Privatization through delegation

Privatization is considered as one of the main solutions for developing countries in order to cope with globalization and its effects on developing countries’ political economies. Privatization refers to the “transfer of ownership of state-owned enterprises” (Bennett, 1997, p. 5). This can be done either through the divestment, delegation, or displacement of state owned enterprises. Privatization through divestment involves the “transfer of state-owned assets to private ownership… (through) sale, restitution, give-away or liquidation” (Bennett, 1997, p. 4).

Privatization through delegation, on the other hand, involves the “transfer of management and control of state assets or activities to agents operating in accordance to market indicators…with the introduction of private sector managerial autonomy and incentives” (Bennett, 1997, p. 4). Lastly, privatization through displacement involves the “active promotion of the private sector’s involvement in former public activities by outsourcing and by private sector provision of former public outputs” (Bennett, 1997, p. 4). The three means of enabling privatization aim to enable the development of efficiency in once state owned enterprises.

It has been argued that private corporations are more efficient in the development of companies as opposed to state owned corporations. Praeger (1997) argues that the benefits of privatizing public corporations and its subsidiary firms can be traced to the economic efficiency that private corporations and firms achieve in developing “(1) the firm’s objectives, (2) the firms flexibility to achieve its objectives, (3) the firm’s employee incentive structure, (4) the nature of the firms budget constraints, and (5) the role played by the capital market” (p. 35).

Privatization, in this sense, ensures the increase in economic efficiency by strengthening the corporation’s foundations [e. g. profit orientation of the corporations’ objectives], ensuring the compensation and development of its manpower [e. g. development of employee incentives], necessitating the efficiency of its management as a result of hard budget constraints [e. g. lack of capital will result to insolvency or replacement of management], and necessitating the increase of stock capital as a result of the participation within the equity market.

Given these factors, one might state that privatization ensures economic efficiency through ensuring managerial efficiency as a result of the budget constraints of privately owned corporations since such corporations work with a limited budget [since they are not supported by the state which may rescue state owned corporations through the release of additional funds] it is necessary for such corporations to ensure their economic efficiency since failure in ensuring this will lead to insolvency as well as the take-over of another corporation or another management.

In line with this, the task of this paper is three-fold. First, it aims to trace the history of the development of the Kuwait Petroleum Corporation (KPC). Second, it aims to trace the problems which have led to the decline of the KPC and third, it aims to provide possible solutions to these problems. The solutions to be presented are based upon the main assumption that there is a necessity to privatize the KPC itself or its subsidiaries in order to cope with the problems experienced by the corporation. I will argue that privatizing the KPC will prove to be beneficial to both the KPC and the Kuwait economy.