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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 ?
Elaine Owen, 40, managing director of Designated Associates, a company in Birkenhead"I would say that it is fantastic some services have been privatised.
Aspects of the health service are beginning to be privatised.
And when Nuclear Electric is also privatised that will add another 14 directors, bringing the total to 52 and rocketing boardroom pay to a mind- blowing pounds 7,037,000.
The three privatised companies that took over from the CEGB have cut their combined workforce to 14,489.
Privatisation attracts suitable investors who not only provide equity, but in certain cases also bring their technically qualified expert team of management to restructure and run the privatised units more efficiently.
Other large institutions and corporations including PTC, WAPDA, Sui Northern and Sui Southern Gas companies will be privatised in phases.
He said: "It's a very, very significant difference in my view from saying the limited elements of private provision in the health service can't be rolled back to arguing that the treaty will result in significant further elements being privatised.
Bill of Rights rules against these fines PRIVATISED parking penalties cannot be legally enforced.
Surely, if they are privatised the rail companies should stand or fall on their own efforts.
Perhaps if we were to nationalise the railway we would save money, if not we stop giving subsidies to the privatised companies, since they have no idea how to run a railway.
The scheming Tories' mailshot targets people who bought shares in privatised companies.
MKM-Tel was founded by three Hungarian parties: MAV, the national railroad company, KFKI, a leading information technology company and MOL, the privatised oil and gas company.