Essay Pros and Cons of Privatization

Essay Pros and Cons of Privatization

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Privatisation means transferring the control of an enterprise from the government sector to the private sector. Generally, but not always, this also means transferring ownership of the Public sector enterprise as well as control.

It can be accomplished by sale or lease. It can be accomplished by the government selling 100% of an enterprise, or selling 51%, or even by selling a minority stake - so long as the private sector is given full managerial control. Without transferring control to the private sector, the government can rise money by selling a smaller share, but that is not privatisation as such.
* Stops loss-making PSUs from adding to government debt;
* Depoliticises PSUs, remove governmental pressures for over-manning and the sub-optimal use of resources;
* Gives new owners a strong incentive to turn around failing PSUs into successful businesses;
* Gives new businesses access to investment capital that government cannot provide;
* Raises more money for government through taxing former PSUs;
* Expands an enterprise and an industry, in the long run creating more jobs and generating wealth for the country.
Enterprises need to be efficient and competitive or they lose money, and the government cannot afford to subsidise such losses. And governments anywhere are not very good at running businesses. Whether the private owner is an individual, or a corporation with thousands of shareholders, peoples' own money is at stake, so they have a strong incentive to work night and day to ensure that their enterprise becomes successful and profitable. Government lacks those incentives, so government-managed enterprises fail to perform across the world.

... middle of paper ...

... enterprises.
Lack of market discipline. Governments have chosen to keep certain companies/industries under public ownership because of their strategic importance or sensitive nature.
Cuts in essential services. If a government-owned company providing an essential service (such as the water supply) to all citizens is privatized, its new owner(s) could lead to the abandoning of the social obligation to those who are less able to pay, or to regions where this service is unprofitable.
Natural monopolies. Privatization will not result in true competition if a natural monopoly exists.
Concentration of wealth. Profits from successful enterprises end up in private, often foreign, hands instead of being available for the common good.
Political influence. Governments may more easily exert pressure on state-owned firms to help implementing government policy.

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