Cato Policy Analysis No. 76 July 28, 1986

Policy Analysis

Privatization:
The Worker Buy-Out Option

by Peter Young

Peter Young is executive director of the Adam Smith Institute (USA).


Executive Summary

Privatization has now become an official Washington buzz- word. President Reagan has lauded it and made a series of privatization proposals in his budget. Budget Director James C. Miller III is a fervent believer in it. The Gramm-Rudman- Hollings initiative, by putting pressure on Congress to trim the budget, is also inspiring some moves toward privatization.[1] Nevertheless, translating privatization proposals into successful legislation is proving difficult.

Privatization has been advocated by the Reagan administration primarily as a means of reducing the federal deficit. But if it is promoted solely for its budget-cutting capabilities, privatization will never get the public support it needs or deserves.

The way the administration went about privatizing Conrail-- selling it to a sole private company instead of to its employees or through a public stock offering--has alienated all the interest groups whose support the administration should have been able to attract. And it is no wonder that the administration's new policy for dealing with Amtrak--letting it go bankrupt and then seeing if anyone wants to buy some of the pieces--has failed to generate much enthusiasm.

The administration does not yet seem to have realized that privatization is as much a political process as an economic one A successful policy for privatizing a public entity seeks the support of those interest groups that benefit from the entity-- the management, a portion of the public, and, most importantly, its employees. One of the most successful means of achieving this vital support is the employee buy-out.

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1986 The Cato Institute
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