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 ?
Such obligation meant that a special law would be passed, which will solve the question of denationalization, and that denationalization would be arranged in the form of right to restitution of confiscated property and in the form of the right to compensation for expropriated property, as stipulated in article 9, paragraph 1 of the Law.
The Ministry of Finance resolved the last of a total of 30,744 cases of denationalization in a first instance procedure, Finance Minister Zoran Stavreski informed.
Any claim that mass denationalization and discrimination is
In 1940 and again in 1952, Congress expanded the list, adding other actions that could trigger denationalization.
The overall progress was not satisfactory due to inadequate legal framework and lack of political will was the main hinderences in the process of denationalization.
In one of the nonsequiturs of colonialism, government officials insisted upon reading African nationalism as one of the clearest signs of denationalization.
The point of departure for this book is what the authors call "6-D Vision" which stands for demassification, decentralization, denationalization, despacialization, disintermediation, and disaggregation.
But fragments of power continued to reside among industries and financial institutions; the top managers of these establishments retained their positions, and in time consolidated them by means of government-issued vouchers, the instruments of denationalization and privatization.
Despite the denationalization of some industries, the government continues to control most enterprises.
Democracy, deregulation, denationalization and decentralization are the watch words for the 1990s, and these trends have provided greater prospects for economic growth worldwide.
This in turn will make it more politically acceptable to use proceeds from full denationalization to contribute to eliminating the fiscal deficit (at least in the short term) without making drastic cuts in social services.