AFRICANUS Vol 30 No 2 ISSN 0304-615X - University of South Africa

2.2 Efficiency
There is also debate as to whether privatisation improves efficiency. Parker
(1992) suggests that certain factors, such as improved use of resources and
control of operational cost, may determine the success of privatisation according
to the criterion of efficiency. This is particularly so when the incentive to
increase efficiency through the introduction of competition is lacking, especially
if the firms under consideration are large monopolistic suppliers of services,
such as Telkom and Eskom, 3 or other highly capital-intensive product suppliers
which have high entry costs. 4
Economists have identified two types of inefficiency in a public sector enterprise
which may present a case for privatisation. The first is allocative inefficiency, in
other words an inefficient use of raw materials. The argument is that public
sector enterprises have allocative inefficiencies because of lack of competition;
therefore transferring them to the private sector, where they will face competition,
will improve their use of resources.
The second major type of inefficiency is productive or technical inefficiency.
Productive inefficiency occurs when public enterprises do not minimise costs,
since they are shielded from the adverse consequences of such behaviour. De
Borger (1993) and Yosha (1995) have questioned whether productive efficiency
will improve as a result of transfer of ownership. One point of view is that it will
improve irrespective of ownership since it is determined mostly by organisational
arrangements. An opposite view is that transferring the enterprise from
the public to private sector should have an effect, since managerial and organisational
arrangements are related to the type of ownership.
This debate is very important to privatisation primarily because, as Hutchinson
(1991) suggests, the impetus for privatisation is partly driven by the belief that
public enterprises do not behave in a cost-minimising manner. Accordingly, if
transferring these enterprises to the private sector has no impact on efficiency,
the need for privatisation is reduced. This was the UK Trade Union Congress
(TUC) view in the early 1980s and it has been expressed consistently by the
Congress of South African Trade Unions (COSATU). COSATU suggests that
the inefficiencies of public enterprises in the RSA are the result of apartheid,
and that the recent political changes will enable more efficient aggregate welfare-enhancing
economic policies, which will result in increased efficiency and
performance in public enterprises. While this argument does have some merit,
the evidence from the rest of sub-Saharan Africa suggests that political freedom
has not manifested itself in economic rights Ð so there is still ongoing debate
as to the impact which privatisation and ownership have on efficiency.
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