Privatisation means transferring the control of an enterprise from the government sector to the private sector. Generally, but not always, this also means transferring ownership of the Public sector enterprise as well as control.
It can be accomplished by sale or lease. It can be accomplished by the government selling 100% of an enterprise, or selling 51%, or even by selling a minority stake - so long as the private sector is given full managerial control. Without transferring control to the private sector, the government can rise money by selling a smaller share, but that is not privatisation as such.
PROS
* Stops loss-making PSUs from adding to government debt;
* Depoliticises PSUs, remove governmental pressures for over-manning and the sub-optimal use of resources;
* Gives new owners a strong incentive to turn around failing PSUs into successful businesses;
* Gives new businesses access to investment capital that government cannot provide;
* Raises more money for government through taxing former PSUs;
* Expands an enterprise and an industry, in the long run creating more jobs and generating wealth for the country.
Enterprises need to be efficient and competitive or they lose money, and the government cannot afford to subsidise such losses. And governments anywhere are not very good at running businesses. Whether the private owner is an individual, or a corporation with thousands of shareholders, peoples' own money is at stake, so they have a strong incentive to work night and day to ensure that their enterprise becomes successful and profitable. Government lacks those incentives, so government-managed enterprises fail to perform across the world.
privatizati...
... middle of paper ...
... enterprises.
Lack of market discipline. Governments have chosen to keep certain companies/industries under public ownership because of their strategic importance or sensitive nature.
Cuts in essential services. If a government-owned company providing an essential service (such as the water supply) to all citizens is privatized, its new owner(s) could lead to the abandoning of the social obligation to those who are less able to pay, or to regions where this service is unprofitable.
Natural monopolies. Privatization will not result in true competition if a natural monopoly exists.
Concentration of wealth. Profits from successful enterprises end up in private, often foreign, hands instead of being available for the common good.
Political influence. Governments may more easily exert pressure on state-owned firms to help implementing government policy.
Monopoly, means that a firm is sole seller of a product without any close substitutes, controls over the prices the firms charge. Government sometime grants a monopoly because doing so is viewed not only to be in the public interest, but also to encourage it with price incentives. However, monopolies fail to meet their resource allocation efficiently, producing less than the socially desirable quantities of output and charging prices above marginal cost. Thus, this inefficiency of monopoly causes the quantity sold to fall short of social needs. In order to handle the problems, policymakers in the government regulate the behavior of monopolies and try to make monopolized industries more competitive
Cuba has traditionally had many trade restrictions and trade barriers. There is some restructuring in state sector since 2010, but there are heavy regulations and tight state controls in the private sector. There are no open-market policies to improve growth in trade and investment, and the lack of competition continues to throttle dynamic economic expansion. Only government enterprises can enter into economic agreements with foreigners as minority partners; ordinary citizens cannot participate. Most of the means of production are owned by the government. Its planned economy discourages foreign trade and investment. The financial sector remains heavily controlled, and access to credit for entrepreneurial activity is seriously obstructed by the shallowness of the financial market. The government maintains strict exchange and capital controls.
Governments regulate businesses when market failure seems to arise and occur and to control natural monopolies, control negative externalities, and to achieve social goals among other reasons. Setting government regulations on natural monopolies is important because if not regulated, then these natural monopolies could restrict output and raise prices for consumers. It is important to regulate natural monopolies because they don’t have any competition to drive down the price of the product they are selling. Therefore, with no competition, they can control the output and the price of the product at whatever they deem necessary. With regulations the government keeps it fair both for the consumer and producer. It’s also important for government
Although the belief in individual rights and responsibilities is important there must be some kind of government intervention. The government helps regulate bad companies selling third rate products and helps protect the consumer from buying these products. The government also intervenes if a company has an unfair monopoly over the entire market to help promote smaller businesses to enter the market and have a chance to produce revenue. We also know that if there is total government control the wealth of the individual suffers. Some of the poorest countries in the world rely on a Socialist government and lack economic growth and wealth.
Municipal control or an alternative delivery method? This is the question that has intrigued all levels of local government and created intense debates between taxpayers across municipalities. The services that municipalities provide are often vital to the existence of a local area. The issues of accountability, cost savings, quality of service and democracy often arise when choosing the best options to deliver services to a municipal area. In recent years the concepts of privatization, alternative service delivery and public-private partnerships are often promoted as ways cut down on overburdened annual city budgets and promote a higher quality of service to citizens. Municipalities have historically always provided basic services such as fire protection, water purification/treatment and recreational facilities. However, would private companies or another municipality be able to better deliver the same services more efficiently or at a lower cost? The city or town often provides a political grass roots approach to most local problems. Municipalities are better positioned and have a wider scope to provide services to their constituents in order to ensure quality of service that does not erode accountability and transparency, or drive the municipality deeper into debt.
High barriers to entry that restrict new firms to enter the industry e.g. control of technology
Privatization of governmental functions has a direct relationship with the number of contract employees in government and an inverse relationship with the number of civil servants. As privatization has become more acceptable, contract employees are being hired to do the jobs, thus, replacing civil servants.
Generally speaking governments intervene in the market for two main reasons: "social efficiency and equity". [1] One does not expect to see a government intervene in the economy to favor a firm, or because the government would profit from such an intervention in the way a firm sees profit (except maybe voters positive perception of the intervention).
The government agencies who are in charge of regulating have no competition, so as long as a corporation is government certified, they are the same quality of other companies. If there were privatized companies who could regulate the standards, corporations would then have incentive to achieve a higher quality of standards to gain the best reputation available. Government regulators also have no incentive for the quality of service they provide. With a market forced regulation, goods and services would be forced to compete for the highest quality of standards and would self improve itself over time to let the strongest companies survive while the weaker companies must either compete of die
In many countries monopolies are frowned upon and governments actively oppose them, and in extreme cases like Standard Oil they have forced the companies to break into smaller entities. The reason for this is that government and the public in general want to avoid situations where a company can dictate terms to people and charge far more than is justified for their product because there are no alternatives.
In order to infuse greater degree of efficiency in their working and to bring about more accountability in their performance, the extent of disinvestment differed for each of these 3 categories. The Government decided to disinvest up to 74% and retain only a maximum of 26% in Non - Core Industries, This encouraged private participation in public sector management, infusing efficiency into the enterprise working.
change the economy, and, the control is given to the people with the money, or,
The neoclassical theory supports this as it was previously explained and suggested that the underdevelopment of some countries is due to the government’s poor state of intervention, encouraging corruption and inefficiency.
Despite becoming the second fastest growing and the fourth largest economy of the world, India continues to face large gaps in the demand and supply of essential social and economic infrastructure and services. Rapidly growing economy, increased industrial activity, burgeoning population pressure, and all round economic and social development have led to greater demand for better quality services in Education and Healthcare system. Many analysts argue that the best way to improve service provision is to change the way in which governments administer them in India. For those who believe in neo liberal ideology, privatization is the only way to solve this problem. According to the World Bank, the key task is to ‘manage infrastructure like a business, and not
Ensuring equity of acess, meeting social objectives and providing public goods.were considered the main reasons why the public sector provided goods. Why governments intervened in the market was due mainly to charactoristics of the market place. If the market place was to function efficiently, several conditions needed to exsist, including,