privatization

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Privatization

The transfer of government-owned or government-run companies to the private sector, usually by selling them.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.

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.
Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.

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.

Dictionary of Financial Terms. Copyright © 2008 Lightbulb Press, Inc. All Rights Reserved.

privatization

see NATIONALIZATION VERSUS PRIVATIZATION.
Collins Dictionary of Business, 3rd ed. © 2002, 2005 C Pass, B Lowes, A Pendleton, L Chadwick, D O’Reilly and M Afferson

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.

Collins Dictionary of Economics, 4th ed. © C. Pass, B. Lowes, L. Davies 2005
References in periodicals archive ?
When asked if this step was taken to privatise the building, he said: 'We have nothing to do with privatisation.
The government also wants to privatise Golf Limited, Sunset Limited, Mt Elgon Limited, Kabarnet Limited and Kenya Safari Lodges and Hotels on the grounds that they have become a burden to taxpayers.
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The decision has been taken a month after Prime Minister Nguyen Tan Dung said he agreed in principle to privatise the company.
The Commission have plans to privatise two thermal power generation plants of state-controlled Water and Power Development Authority (WAPDA) at Kot Addu and Jamshoro by June this year.
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ISLAMABAD -- The PTI led government has planned to privatise 48 public sector entities (PSEs) including loss-making Pakistan International Airlines (PIA) and Pakistan Steel Mills (PSM) during its five years constitutional tenure.
He said in February 2008, the government made a decision to privatise BMC, and PEEPA was tasked with leading the process as the custodian of the privatisation policy.
Addressing a big rally in Hyderabad, union president Abdul Latif Nizamani warned that the government would not be allowed to privatise power houses and distribution companies.
Tory PM John Major tried and failed to privatise the Mail while the Labour Governments of Tony Blair and Gordon Brown flirted with flogging a stake before seeing sense.
MANAMA; A leading Shura Council member yesterday backed plans to privatise the Bahrain Stock Exchange (BSE) and subscribe part of its shares.
Abu Dhabi: Differences between the government and the Federal National Council (FNC) over subsidised rates for Emiratis stopped a draft law to privatise the electricity and water sector in the northern emirates.