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 ?
The intention is to privatize but if you're going to privatize something, people want something that doesn't have a hundred-ton anchor weighing it down," Sheikh Mohammad bin Essa al-Khalifa, head of the Economic Development Board, told Reuters.
Proponents of GE are on record in support of introducing individual Social Security accounts (partial privatization) while advocates the GI frame have opposed the various proposals to partially privatize the scheme that have been made over the years.
Every year, government agencies survey functions they could privatize.
Indeed, Treasury Undersecretary Peter Fisher explicitly gave assurances about the commission's aim: "This is not a stealth project to privatize the Postal Service.
The only group that appears alarmed so far is his fellow pols and bureaucrats, who are stunned by proposals to trim pork-barrel spending, streamline services, and privatize the country's wildly inefficient public corporations, the government-supported companies that handle the business generated by public policy--building bridges, digging for oil, and so forth.
The land ministry intends to privatize the entity when a scheme for repayment of loans is worked out.
Pakistan has privatized nearly 100 industrial units since the privatization process was launched in 1990, but bids to privatize major corporations like Pakistan Telecom and two major banks have failed because of related scandals.
These surveys, however, were not designed to explore the various nuances of municipal privatization, such as the extent of their satisfaction with privatization, why cities choose to privatize services, the extent to which privatization reduces service costs and improves service delivery, how privatization affects employee's compensation packages, how cities monitor the quality and effectiveness of privatized services, and what lessons city officials have learned from their privatization experiences.
She bluntly rejects suggestions that DOE privatize its 27 national research laboratories, which cost taxpayers nearly $3 billion a year.
Increasingly, however, communities are beginning to privatize services that were once exclusively within the realm of the public sector.
In addition to these documented advantages of private solid waste management, the study describes how cities can privatize their garbage collection, disposal and recycling programs while protecting the environment and often while maintaining employment.
ISLAMABAD -- A parliamentary committee on Tuesday recommended the government to shelve its attempts to privatize Pakistan International Airlines (PIA), as approved by the Cabinet committee on Privatisation last week.