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privatisation of public sectors



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Administrative Note:
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Week's Agenda: Economy
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I would like to restart a debate me and SS had earlier regarding 
a scheme that will smoothly and fairly allow government to
disinvest from sectors it should not be in. I'm quoting
an excert from discusion from then. Please comment.

Puneet

Sanjeev's proposal:
> -------------------
> Date: Tue, 23 Jun 1998 07:50:53 -0700 (PDT)
> From: Sanjeev Sabhlok <sabhlok@rcf.usc.edu>
> 
> For Debate:
> 
> We need to method of privatization that will be acceptable to workers.
> 
> I propose a simple method as follows:
> 
> Let everyone in a public sector firm be given 10,000 shares of stock. The
> Board of the firm should be determined by lottery among all the workers
> (including managers). Everyone, including the highest or the lowest ranked
> person would get an equal right to the firm's wealth as well as power.
> Then, let the shares be added up, and the firm be listed for trading in
> the stock market. The stock market will in essence amount to an auction
> market where the price of the share is determined by forces of supply and
> demand.  The person/ persons/ groups who think they are the most efficient
> in running that firm, will bid up the share price upto the point when they
> believe the shares are worth and at which they can acquire a controlling
> interest in the firm.
> 
> I believe that this system will be acceptable to all workers. Also, the
> control of the firm will soon pass on to those in the country/ world, who
> believe they can run the firm most efficiently. The whole process will be
> transparent, too.
> 
> Unlike in other cases where the new points are put up straight in purple
> color on the web page, I will keep this point open for a debate first,
> before putting it up. If no objection is received in the next 7 days, then
> this point will go up on the web page.
> 
> UTKARSH'S comments:
> -------------------
> 
> Date: Tue, 23 Jun 1998 11:11:05 -0700
> From: BDP India <bdp.india@mailexcite.com>
> Subject: Re: Debate: Agenda: Privatization
> 
> All:
> 
> I have few problems here. Utkarsh
> 
> For Debate:
> 
> >I propose a simple method as follows:
> >
> >Let everyone in a public sector firm be given 10,000 shares of stock. The Board of the firm should be determined by lottery among all the workers(including managers). Everyone, including the highest or the lowest ranked person would get an equal right to
> 
>  the firm's wealth as well as power. Then, let the shares be added up, and the firm be listed for trading in
> the stock market. The stock market will in essence amount to an auction market where the price of the share is determined by forces of supply and demand.  The person/ persons/ groups who think they are the most efficient in running that firm, will bid up
> 
> the share price upto the point when they believe the shares are worth and at which they can acquire a controlling
> interest in the firm.
> 
> Utkarsh: I do not see government (I mean the other 300 million tax payers who had funded this operation for last fifty years) benefit from this.
> 
> Let us analyze two scenarios:
> 
> 1. Government sells to the public sector employees:
> 
> 10,000 people become rich if a group comes in makes this company profitable. These 10,000 indivduals pay some taxes on the earnings and may be they spend some money so the economy grows. If the company stayed the way it was, because few of them will peris
> 
> h, pain and suffering.
> 
> Taking it further, suppose I have enough money to buy a controlling share. I come in and fire 60 percent of the work force. Now government has another problem to take care of these individuals. High unemployment even in developed countries is not consider
> 
> ed good for any government.
> 
> I am also not sure that in the begining certain groups have to pay some premium price of these money losing sectors to gain a controlling share. I think before this wealth spreads to a big number of people, lots need to be fixed. I am not sure that any government ready to take such drastic steps would have luxury of time for market forces mentioned here to take place. I think we are again thinking like Ph.D. 's in economics.
> 
> Let's try another solution:
> 
> If government sold it to only select ten owners, government gets the "real" money to use for improving basic requirements one can call it education, law and order, defense, infrastructure etc. for these 900 million people. Money is redistributed to variou
> 
> s private enterprises, where now chances of every business receiving this money of failure is smaller. These smaller companies will hire more people in the economy and economy for sure will grow.
> 
> Government can also set aside for hiring small companies to retrain these fired employees to do be hired again in other industries. You can be sure, who ever buys these massive public sectors is going to fire 60 percent of the work force. In the short run
> 
>  your share price is not going to make these fired employees that rich. In addition if you do not have employment, government have a massive problem to deal with.
> 
> Please tell me where my assumptions of your analysis are grossly incorrect.
> 
> PUNEET'S comments:
> ------------------
> 
> Date: Tue, 23 Jun 1998 10:22:00 -0700 (PDT)
> From: Puneet Singh <psingh@scdt.intel.com>
> Subject: Re: Debate: Agenda: Privatization
> 
> Sanjeev,
> 
> Please explain how the scheme works in a few more words, i.e
> 
>         -are you suggesting everyone gets the same nummber of stocks or
> stock options? and the same number?
> 
>         -when govt gives up ownership of profit making sectors (assuming
> the profits made are more than the losses from all public sectors put
> together) where does it go to fill its coffers; or is this for loss maing
> firms first...
> 
>         -if this policy is applied right away, and govt stops funding them
> say today, what will the impact be on the current employees; else what
> is the time plan for such disinvestment
> 
>         -I am assuming this will apply to all sectors? textile, machinery,
> transport...?
> 
> e.g if we wanted to privatize rural electricity supplies: only if an effective
> collection system was established that there will be an incentive for buyer to
> invest in this. Further if the corporation finds itself making losses it
> much rather shut down. Is that an acceptable solution?
> 
> > Let everyone in a public sector firm be given 10,000 shares of stock. The
> > Board of the firm should be determined by lottery among all the workers
> > (including managers). Everyone, including the highest or the lowest ranked
> > person would get an equal right to the firm's wealth as well as power.
> > Then, let the shares be added up, and the firm be listed for trading in
> > the stock market. The stock market will in essence amount to an auction
> > market where the price of the share is determined by forces of supply and
> > demand.  The person/ persons/ groups who think they are the most efficient
> > in running that firm, will bid up the share price upto the point when they
> > believe the shares are worth and at which they can acquire a controlling
> > interest in the firm.
> 
> Another thought that has occured to me while writing this up, and I dont
> recollect how much we have debated on this already, is the policy of
> taxation, tax collection. I alluded to it when I hinted how govt needs to
> tax different brackets differently to promote a certain sector. Is there
> a rule of thumb, policy that can be written for this?
> 
> Further, how would such policies be implemented? not in terms of action
> plan (I know we are only trying to define the policies and not the actual
> details but a plan that simply cannot be implemented is futile), more so
> say in how are we going to fund, empower certain sectors of government (
> and this cannot be privatized, or can it?) to allow them to function
> effectively?
> 
> Let me restate the problem this way: I as the govt have Rs GDP. Can the
> economists on the group come up with how should I spend this to maximize
> growth. Further what all do I need to do to raise more (to spend on good
> projects, lets assume). Do keep in mind that I have to account for
> expenses in making some sectors better etc (eg law & order may need funding
> boost to promote honest officials etc).
> 
> I think we are now slowly transitioning into the solution space, where
> we need to state how such policies can be implemented.
> 
> PAPAMENO'S comments:
> --------------------
> 
> Date: Thu, 25 Jun 1998 05:27:57 EDT
> From: PapaMeno@aol.com
> Subject: Re:  Debate: Agenda: Privatization
> 
> I would have a national lottery for distributing the shares of public sector
> companies, with all taxpayers entitled to win big. Before the lottery takes
> place, preparations would be made to help people manage newly acquired wealth
> - the consultancy field should thrive as a result.
> 
> Limiting the lottery just to workers seems unfair, for the public sector
> represents the investment of all taxpayers in the country. Worker's unions
> could be allotted a certain percentage of shares, with individual shares being
> allotted to current and retired individuals. This should engage everyone in a
> desire to maximize productivity and profits.


Puneet's next suggestion:


This is indeed a good topic I wanted to discuss. Let us state the
problem first:

        -we would like govt out of running certain sectors
        -disinvestment must account for current employees
        -government needs to transition out of the income it got from 
         the profit making ones

Further I would like to propose:

        that current emplyees get compensated by their skill rather than a
socialistic equal distribution of stocks/options

        that stock options be given instead of all stocks to promote incentive
to holders to improve stock value i.e company valuation


So lets say a firm X is going public. Government takes out Y shares of
which based on current position/pay each employee gets a fraction of the
total stocks (33% ? over 3 years?). The rest 66% are open for trade. The
money collected by shares sales (at market value) gets split between
govt and company's assets (50-50 ?). This way govt walks out with some
cash for other projects, the owners are the stock holders (buyers,
employees).

So say X has 100 employees, 100,000 stocks. Employees get 33,000 stocks
over the next 3 years (different people getting different numbers based
on base pay; they typically go from Rs2000 to Rs20,000 only i.e factor
of 10). The rest of the stocks are traded at market value which say
setlles down at Rs110 per share. Then govt gets the cash for its "other
useful projects" while transfering ownership.

We have to propose how this will work in monopolistic areas such as
railways, utilities, city corporation contracts...

Puneet

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