Do you agree that certain activities such as
producing electricity from nuclear energy, and
running railways and air traffic control, should
be undertaken by the state rather than private
sector companies? Justify your answer. (20)
State ownership is when the government owns the likes of companies, property or industries.
Privatisation aims to increase efficiency (productive, allocative, dynamic, and X-efficiency), and is
about market forces (competition) and the profit motive.
State ownership would be more suitable due to the commanding heights argument. This argues
how there is control of commanding heights, business activity that’s critical to the rest of the
economy, by government ensuring investment, and therefore efficiency. From this, important
industries such as nuclear energy, running railways and air traffic control, would be better with the
government as they would do what is in the public’s interest and put in enough investment for this
to be carried out.
Also, state ownership would bring about economies of scale. This is because of how large the
industries in question could possibly become. Therefore, costs in the long term will fall, meaning
that the state won’t have to pay too much for the services to be carried at a sufficient enough level.
In addition, state ownership would mean that safety is made a priority. These industries can be
prone to health and safety issues, such as mutations from nuclear energy, train accidents and plane
accidents. Safety would be at a higher priority than other things such as profits, unlike in the private
sector, so would be deemed safer in comparison for it to be owned by the state. The private sector
may cut costs to achieve productive efficiency at the expense of safety, which is dangerous.
Railtrack was re-nationalised and became Network Rail because of poor investment by private firm
and safety issues from crashes. However, some still argue that this does cost the government,
particularly in investment.
There may be government failure, which is when the government intervenes to improve
efficiencies, but results in allocative inefficiency through misallocating resources. If nuclear energy,
and running railways and air traffic control were, for instance, taxed too heavily then people may go
producing electricity from nuclear energy, and
running railways and air traffic control, should
be undertaken by the state rather than private
sector companies? Justify your answer. (20)
State ownership is when the government owns the likes of companies, property or industries.
Privatisation aims to increase efficiency (productive, allocative, dynamic, and X-efficiency), and is
about market forces (competition) and the profit motive.
State ownership would be more suitable due to the commanding heights argument. This argues
how there is control of commanding heights, business activity that’s critical to the rest of the
economy, by government ensuring investment, and therefore efficiency. From this, important
industries such as nuclear energy, running railways and air traffic control, would be better with the
government as they would do what is in the public’s interest and put in enough investment for this
to be carried out.
Also, state ownership would bring about economies of scale. This is because of how large the
industries in question could possibly become. Therefore, costs in the long term will fall, meaning
that the state won’t have to pay too much for the services to be carried at a sufficient enough level.
In addition, state ownership would mean that safety is made a priority. These industries can be
prone to health and safety issues, such as mutations from nuclear energy, train accidents and plane
accidents. Safety would be at a higher priority than other things such as profits, unlike in the private
sector, so would be deemed safer in comparison for it to be owned by the state. The private sector
may cut costs to achieve productive efficiency at the expense of safety, which is dangerous.
Railtrack was re-nationalised and became Network Rail because of poor investment by private firm
and safety issues from crashes. However, some still argue that this does cost the government,
particularly in investment.
There may be government failure, which is when the government intervenes to improve
efficiencies, but results in allocative inefficiency through misallocating resources. If nuclear energy,
and running railways and air traffic control were, for instance, taxed too heavily then people may go
