Privatization Advantages And Disadvantages

2. Privatization

Privatization is the process of transferring ownership of a business, enterprise, public service, etc. from a government to the private sector. It can also mean complete deregulation with no controls on entry, prices, and levels of service. However, the public authority usually specifies the level of service to be provided, the fares to be charged, and arranges for the marketing of the network of services and the sale of system-wide passes (Savage).

2.1 Advantages of Privatization

There are many reasons that explain the movement towards privatization. The main objective is to inject competition in order to provide services to citizens in a more efficient and cost effective manner.

2.1.1 Increase in Efficiency and Profitability

Most government industries and services are inefficient and running in losses. On the other hand, private companies have a profit incentive and will do jobs at the lowest cost, which eliminates waste and inefficiency. Their administration will improve and non-development expenditures will be reduced.

2.1.2 Decrease in Political Pressure

It is argued that government makes poor economic managers. Political pressures rather than sound economic and business sense motivate them (Pettinger, 2011). These illegal pressures can be reduced to a great extent in the hands of private owners.

2.1.3 Use of Latest Technology

Privatization leads to adoption of the global best practices to foster sustainable competitive advantage and improvised management of resources. Private companies will adopt the latest technology for the increase in output and their profits. This will result in the increase in national product, thus national income of the country will grow.

2.1.4 Shareholders

A private firm has pressu...

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...term profits and avoid investing in long-term projects, resulting in short termism of firm (Pettinger, 2011).

2.2.6 Privatization does not guarantee Savings

Proponents of privatizing public transit often make claims about savings through private sector efficiencies. But this is not true because public agencies are often more efficient since no profit margin gets siphoned off to shareholders.

2.2.7 Privatization can Undermine Safety

Private bus operators are known to have less experienced drivers and more mechanical difficulties (689). Drivers at private operators typically have much lower wages than public workers. Workers are driven out of their job as wages and benefits fail to keep pace with their experience as a safe and effective drivers. This results in high turnover, which carries additional training costs. These can present enormous safety hazards to riders.