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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.


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 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.


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


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 ?
The Cabinet Committee on Privatization (CCOP) has issued time line to the ministries for the privatization of 41 entities, the Senate body informed.
Finance Minister Mehmet E[currency]imE-ek said at a meeting in Ankara on Monday that there is no favoring of investors who are regarded as being close to the government in public privatization tenders.
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.
It reshaped the face of Peruvian privatization from a top-down, sell-it-off drive that usually characterizes Latin American government privatization into a softer, consensus-seeking domestic political campaign.
While some of the individual privatizations have proved their worth, the process for determining and justifying them has not been a consistent one.
The mass-privatization scheme became the centerpiece of Czechoslovakia's privatization objectives and represents the main innovation of the privatization process.
Convinced of the need to convert to a free-market economy, the CIS has opened its arms to foreign investment and embarked on an ambitious, radical privatization program.
The privatization of nearly all state companies led to thousands of layoffs in Bolivia, where more than 60% of the 8 million inhabitants live in poverty.
The piecemeal privatization of the state oil company PetroPeru has so far attracted nine buyers from seven countries, including the United States, Russia, and Taiwan.
As a result of the power sale delays, privatization revenue will now fall far short of predictions made at the start of the year.
The majority Republicans' commitment to laying out a path to a balanced budget should help overwhelm members' love of individual programs on the privatization block, Klug hopes.
This brings us to the second question of how privatization becomes relevant in Pakistan.