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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 ?
It was also recommended that the committee shall be briefed about the steps taken by the ministry regarding privatization of Utility Stores Corporation of Pakistan along with reasons and justifications whereof.
The Secretary Privatization informed the meeting that protection of employees' rights was on top of the government's privatization agenda.
A procedure is currently underway to return the company to the no-privatization list of the Privatization Agency.
key to privatization proponents, as a test of the very notion of core
The third question, therefore, focuses on the process safeguards, which are necessary for the privatization process.
The government has seen a windfall in privatization over the past year with the money from privatization contracts pushing up state revenues.
India came into the privatization fold as a reform measure in the early 1990s.
Miroljub Sukarov, former director of the privatization agency and professor at the University of Southeast Europe, believes this topic has been doing the Macedonian economy harm for twenty years.
What are the farmers and extension agents' perception on privatization and commercialization of extension service?
The Third High Level Experts Group (HLEG) Meeting on Privatization and Private sector Development and the 4th Meeting of Heads of Privatization Administrations of ECO member states scheduled to be held on 20-22 May, 2009 in Baku.
Aspects of privatization include the development and expansion of private institutions, increased reliance of public institutions on private funding, and the operation of the institutions in a businesslike manner.
Developments in the economics of privatization and regulation.