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OG RC - Privatization

This topic has 1 expert reply and 0 member replies
fiza gupta Master | Next Rank: 500 Posts
Joined
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Target GMAT Score:
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OG RC - Privatization

Post Thu Oct 13, 2016 2:43 am
While there is no blueprint for transforming a largely
government-controlled economy into a free one, the
experience of the United Kingdom since 1979 clearly
Line shows one approach that works: privatization, in which
(5) state-owned industries are sold to private companies. By
1979, the total borrowings and losses of state-owned
industries were running at about £3 billion a year. By
selling many of these industries, the government has
decreased these borrowings and losses, gained over £34
(10) billion from the sales, and now receives tax revenues from
the newly privatized companies. Along with a dramatically
improved overall economy, the government has been able
to repay 12.5 percent of the net national debt over a
two-year period.
(15) In fact, privatization has not only rescued individual
industries and a whole economy headed for disaster, but
has also raised the level of performance in every area. At
British Airways and British Gas, for example, productivity
per employee has risen by 20 percent. At Associated
(20) British Ports, labor disruptions common in the 1970’s and
early 1980’s have now virtually disappeared. At British
Telecom, there is no longer a waiting list -as there always
was before privatization -to have a telephone installed.
Part of this improved productivity has come about
(25) because the employees of privatized industries were given
the opportunity to buy shares in their own companies. They
responded enthusiastically to the offer of shares: at British
Aerospace, 89 percent of the eligible work force bought
shares; at Associated British Ports, 90 percent; and at
(30) British Telecom, 92 percent. When people have a personal
stake in something, they think about it, care about it, work
to make it prosper. At the National Freight Consortium, the
new employee-owners grew so concerned about their
company’s profits that during wage negotiations they
(35) actually pressed their union to lower its wage demands.
Some economists have suggested that giving away free
shares would provide a needed acceleration of the private-
zation process. Yet they miss Thomas Paine’s point that
“what we obtain too cheap we esteem too lightly.” In
(40) order for the far-ranging benefits of individual ownership to
be achieved by owners, companies, and countries,
employees and other individuals must make their own
decisions to buy, and they must commit some of their own
resources to the choice.

Which of the following statement is most consistent with the principle described in lines 35-38?
(A) A democratic government that decides it is inappropriate to own a particular industry has in no way abdicated its responsibilities as guardian of the public interest.
(B) The ideal way for a government to protect employee interests is to force companies to maintain their share of a competitive market without government subsidies.
(C) The failure to harness the power of self-interest is an important reason that state-owned industries perform poorly.
(D) Governments that want to implement privatization programs must try to eliminate all resistance to the free-market system.
(E) The individual shareholder will reap only a minute share of the gains from whatever sacrifi ces he or she makes to achieve these gains.

OA:C

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Top Reply
Post Fri Nov 18, 2016 7:53 am
fiza gupta wrote:
While there is no blueprint for transforming a largely
government-controlled economy into a free one, the
experience of the United Kingdom since 1979 clearly
Line shows one approach that works: privatization, in which
(5) state-owned industries are sold to private companies. By
1979, the total borrowings and losses of state-owned
industries were running at about £3 billion a year. By
selling many of these industries, the government has
decreased these borrowings and losses, gained over £34
(10) billion from the sales, and now receives tax revenues from
the newly privatized companies. Along with a dramatically
improved overall economy, the government has been able
to repay 12.5 percent of the net national debt over a
two-year period.
(15) In fact, privatization has not only rescued individual
industries and a whole economy headed for disaster, but
has also raised the level of performance in every area. At
British Airways and British Gas, for example, productivity
per employee has risen by 20 percent. At Associated
(20) British Ports, labor disruptions common in the 1970’s and
early 1980’s have now virtually disappeared. At British
Telecom, there is no longer a waiting list -as there always
was before privatization -to have a telephone installed.
Part of this improved productivity has come about
(25) because the employees of privatized industries were given
the opportunity to buy shares in their own companies. They
responded enthusiastically to the offer of shares: at British
Aerospace, 89 percent of the eligible work force bought
shares; at Associated British Ports, 90 percent; and at
(30) British Telecom, 92 percent. When people have a personal
stake in something, they think about it, care about it, work
to make it prosper. At the National Freight Consortium, the
new employee-owners grew so concerned about their
company’s profits that during wage negotiations they
(35) actually pressed their union to lower its wage demands.
Some economists have suggested that giving away free
shares would provide a needed acceleration of the private-
zation process. Yet they miss Thomas Paine’s point that
“what we obtain too cheap we esteem too lightly.” In
(40) order for the far-ranging benefits of individual ownership to
be achieved by owners, companies, and countries,
employees and other individuals must make their own
decisions to buy, and they must commit some of their own
resources to the choice.

Which of the following statement is most consistent with the principle described in lines 35-38?
(A) A democratic government that decides it is inappropriate to own a particular industry has in no way abdicated its responsibilities as guardian of the public interest.
(B) The ideal way for a government to protect employee interests is to force companies to maintain their share of a competitive market without government subsidies.
(C) The failure to harness the power of self-interest is an important reason that state-owned industries perform poorly.
(D) Governments that want to implement privatization programs must try to eliminate all resistance to the free-market system.
(E) The individual shareholder will reap only a minute share of the gains from whatever sacrifi ces he or she makes to achieve these gains.

OA:C
We've got a discussion here about how when employees have a stake in a company's profits, they're willing to make sacrifices they wouldn't have otherwise been willing to make, as they'll benefit from these sacrifices in the long run. When an industry is state-owned, employees could have no ownership stake, and thus, the thinking goes, would not make the same kinds of sacrifices. This idea is captured in C

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