Fundamental Principles of Public Finance


Many people, especially economists, have been calling for privatisation for years. They believe this will result in a more efficient service such as in America where telephone companies, electricity supply companies, etc. are private and provide quick, efficient and inexpensive service to the public. However this fact should be balanced with the need for the ordinary citizen of a country to feel he/ she has a stakeholding in the affairs and profit of large industries and enterprises.


It is understandable that the ordinary man in the street should ask, “Why should one company and a few directors own a large gold mine and take all the profits?” (This is, of course, an incorrect perception as large companies are almost always quoted on the stock exchange where anybody can buy into them through purchasing their shares; they then share in the profits too). But this often does not do away with the frustration people feel when they see large capitalists enjoying the spoils of what some feel are national assets, such as gold mines. Of course the capitalist will answer by saying, “Do not kill the goose that lays the golden egg; leave alone that which is working and making a profit. Laissez-faire!”


Modern democracies are still debating this issue. As a student of Public Finance, you probably already know that democracy is not the perfect form of government – there are always problems, even in a democracy.


Case Study: Even modern countries such as England are still debating the issue of nationalisation vs. privatisation Case Study: Many modern countries are still debating the issue of nationalisation vs. privatisation Generally services are nationalised when the costs are too high for an entrepreneur to finance – as in health – and also to avoid a negative spill-over effect. Te disadvantage is oſten ineffective management, bad service and a lack of productivity. An exception is Norway: their government run oil company Statoil is doing very well and making the country very wealthy; but it has taken many decades to get this right. With previous oil booms, Norway wasted much of their wealth and they have only now managed to execute a plan for the benefit of all – it is sadly oſten the exception when any government runs a commercial operation and also makes a profit.


Privatisation should take place in order to save money and increase efficiency and productivity. When a government body is supplying a service it is usually not concerned about saving or productivity – jobs are guaranteed. When a private company offers a service, however, it is in their interests to show a profit and the service is usually more efficient. An example is the debate about petrol stations – in nearly every country where fuel is supplied by the government the price per unit has risen. Gildenhuys (1993:45) quotes the case of a city in America which became tired of inefficiency and began tendering their public services. Tis means that instead of providing the essential services such as water and electricity themselves, they allowed private companies to tender for these services. Te city’s name is Lakewood and consists of some 80 000 people. All services were provided by private companies and the city employed only four people who controlled these tenders.


Te motor industry has been protected in SA for many years in that the government places a heavy duty on imports – this means that although a foreign country can supply us with motor cars cheaper than local manufacturers, government legislation taxes these imports, thereby making the imported cars more expensive than locally produced ones. Te industry is protected in this way. Many feel this is wrong, because without competition an industry oſten becomes inefficient or does not provide the consumer with value for money. In America an average teacher may buy a car with three month’s salary; in SA s/he would have to spend at least an annual income for a similar product. See deregulation below.


17


Page 1  |  Page 2  |  Page 3  |  Page 4  |  Page 5  |  Page 6  |  Page 7  |  Page 8  |  Page 9  |  Page 10  |  Page 11  |  Page 12  |  Page 13  |  Page 14  |  Page 15  |  Page 16  |  Page 17  |  Page 18  |  Page 19  |  Page 20  |  Page 21  |  Page 22  |  Page 23  |  Page 24  |  Page 25  |  Page 26  |  Page 27  |  Page 28  |  Page 29  |  Page 30  |  Page 31  |  Page 32  |  Page 33  |  Page 34  |  Page 35  |  Page 36  |  Page 37  |  Page 38  |  Page 39  |  Page 40  |  Page 41  |  Page 42  |  Page 43  |  Page 44  |  Page 45  |  Page 46  |  Page 47  |  Page 48  |  Page 49  |  Page 50  |  Page 51  |  Page 52  |  Page 53  |  Page 54  |  Page 55  |  Page 56  |  Page 57  |  Page 58  |  Page 59  |  Page 60  |  Page 61  |  Page 62  |  Page 63  |  Page 64  |  Page 65  |  Page 66  |  Page 67  |  Page 68  |  Page 69  |  Page 70  |  Page 71  |  Page 72  |  Page 73  |  Page 74  |  Page 75  |  Page 76  |  Page 77  |  Page 78  |  Page 79  |  Page 80  |  Page 81  |  Page 82  |  Page 83  |  Page 84  |  Page 85  |  Page 86  |  Page 87  |  Page 88  |  Page 89  |  Page 90  |  Page 91  |  Page 92  |  Page 93  |  Page 94  |  Page 95  |  Page 96  |  Page 97  |  Page 98  |  Page 99  |  Page 100  |  Page 101  |  Page 102  |  Page 103  |  Page 104  |  Page 105  |  Page 106  |  Page 107  |  Page 108  |  Page 109  |  Page 110  |  Page 111  |  Page 112  |  Page 113  |  Page 114  |  Page 115  |  Page 116  |  Page 117  |  Page 118  |  Page 119  |  Page 120  |  Page 121  |  Page 122  |  Page 123  |  Page 124  |  Page 125  |  Page 126  |  Page 127  |  Page 128  |  Page 129  |  Page 130  |  Page 131  |  Page 132  |  Page 133  |  Page 134  |  Page 135  |  Page 136  |  Page 137  |  Page 138  |  Page 139  |  Page 140