spheres.
As for Poland, privatisation is expected to increase the welfare of the citizens by allowing the public goods to be subject to market competition. The strategy is founded by the impression that competition, fuelled by private greed, results to public good (Dunn 2004). The experience of Poland entailed several difficulties in the process. The narratives presenting privatisation in Europe and Poland shows that there are differences that arise in relation to a set of factors dependent on the particular countrys experience. Likewise, it proves that privatisation caters to the specific needs and goals of the users depending on the interrelationships between the markets and the state in order to succeed.
Privatisation The Argentine Experience
A noteworthy experience of privatisation is observed from a state that remains in the developing phase and is distinguished by an emerging market. Argentina has its own share of failures and success in its privatisation efforts. One of the most important sectors that underwent privatisation is the delivery of water to the public. Through the experience of Argentina, it is shown that privatisation is an effective tool in addressing the needs of the civil society, the public sphere, and the private sector.
Argentina
Argentina was formed after Spain lifted its colonial rule on the areas of Paraguay, Bolivia, and Uruguay, and Argentina (Central Intelligence Agency CIA 2010). It is located in the Southern portion of the South American continent and occupies an area that is approximately less than three-tenths of the total landmass of America (CIA 2010). The country is currently experiencing stalled economic growth after several economic difficulties characterized by an increasing debt and falling GDP growth (CIA 2010). Privatisation also attracted the government of the Argentine government because of the recognized benefits and goals it has on serving the needs of the public and the private sector. From the experience of the countrys privatisation of water services, insights with regard to the positive effects of the process are derived.
In 1991, the provision and delivery of water services in the country was turned over to private concessionaires with the goals of achieving efficiency and savings (The World Bank, 2008). Among the related aspects that brought privatisation in the picture is the need for a better set of processes and infrastructure that can deliver water services to the public. At that particular point, the government does not bear the capability to manage the delivery of water to the public for a number of reasons. In relation to this, the need to save also worked in order for Argentina to engage in privatisation. The lack of capability from the side of the government requires the spending of public money that leads to possible increases in the tax collected from the people. On the other hand, the availability of tools, knowledge, and capital from the private sector makes it less costly to engage in the business of providing water. As a result, the government is saved from spending money to provide utilities for the people. Unintentionally, as the government did not expect, the efforts also led to improvements in the health of the Argentines, which is the third positive factor brought about by privatisation (The World Bank 2008).
Increase in Efficiency
Among the goals of Argentina, in relation to water, is the expansion of the current water service facilities in order to satisfy the needs of the citizens. Commonly, the process entails a generous amount of resources, time, and effort from the public sector. Through privatisation, the government is able to achieve its goals without spending or wasting any of the factors mentioned above that led to an increased efficiency in the provision of the service. First, the presence of the private sector in the delivery of water services enabled access to private funds to finance the expansion of the network to increase access to water services (Chisari, Estache, Romero 1997 16). The government was allowed to stay at the bleachers and serve as regulators as the private concessionaires moved towards providing the capital for the needs of the expansion, which leaves the former to have lesser or no wastes in terms of resources. The results achieved by the public and private sector from this endeavour are evaluated based on the specific interests of each sphere. For the private concessionaires, they are able to deliver the goods and services to the public and gain profit. On the other hand, the government achieves the goal of providing access to clean and safe water through the private concessionaires. In fact, the overall impact of water privatisation in the country showed that the number of people who have access to water is significantly higher in the areas where service is privatised than those that are not handled by concessions (Galiani, Gertler, Schargrodsky 2005). From the table below, the number of years under which the water services are operated under concessions are shown in relation to the percentage of population served with water and sewerage.
Table 1. Impact of the Concessions on Access to Water Services
Year of ConcessionPer cent of population serviced by waterPer cent of population serviced by sewerage07058581641090732097823010090(Idelovitch Ringskog, 1995).
From table 1 above, the positive relationship between the years of concession and the percentage of people served is presented. It is shown that there are already an existing number of clients that are served by the government. The task of expansion was achieved by the concessions with significant leaps in the percentage of people who are provided with water services. Noticeably, the greatest number of increase, in terms of percentage, for water is during the first five years of the concessions and subsequently reduced the number of additional customers in the span of 30 years until 100 is reached. On the other hand, there is a lower rate of access to sewerage services with correspondingly lesser increase compared to the delivery of water. The increasing rate achieved by the expansion of the water services showed that the concessions are successful in delivering the service to the people through enhanced access. The improvements in the access to water services are not limited to infrastructure but also on quality and quantity. Aside from this, it is also noted that the poorest segments of the population...gained from the largest increases in access (Chong Lopez-de-Silanes 2005 38).
Impact on Health
The importance of privatised water services in Argentina also lies on providing safer sources of water for the people. Several studies conducted in relation to the performance of concessions showed that there is an improvement in the health of the people who avail of services from the private water service providers. Gleick and Cain (2004) notes that there is a decrease in the number of children dying by 5 to 7 per cent in areas where water services are privatised. Safe and clean water, introduced through privatisation, is said to be a factor that saved the lives of the children in the said communities (Segerfeldt 2005). In addition to this, the poor are also included in this statistics that gives greater meaning, in terms of cost and welfare with the group being a disadvantaged one, to the impact of privatisation on improving the health of the people served.
Economic View of Privatisation in Argentina
Privatisation has economic underpinnings that provide explanations for the dynamics and benefits of the process. The privatisation of water services, as seen in the case of Argentina, assumes that there is a greater degree of efficiency in the delivery of services because of the factor of competition, which is brought about by the market forces and the availability of a number of competitors. The government of Argentina ensured that an atmosphere of competition is created by allowing several concessionaires to participate in the delivery of services in different areas of the country. As a result, the supply of water made accessible to the people increases, which shifts the supply curve to the right that leads to relatively lower prices in the provision of the good compared to a monopoly of the service. The demand, on the other hand, is observed to be inelastic because it is a need related to the peoples subsistence and follows a steep slope. The relationship between the demand and supply of water is shown in Figure 1 below.
Figure 1. Supply and Demand Curve of Water Services
However, the expected decrease in the cost of water services in the country could not materialize as perfectly as shown in the supply and demand curve. The need to increase prices is related to the cost of investments placed on the project and the assurance that the private concessionaires are protected from the risks involved. More often than not, governments who engage in privatisation and do not have the capability to subsidize the price offered by the concessionaires are left with little control over the rates. However, the recent economic crisis has led the government of Argentina to freeze that tariff rates of the concessions until further notice, which is a move that saves the consumers from paying higher prices at a time when the economy affects their income (Galiani, Gertler, Schargrodsky 2005).
In addition to this, the decision to privatise the water services also led to savings in healthcare costs. From the experience of Argentina, it is shown that there is an improvement in terms of the quality of water as shown through its impact on the mortality rate of children in the serviced areas. It is a positive externality, which is defined to be a result of a persons behaviour that enhances the welfare of another, that leads to savings from the end of the government and the people (Manki, 1998). It is not an expected result and is therefore not incorporated in the supply and demand curve to show the real benefit to the society.
Conclusion
Privatisation involves the transfer of state-owned enterprises, either in partial or full terms, to the private sector. The general goals associated with the process are to increase the revenue of the government without incurring expenses. There is no picture that can be drawn that encompasses the concept of privatisation because different countries tend to change it according to their needs. In the case of Argentina, it is a process that proved to be successful based on increased efficiency and savings.