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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 ?
If you are offended at the notion of a government-guaranteed retirement income and believe that individuals should take responsibility for their own welfare, then privatizing Social Security is a way of enhancing personal freedom.
Communities must decide whether forsaking these intangibles is worth any monetary savings realized by privatizing the police function.
org/privatization), privatizing waste offers communities many benefits.
ISLAMABAD -- State Minister for Privatization Commission, Muhammad Zubair said on Monday that the government was following constitution while privatizing State Owned Enterprises (SOEs).
Addressing those present at the 2014 Standard Bank West Africa Investors' Conference in Lagos, the minister said that Nigeria has been successful in privatizing the power sector and is bringing in capital, technology and operational excellence into the industry, for the first time in the country's 53 year history.
Committee's members opposed privatization of profit-making institutions as the experience of privatizing PTCL was not good.
DPJ President Katsuya Okada has reiterated his support for privatizing the two businesses.
The LDP plan also calls for privatizing Metropolitan Expressway, Hanshin Expressway and Honshu-Shikoku Bridge intact.
GAO was asked to review the costs of the consultants DOD used to support privatizing housing for servicemembers and their families.
IN 1994, WHEN THE GOVERNMENT OF CARLOS Menem began the process of privatizing Genuar--two completed nuclear power plants and one under construction--it hoped to raise some $600 million.
Why privatizing Medicare may be hazardous to your health
We're privatizing the World Trade Center, the New York Coliseum, and the 14th Street Armory, and Stewart Airport will be the first airport in the country to be leased to a private operator," Governor Pataki said.