School of Business, Public Policy and

Social Entrepreneurship

SUBJECT- 301
ISSUES AND PERSPECTIVES IN PUBLIC POLICY

TERM PAPER
How do you understand the public
ownership and private ownership debate in
the context of welfare theory?

Under the guidance of:

Submitted by:

Mr. Debabrata Baral

Amrita Arora
S143F0005

Term Paper
How do you understand the public ownership and private ownership debate
in the context of welfare theory?
Introduction
Public Ownership
A business organization wholly or partly owned by the state and controlled through a public
authority or government.
Private Ownership
When individuals, rather than government, own and operate their self owned businesses or
property, its called private ownership.
It is generally perceived that public enterprises work for the welfare of the society and the motive
of private organizations is only profit. But, is this binary such simple? What exactly is the
concept of welfare? When is the state of welfare achieved? Should an economy work only with
public or private enterprise or there should be public private partnerships? Which type of
ownership is better for the welfare of the society and which has worked? To answer such
questions, well understand the debate of public ownership vs. private ownership in the context
of welfare theory.

Welfare Theory
Interrelation between Individuals and Structures
A social life is life with other people. A society is divided into these people or individuals and
the structures that they form. Individuals are further divided on the basis of social categories like
race, tribe, gender and economic condition. Also, they are categorized on the basis of their access
to resources which depends on the needs (both legitimate and non legitimate). There is an
interrelation between individuals and structures. Every society needs structures to regulate and
legitimate these individuals and their needs. When these structures allocate resources among
different categories of individuals, which is where the concept of welfare comes in.
What is Welfare?
Welfare is an ambiguous term. It is used to refer both to people's wellbeing, and to systems
which are designed to provide for people. Welfare is obtained and maintained through social
action. The benefits of welfare are for the individuals and societies. The debate here arises that
who gives these benefits of welfare is it private businesses or public enterprises. To understand
this, lets first understand the pre- conditions of welfare.
Pre Conditions of Welfare
The pre- conditions or the basic elements of welfare are:

Economic Development
Basic Security
The Structure of Rights

Economic Development
Economic development is requisite for welfare in three ways. First, material goods are essential
for people to live and to prosper. A large minority of the world's population still lacks water
supplies, sewerage and facilities for the drainage of surface water; the provision of these very
basic facilities is a form of economic development. Second, economic development is essential
to social integration. Involvement in economic activity and exchange is a major determinant of
the development of social relationships beyond an immediate circle. Third, being able to
improve their circumstances is fundamental to the achievement of people's aims. Without
economic growth, improvement can be achieved only through the reduction of inefficiency (for
which opportunities may be limited). However, GDP is not a sufficient measure of economic
development; rather Human Development Index is a better measure of development of the
economy because it takes into consideration other factors such as education and health.
Basic Security
Security is a part of welfare. Security is a basic need, in the sense that it is essential to a person;
like other needs, the effect of its denial comes to dominate and overwhelm other parts of a
person's life. Social insecurity represents a challenge to welfare. Insecurities arise due to limits of
environment and income. These systems are the basis of 'social protection'.
The Structure of Rights
A right is a norm, held to inhere in the person who possesses it and affecting the behavior of
others towards that person. The role which rights play in relation to welfare is partly negative:
the possession of a right means that people will not act in certain ways towards the bearer of the
right. It may also be positive: having a right can mean that people will act in ways which benefit
that person directly. For example - When people talk about 'the rights of children', for example,
the rights in question may be both negative and positive. In negative terms, the rights of children
include rights not to be abused or neglected, and not to be exploited. In positive terms, they
include the right of children to be educated.
In India, various rights and Acts have been formed for the welfare of the people. Some of them
are Forest Rights Act. Food Security Act, Consumer Protection Act, Right to Education,
etc.
Two Dominant Welfare Theories
Non Market Perspective Karl Marx
According to Karl Marx, the society was divided into two categories:

Controller of means of production or capitalists

Controlled by controller or the labors

According to Marx, labors in the whole production process are powerless and face exploitation,
therefore, welfare is not achieved.
Market Perspective W.W. Rostow
The Rostow's Stages of Growth postulates that economic growth occurs in five stages about how
a society undergoes from a traditional to a moderns stage. These stages are:

The Traditional Society

This initial stage of traditional society signifies a primitive society having no access to
modern science and technology. In other words, it is a society based on primitive
technology and primitive attitude towards the physical World.
Preconditions for Take-off
These conditions mainly comprise fundamental changes in the social, political and
economic fields; for example:
(a) A change in societys attitudes towards science, risk-taking and profit-earning;
(b) The adaptability of the labour force;
(c) Political sovereignty;
(d) Development of a centralised tax system and financial institutions; and
(e) The construction of certain economic and social infrastructure like railways, ports,
power generation and educational institutions.
India did some of these things in the First Five Year plan period (1951-56).

Take-off
This is the crucial stage which covers a relatively brief period of two to three decades in
which the economy transforms itself in such a way that economic growth subsequently
takes place more or less automatically. The take-off is defined as the interval during
which the rate of investment increases in such a way that real output per captia rises and
this initial increase carries with it radical changes in the techniques of production and the
disposition of income flows which perpetuate the new scale of investment and perpetuate
thereby the rising trend in per capita output.
Drive to Maturity
This stage of economic growth occurs when the economy becomes mature and is capable
of generating self-sustained growth. The rates of saving and investment are of such a
magnitude that economic development becomes automatic. Overall capital per head
increases as the economy matures. The structure of the economy changes increasingly.
Age of High Mass Consumption
In this stage of development per capita income of country rises to such a high level that
consumption basket of the people increases beyond food, clothing and shelters to articles
of comforts and luxuries on a mass scale. Further, with progressive industrialization and
urbanization of the economy values of people change in favor of more consumption of
luxuries and high styles of living.

According, to Rostow, welfare occurs in this fifth stage i.e. the age of high mass consumption.

Public Private Ownership Debate

Historical Perspective
The debate of public private ownership has a long history. There have been a number of
instances where the binary that public sector works for the welfare of the society and private
sector for the profit has been questioned. The best example of this is the case of British East
India Company.
The Case of British East India Company
The British East India Company was established in 1600 A.D. by a Royal Charter of the Queen.
Initially, it was started as a private enterprise with its function being trade with east African and

Asian countries. It traded in spices, indigo, tea, cotton, silk and iron. Though it was a private
enterprise, it was an entirely uncontrolled business with its own bureaucratic system. This led to
a resentment in public opinion and hence, the Revolt of 1857 in India. As a result of this revolt,
the East India Company was nationalized in 1858 i.e. the government now had control over its
management. But, a public enterprise usually meant social justice and welfare. This fact was
questioned in 1934 when the need for planning was first felt in India. As a public enterprise, East
India Company should have redistributed its wealth from where it earned, that is among the
Indian people. Rather, the profits earned were going back to England. The company was asked to
justify this. In response, Schuster, the financial member of the Executive Council of the Viceroy,
came up with a novel on economic policy. He proposed an economic system which has
minimum government intervention. This was opposed by nationalist capitalist as they thought
this would not lead to redistribution in the society. Then came a trend that a competitive
enterprise, even if it is public needs to be regulated. Thus, even after changing from private
enterprise to public enterprise, the East India Company did not contribute to welfare of the
society.
Contemporary Perspective
In contemporary world, examples can also be seen regarding the implementation of entirely
public or private e
nterprises or mixed economies. Some of the major events that brought into highlight the results
of these policy implementations are:
The Great Depression
The Great Depression (1929-39) was the deepest and longest-lasting economic downturn in the
history of the Western industrialized world. In the United States, the Great Depression began
soon after the stock market crash of October 1929, which sent Wall Street into a panic and wiped
out millions of investors. Over the next several years, consumer spending and investment
dropped, causing steep declines in industrial output and rising levels of unemployment as failing
companies laid off workers. By 1933, when the Great Depression reached its nadir, some 13 to
15 million Americans were unemployed and nearly half of the countrys banks had failed.
Though the relief and reform measures put into place by President Franklin D. Roosevelt helped
lessen the worst effects of the Great Depression in the 1930s, the economy would not fully turn
around until after 1939, when World War II kicked American industry into high gear.
Soviet Industrialization
The industrialization of the Soviet Union proceeded at a rapid pace between the two World
Wars, starting in 1929. Within a historically short period of twelve to fifteen years, an
economically backward agrarian country achieved rapid economic growth, created a more
modern industrial sector, and acquired new technologies that changed it from an agrarian to an
industrial economy. Soviet industrialization was organized according to five-year plans. The first
five-year plan was launched by the Soviet dictator Joseph Stalin in 1928. It was designed to
industrialize the USSR in the shortest possible time. Moreover, they believed that
collectivization would improve agricultural productivity and produce sufficient grain reserves to
feed the growing urban labor force caused by the influx of peasants seeking industrial work.
But, this system of public ownership also failed.

2008 Financial Crisis

The financial crisis of 20072008, also known as the Global Financial Crisis and 2008
financial crisis, is considered by many economists to have been the worst financial crisis since
the Great Depression of the 1930s.It threatened the total collapse of large financial institutions,
which was prevented by the bailout of banks by national governments, but stock markets still
dropped worldwide. In many areas, the housing market also suffered, resulting in evictions,
foreclosures and prolonged unemployment. The crisis played a significant role in the failure of
key businesses, declines in consumer wealth estimated in trillions of U.S. dollars, and a
downturn in economic activity leading to the 20082012 global recession and contributing to
the European sovereign-debt crisis.
Fiscal Deficit and FDI
The debate of public private ownership also comes into picture in case of FDI and fiscal deficit.
Earlier in India, till 1991, FDI was not allowed. By opening up of the economy and the
liberalization, privatization and globalization policies, FDI was allowed in India which led to
private investment in the country as well as disinvestment in public sector.
Also, in 1991, when India was facing a lot of fiscal deficit, privatization took place.
Conclusion and Suggestions
Thus, the debate of public private ownership is never ending. Historically, East Indi Company
did not contribute towards welfare of the state. In contemporary times, failure of complete
control to private sector was seen in terms of the Great Depression of 1929 and the 2008
Financial Crisis. Also, complete control to Public sector failed in the form of fall of Soviet
Union. Indian economy was saved from the financial crisis of 2008 because it was a mixed
economy and the financial sector was nationalized. In todays world Rostows theory of welfare
prevails. But, welfare is not just responsibility of single sector. It is not such a simple binary. It is
the responsibility of the individuals and structures both in public and private sector.
References:
1. Spicker, P. (2000). The welfare state: a general theory. Sage.
2. Rostow, W. W. (1959). The stages of economic growth. The Economic History
Review, 12(1), 1-16.