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December 24th, 2002

For most of the 20th century, growth in the scale and scope of government activity appeared to be an irreversible trend in developed economies, at least those that had not embraced full-scale socialism. Many observers predicted gradual convergence between the economic systems of the capitalist and communist blocs, with the final outcome being some form of mixed economy.
Expansion in the scale of government activity was primarily the result of expansion in the importance, relative to the economy as a whole, of the services provided by government, such as health, education and social welfare services. Expansion in the scope of government activity was the result of a range of policies including the nationalisation of private firms. Outside the United States, most infrastructure services, including railways, airlines, electricity and telecommunications were nationalised. Beyond the infrastructure sector, nationalisation policies varied from country to country, but included a range of financial services, manufacturing and mining.
The case for nationalisation rested in part on socialist views about the undesirability of private profit. In the mixed economy, however, no fundamental challenge to the legitimacy of private business was posed. Arguments for nationalisation of particular industries rested on the view that governments would manage these industries better than private owners, by avoiding the exploitation of monopoly and by undertaking better-planned investment.
By the 1970s, however, disillusionment with the performance of nationalised industries was widespread, and a range of theoretical arguments in favour of private ownership were developed. These arguments focused on the role of private capital markets in guiding investment and disciplining the managers and employees of businesses.
The first large-scale privatisation program was that of the Thatcher government in the United Kingdom during the 1980s. Other English-speaking countries, including Australia and New Zealand, followed the UK lead. Privatisation soon became part of the political orthodoxy throughout the world, especially after the collapse of the Soviet Union.
By the beginning of the 21st century, however, the first signs of a resurgence of public ownership were becoming evident. The collapse, and effective renationalisation, of Railtrack the privatised owner of the British rail network was an indication that governments could not walk away from the consequences of poorly-designed privatisations. Other English-speaking countries, which had taken the lead in privatisation, also appeared ready to reconsider the issue. New Zealand has renationalised its airline and accident compensation scheme, and re-established a publicly-owned bank.
The arguments for and against privatisation have become more sophisticated over the years. However, no final resolution of the debate is likely in the near future.

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