Does evidence suggest that utility privatisation improves technical efficiency?

University: Economics

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The advocates of privatisation have strong grounds for believing that, all else being equal; a move to the private sector will tend to increase efficiency. They argue that the disciplines on capital that will satisfy investors, area far stronger, more continuous and more economically rational check on a company’s performance than the often inconsistent investment and lending policy of the government which may well be dictated by short term political necessity than by long-term economic rationality. They also add that, from the point of view of the company itself, the combination of access to private sector funding and the need to achieve adequate returns is likely to make commercial advantage and the economic case for any specific investment. They will also argue that a company in the private sector is more likely to have a sensible and efficient personnel policy, with senior managers paid whatever is necessary to achieve the best results, unencumbered by inappropriate comparisons against civil service salaries and with no state to take care of the consequences of restrictive union practices and unsustainably high labour (and perhaps capital) costs.

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