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The transfer of government-owned or government-run companies to the private sector, usually by selling them.


The conversion of a public enterprise to a private enterprise. For example, a government-owned railroad or airline may undergo privatization if ownership shares of the enterprise are sold to individual and institutional investors.


Privatization is the conversion of a government-run enterprise to one that is privately owned and operated. The conversion is made by selling shares to individual or institutional investors.

The theory behind privatization is that privately run enterprises, such as utility companies, airlines, and telecommunications systems, are more efficient and provide better service than government-run companies.

But in many cases, privatization is a way for the government to raise cash and to reduce its role as service provider.




the denationalization of an industry, transferring it from public to private ownership. The extent of state ownership of industry depends very much on political ideology, with CENTRALLY PLANNED ECONOMY proponents seeking more NATIONALIZATION, and PRIVATE-ENTERPRISE ECONOMY advocates favouring little or no nationalization. Thus, in the UK, the wide-ranging programme of privatization embarked upon by the Conservative government in the 1980s can be interpreted partly as a political preference for the private-enterprise system.

Advocates of privatization, however, also espouse the economic virtues of free enterprise over state control. Specifically they argue that firms that are left to fend for themselves in a competitive market environment are likely to allocate resources more efficiently and to meet changing consumers’ demands more effectively than a bureaucratic state monopolist (see PRICE SYSTEM).

In this regard, it is pertinent to distinguish between industries that can be considered NATURAL MONOPOLIES and those where, in theory, a more fragmented industrial structure could be recreated. In the former category come those industries, such as gas and electricity distribution, railway and telephone services, where ECONOMIES OF SCALE are so great that only a monopoly supplier is in a position to fully maximize supply efficiency. There could be a serious loss of efficiency through unnecessary duplication of resources if these activities were to be fragmented. The alternative of a private-enterprise MONOPOLY is not appealing either, critics argue, because of the dangers of monopolistic abuse.

In the latter category come industries, such as iron and steel, gas and electricity generation, shipbuilding and car manufacture, where, because production usually takes place on a multiplant basis, the scope exists for placing each plant under a different ownership interest, thereby creating a more competitive supply situation. However, because these activities are capital-intensive and, like natural monopolies, are characterized by significant economies of scale, the most that can be hoped for is the creation of a high seller concentration OLIGOPOLY. By contrast, the removal from the public sector of those individual firms (as distinct from whole industries) that were nationalized because they were making losses and needing reorganizing (for example, Ferranti, Inter nation-al Computers, Rolls-Royce, Jaguar, British Leyland, British Shipbuilders) can be more easily justified.

The main problem with privatization is the extent to which competition can in fact be introduced into sectors hitherto confined to state monopolies, either by breaking up an existing state corporation into a number of separate private companies (as for electricity) or by encouraging new entry (as in gas and telecommunications). Because of this, it has been necessary in most cases to establish a regulatory authority (Ofgas and Oftel respectively for gas and telecommunications), backed up by the possibility of a reference to the COMPETITION COMMISSION, to control the industry. See DEREGULATION, INDUSTRIAL POLICY.

References in periodicals archive ?
Proponents of GE are on record in support of introducing individual Social Security accounts (partial privatization) while advocates the GI frame have opposed the various proposals to partially privatize the scheme that have been made over the years.
There have been a lot of attempts to privatize those positions that are supposed to serve as watchdogs for the government," says Beth Daley, director of communications for the Project on Government Oversight, which exposes instances of government corruption and fraud.
Altaf said the government has also decided to privatize Pakistan International Airlines and the Civil Aviation Authority.
But O'Leary refuses to privatize the labs outright, because they "represent a competitive edge for the 21st century" and a foil to government-supported programs in other industrial nations.
In doing so, this small municipality of 2,500 residents became what may be the first modern American community to privatize its municipal law enforcement.
Senator Mushahid Hussain Syed suggested that the government should not privatize profitable institutions and there should be prior justification before privatization of the institutions.
ISLAMABAD -- The federal government plans to privatize loss-making Pakistan International Airlines and Pakistan Steel Mills in the first phase while government's shares in Habib Bank, United Bank and Pakistan Petroleum Ltd.
Government, he said, intends to Privatize 58 more corporations and businesses, however, this year no corporation could be Privatized due to global economic meltdown and non interest of investors.
Many of these officers drove hours and even worked double shifts to be here today because of the responsibility to our families, their coworkers and our communities to fight the effort to privatize the state's prisons.
Chet Edwards attacks Republican challenger Bill Flores on his plan to privatize Social Security.
A Liberal Democratic Party panel on postal system reform deferred Friday a final decision on whether the ruling party should support the government's plan to privatize postal services, panel chairman Hiroyuki Sonoda said.
Prime Minister Junichiro Koizumi has pledged to privatize the four public highway builders in fiscal 2005 under his policy of having what can be done by the private sector implemented by the private sector.