PEOPLE, PROFITS, AND SERVICE DELIVERY - LESSONS FROM THE PRIVATIZATION OF BRITISH-TELECOM

Theory: Gradual denationalization of state-owned-enterprises (SOEs) is premised on the theory that increasing levels of market exposure, reg ulation, and public reporting will improve both the market and social values that democracies cherish. Similar theories inform market-based approaches to public service delivery more generally. Hypotheses: As m arket exposure increases, rates of productivity, capitalization, and p rofitability will increase significantly. As price controls grow broad er and more stringent, rates of capitalization and productivity will i ncrease, but profitability rates will be significantly lower. As marke t exposure increases, and whenever performance measures are publicly r eported, service quality will increase. As price controls become broad er and more stringent, service quality will decrease significantly. Me thods: We use ARIMA time-series analysis to assess the impact between 1982 and 1993 of three policy initiatives central to the gradual priva tizing of British Telecom (BT): changes in the extent of BT's private ownership, in the breadth and stringency of price controls applied to it, and in the reporting of service quality measures to the public. Re sults: Neither the claims of privatization proponents regarding market values nor of opponents regarding social values appear totally justif ied. The gradual exposure of service delivery to market discipline ris ks the ascendancy of market over social values. This can be attenuated , however, if the latter are explicitly linked to performance measures that are routinely reported to the public. ARIMA analysis affords a w ay to avoid the ''apples and oranges'' comparisons of public versus pr ivate service delivery mechanisms.