Privatisation and the Free-Market Revival Flashcards
What is the Free-Market Revival?
A reaction against nationalisation and public ownership, associated with socialist economic thinking
Nationalisation was historically viewed by socialists as a means to improve efficiency and equity through public ownership.
How do supporters of privatisation view private ownership and free markets?
They argue that private ownership and free markets are inherently superior, leading to improved economic performance.
Who are the key figures of the Austrian School in relation to privatisation?
Friedrich Hayek (1899-1992) and Ludwig Von Mises (1881-1973).
What is one of Hayek’s key ideas regarding state control?
State control breeds inefficiency.
Government-run industries lack price signals and competitive pressures, leading to waste and inefficiency.
What does Hayek’s ‘The Road to Serfdom’ (1944) argue?
Excessive government control inevitably leads to economic stagnation and authoritarianism. Hayek warned that central planning limits individual freedoms.
According to Mises, why can’t socialist economies allocate resources efficiently?
They lack private property and market-driven price mechanisms.
Free markets as essential for innovation and economic coordination.
What historical context contributed to the rise of Austrian ideas in the 1970s?
Western economies faced stagflation, challenging Keynesian economic policies.
Who is the key figure associated with the Chicago School regarding privatisation?
Milton Friedman (1912-2006).
What does Friedman claim about government monopolies in ‘Capitalism and Freedom (1962)’?
State-run industries provide low-quality services at high costs due to a lack of market discipline.
Market dicipline refers to the idea that competitive markets naturally regulate economic behaviour by rewarding efficiency and punishing inefficiency.
What role should the government have according to Friedman?
Instead of running businesses, the state should focus on setting the rules of the game (enforcing property rights, maintaining competition, preventing market distortions).
By withdrawing from direct economic management markets function more efficiently.
What is the focus of Public Choice Theory?
The self-interest of politicians.
Main theorists: James Buchanan (1919-2013) and Gordon Tullock (1922-2014).
Unlike market actors, government officials are not disciplined by competition or profit motives. This leads to rent-seeking.
What is rent-seeking in the context of Public Choice Theory?
When politicians and bureaucrats use their positions to extract benefits rather than serving economic efficiency.
Benefits (e.g. political appointments, subsidies, or regulatory favors).
What problems do State-Owned Enterprises (SOEs) face according to Public Choice Theory?
They create perverse incentives: SOEs tend to suffer from overstaffing, inefficiency, and resource misallocation due to political pressures rather than market forces.
eg unprofitable operations are often kept running for political reasons
How does privatisation affect accountability?
It shifts accountability to shareholders and customers.
Thid removes political influence and forces companies to reduce waste, innovate, and improve services.
What is the main conclusion about the intellectual case for privatisation?
It stems from a critique of state intervention.
