4.3.3

• Free-orientated strategies


  Free-market approaches favour giving a larger role to private sector enterprises using liberalisation of markets, structural supply-side reforms to raise incentives for people and businesses with increased transparency for government also high on the policy agenda. Chile and Estonia are economies that have followed a free-market agenda for development.
• Trade liberalisation


  Trade liberalisation involves a country lowering import tariffs and relaxing import quotas and other forms of protectionism. One of the aims of liberalisation is to make an economy more open to trade and investment so that it can then engage more directly in the regional and global economy. Supporters of free trade argue that developing countries can specialise in the goods and services in which they have a comparative advantage.
• Privatisation


  Privatisation is the transfer of a business, industry or service from public to private ownership.
• Benefits of privatisation

  • Private companies have a profit incentive to cut costs and be more productively efficient and raise efficiency
  • Government gains revenue from the sale of assets and no longer has to support a potentially loss-making industry
  • If a state monopoly is replaced by a number of firms this extra contestability in an industry will lead to lower prices which helps to increase the real incomes of poorer households
  • The competitiveness of the macro economy may also improve especially if privatisation leads to increased investment and benefits from economies of scale.
• Drawbacks / disadvantages from privatisation

  • Social objectives are given less importance because privately-owned firms are driven by the profit motive
  • Some activities are best run by the state operating in the public interest because they are strategic parts of the economy e.g. water supply, steel and railways have the characteristics of a natural monopoly
  • Government loses out on dividends from any future profit
  • Public sector assts are often sold cheaply
  • Privatisation leads to job loses as firms increase their productivity
  • Risk of creating more private monopolies
• Buffer stock schemes


  One way to smooth out fluctuations in prices is to operate price support schemes e.g. through the use of buffer stocks. Buffer stock schemes seek to stabilise the market price of agricultural products by:

  Buying up supplies when harvests are plentiful.

  Selling stocks onto the market when supplies are low.

  In theory, buffer stock schemes will be profit making, since they buy up stocks of the products when the price is low and sell them onto the market when the price is high. However, they do not work well in practice, many buffer stock schemes have collapsed.