privatization

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Privatization

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

privatization

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.

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.

privatization

see NATIONALIZATION VERSUS PRIVATIZATION.

privatization

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 ?
Taking a decision on privatisation of PIA in haste would create problems for the next government to implement the decision, the Senate committee headed by Senator Mohsin Aziz advised the government.
Aziz is looking to execute an implementation plan on carving out legacy loans and non-core assets that former finance and privatisation minister Ishaq Dar kept at his desk for five months without approving it.
The report described the privatisation of public health care services as "a story of policy failure that successive governments seem keen to repeat, despite the evidence.
For these reasons, the State Audit Office has called on the Economics Ministry to consider setting a specific deadline for completion of the privatisation process and use of the privatisation vouchers.
The Board also agreed to proceed with submitting a proposal to the Cabinet Committee on Privatisation (CCoP) to include Industrial Development Bank Limited (IDBL) in the privatisation program.
Privatisation and economic growth: An empirical investigation from a sample of developing market economies.
3 billion has been received in Central Revolving Fund (CFR), maintained by the Privatisation Commission, 50 percent dividend amounting to Rs.
This led to economically unviable privatisation decisions.
The other purpose of privatisation was to earn money from the sale of the units and amount was to be used to retire foreign and domestic debt, besides, eliminating losses of the public sector units as they were being financed from the budget.
Luisa Anderloni considers the different methods of privatisation and demonstrates that the optimisation of the objectives (ideological, economic and financial motivations) of the participating groups, including financial intermediaries, is difficult to reach.
It's most likely privatisation will play a part in boosting GDP, but it must move together with other factors, says Mr Sauti Phiri, general counsel of the privatisation commission.
R17; Privatisation - Sharing the UK Experience (London: Her Majesty's Treasury, 1995).