What matters - ownership or competition?
Interesting debate in the Indian blogs about what matters more for economic performance: private ownership, or competition? Ravikiran Rao thinks that ownership is key. Ramnath thinks competition is more important.
I think it's a false dilemma. A private monopoly is likely to be a disaster - but most private monopolies are monopolies because governments have tilted the playing field in their direction. And a government-owned firm in a genuinely competitive market is fine - but who expects that market to stay genuinely competitive if the government firm gets into trouble? Private ownership and competition tend to go together - not inevitably, but typically.
The next debate, of course, is whether to privatise first and liberalise later, or vice-versa...? Comments are open.
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Liberalize, then privatize. You can't privatize a state held firm if there's no private sector to 'privatize' it into. If you liberalize first entrepreneurs will create a private market (even competing directly with the State firm, since State firms are rarely even half as efficient as they could be). Once prices have been discovered, privatization can go smoothly.
Posted by: Cardozo Bozo | Dec 2, 2005 10:14:18 PM
The politics of the issue here is more important than the economics. The outcry may emerge from three constituencies: state firms, existing profit-making private firms, and finally the people (and hence politicians). Thorny sectoral examples of each are schooling, steel industry and agriculture. Depending on the extent of outcry from each of these it makes sense to either LandP or PandL. But then as the example of Russia showed, the extent of rule of law cannot be neglected.
Posted by: Naveen | Dec 4, 2005 9:34:03 PM