Competition Policy, Privatisation, Nationalisation Flashcards
Define nationalisation
Nationalisation is where the government buys a business. E.g. Coal mines after World War II
Define renationalisation
Renationalisation is where the government buys back businesses used to own but had sold off.
What are the advantages of nationalisation?
1 - The more industries the government owns, the more control the government has over the economy e.g. could charge lower prices
2 - If the government owns these industries instead of just running them in the interest of their shareholders, they could run it in the interest of all their stakeholders
3 - if the government owns it, they can use the profit to put it back into the business, as there are no shareholders e.g. improve the services they offer
4 - If the government owns more industries, it will help create a more equal economy. Because instead of that money going to the shareholders, who tend to be well off, these profits can be used to benefit everyone.
5 - if the business is an actual monopoly, it could be argued that it would be better if it was owned and run by the government
What are the disadvantages of nationalisation?
1 - to take over these industries it’s very expensive, therefore has a high opportunity cost for the government
2 - if the government owns these businesses, they don’t have to make a profit. Therefore there is less pressure to be efficient
Argument - there is a danger that if the government buys these industries up, they will have to force all shareholders to sell their shares, many of these people will live abroad. Because of that they may not want to invest again.
What is the competition policy?
This refers to the way that the government tries to control the amount of competition in the economy. The main objective is to protect the interest of customers. This is carried out for the government by the competition and markets authority (CMA)
What are the four main aspects of the competition policy?
1 - Control of monopolies - legally a monopoly is defined as a business with 25+ percent of the market share. The CMA is concerned to make sure that these businesses are not taking advantage of their position by increasing their prices and making it harder for new firms to enter the market
2 - Control of mergers/takeovers - they are mainly concerned with merges/takeovers which reduce competition or leads to a market share of over 25%. CMA can stop this from happening.
3 - Control of restrictive practices - this is where businesses work together to limit competition (collude) e.g. to control prices
4 - Control of anti-competitive behaviour - this is where a business uses tactics which are aimed at giving it an unfair advantage over their rivals e.g. predatory pricing
Define predatory pricing
Predatory pricing is where a business is charging a very low price, often making a loss, to try and push competition out of the market, increasing their own market share
How much can the CMA fine?
The CMA has the power to find businesses up to 10% of their revenue if they think they are acting against the interest of their consumers
What are the three main things the CMA can act on?
- Complaints from consumers
- Complaints from other businesses
- Complaints from whistleblowers i.e. people who work for these companies and willing to tell the truth
Overall what does the CMA do
What does CMA has to do is balance its preference for markets to have as much competition as possible against the possible advantage of having a single firm that dominates the market
Define privatisation
Privatisation is where the government increases the role of the private sector in the economy. It gets private businesses to provide services that used to be provided by the government.
What are the different forms of privatisation?
1 - Privatisation – this is where the government sells off businesses . E.g. railway companies, post office, water companies, electric company
2 - Deregulation – this is where the government takes away certain rules to allow private businesses to compete against the government that are used to provide their services as a monopoly e.g. local buses
3 - Contracting out – this refers to services that used to be provided by the government, but the government now contract out private businesses
4 - private finance initiative - this is used for major capital projects that the government needs to spend money on. E.g. a new Road, school, hospital, prison. Under the private finance initiative, the government will get private businesses to provide the money upfront to pay for these projects, and then the government will pay it back over a number of years
Advantages of privatisation
1 - The government can use it to raise money e.g. selling off services. This money can then be invested to improve public services.
2 - Increase competition e.g. deregulation e.g. busses
3 - use it to reduce costs. E.g. contracting out
4 - they can use it to provide major investments that they can’t really afford to pay for now.
What is the disadvantages of privatisation
1 - To make sure people are willing to buy these businesses, they sell of shares a very low prices, therefore not raising as much as they could be
2 - costs are often reduced at the expense of the workers (contracting out) I.e. Paying workers less/0 hour contracts
3 - when it comes to PFI, the government usually end up paying far more than the initial costs of these investments
4 - privatisation will tend to increase inequality in the economy. They got between the rich and the poor will get bigger. E.g. when the government owned all these industries if they made a profit the profit would be back to the government, which could then be spent to benefit the whole economy. Now most of their profit will go to shareholders who are well off, increasing the gap between the rich and the poor
