Privatization and Growth of the State

Conditional explanations give an overview of governments existing policies, which are formed as a result of wars that were fought in the past or are still in existence. The concessions and compromises among the competing nations are also the reasons due to which government policies are affected. Conditional explanations are basically alternatives given to the deterministic theories. The deterministic theories narrowed the strategic interference of the government bodies. The results of the future battles are unpredictable because the power of the competing parties depends on a number of factors. The factors include different ideas, developing institutions and resources. A few of these factors can actually be manipulated, if rigorous actions are taken. Therefore, government policies play a vital role under such situations.

Conditionalism basically means that the government has choices, however, these choices are restricted by a few factors, like environmental and economic conditions, power, control, policies and institutional laws. Ideas, leadership, ideology, group tactics and shifting resources are a few short-term forces that affect the government choices.

Focused change is made in structural parameters as well. When the government makes choices it rejects those perspectives that present only one solution for meeting the objectives and overcoming the environmental limitations. During the statistical analysis of policy outcomes, variations are taken into account on a compulsory basis. These variations are estimated using the independent variable, which relates to a number of factors ranging from primary to demographic (Wilensky, 1974). However, these studies define the government policies in simple budgetary terms. When issues that are linked

to the scope and timing of social welfare are taken into account, then the governments of different nations have freedom to respond as per their requirements.

A government tends to change its policies because it wants more fruitful returns.

Conditional explanations identify the unrestricted nature of the battle and then define the role of the public sector accordingly. In addition, conditionalism also believes that nations can take various forms and sizes as well (Feigenbaum et al., 1998).

3.1.1. Deal with the problem of payment

In the 1970s, governments were of the view that the economic sector of the country required great intervention by the government in order to give positive outcomes. The state wanted to have public enterprises so that they could influence their plans, regulations, and even production and distribution of goods and services (Biersteker, 1987). In the 1980s, the condition of public enterprises was such that they were left far behind the private sector. This may be because the government would have gone too far with its intervention, thus leading the economic performance of the public companies to deteriorate. Many studies have shown that the performance of SOEs have been very poor in comparison to the private sector (Cowan, 1990; Cook and Kirkpatrick 1988;

Vernon 1988). The state has failed to recognize these shortcomings because it was very busy with the industrial growth, which was taking place in different countries (Tanzi, 1987).

Privatization was found to be the only solution to bring the state out of the financial crisis (Vernon, 1988). SOEs were acting as barrier in resolving the problems of fiscal deficit, foreign debts and high inflation (Shepherd, 1976). The financial crisis

led to the withdrawal of the government hold from the states industrial sector. Market price mechanism was given priority for the allocation of the resources in the states sector (Cook and Minogue, 1990). The failure of SOEs led governments to become more inclined toward privatization (Vernon, 1988). Nevertheless, the auction of SOEs brought revenues, which brought an improvement in the budgetary position of the nation.

Many theorists consider privatization as a reaction to the financial crisis. These theorists include Clarke, Cull et al. (1998), Clarke and Pitelis (1990), Adam et al.

(1992), Nellis, and Shirley (1994) etc. These theorists believed that had the development in economy been faster, the public sector would have survived. After the war, the post-independence development in developing countries came to an end. Public enterprises required additional funds, not for the expansion but for mere survival. SOEs reached to such a position that they generated no revenue but rather needed financial support from the budget. SOEs needed funds so that it could at least decrease the public liabilities even if it was unable to increase their assets. The sale of public enterprises could bring in a good sum of money to the state. Selling was a better option to regain financial stability rather than cutting down expenses, which were related to education, healthcare and so on.

The sale of assets would just solve the financial problems of the state on a temporary basis; it would not look into the further serious matters that would come ahead of time. According to Adam et al (1992)., the sale of assets would create a neutrality affect for the nation. The price that the state would obtain after selling the assets would just be the discounted future profits that the entity would have obtained.

Through sale, the private and public enterprises would only be able to adjust their

existing liquidity problems but the net worth would remain unchanged (Adam et al., 1992). Only if the seller and buyer both have different valuations for the proceeds that they obtained from the sale of assets could the neutrality position be removed.

Privatization can lead to many uncertain consequences, which is why it is considered to be a very risky business. The huge investment that has been made in the public enterprises is to be considered as sunk cost. The decision about the liquidity of SOE has always been a great political responsibility.

A matter that requires great political responsibility would definitely be subject to government involvement. The government would try to get the finest possible deal for themselves; the best deal would be as cheap as possible.