Analysis of article on privatisation
What is your understanding of privatisation?
Privatisation is the transfer of government resources and tasks to the private sector. This can include government assets, deregulation of industries, and outsourcing of government services and lastly, giving the consumer the option to purchase services on the open market with coupons or vouchers. (Hayden, 1997, pp.250-253)
Why would a country support Privatisation? What are the advantages of such a policy? And the disadvantages?
Privatisation can be used to restructure a troubled economy and stimulate productive use of recourses. Privatisation will protect private property rights and stimulate competition. Although the initial purpose of privatisation in South Africa was to enhance the free market system, recent developments emphasize the upliftment of disadvantaged communities. (Von Keyserlingk, C 1994) Advantages of privatisation include:
Through privatisation companies earn more profits because of higher efficiency. It enhances the free market system and reduces the public tax burden and through privatisation the government’s income base increases. Allows members of the community to participate in the economical system. Lastly and especially in the South African context, the redistribution of wealth and upliftment of previously disadvantaged people remains one of the biggest advantages of privatisation. (Hayden, 1999, pp.250-253)
Disadvantages of privatisation include:
Government assets selected for privatisation are fixed and once sold the transaction is irreversible and the government loses control over its assets. Because of the private sectors endeavours of efficiency, unemployment can increase. Previous government employees working for the, now privatised, companies could alienate from the ruling government which is a political risk for the ruling government. The promotion of privatisation could he hindered by government employees through bureaucracy because of lack of motivation for employees. Another disadvantage is forming of monopolies and decreased efficiency due to too many small markets. (Hayden, 1997, pp.250-253)
Provide an example of a successful privatisation from South Africa. Why was it a success?
South African Iron and Steel Corporation, Iscor was the first parastatal to be privatised. In the first place this company was already managed like a private company and therefore the task of privatisation was not difficult. Because the shareholders structure was spread as wide as possible it avoided a single company or individual to take control of South Africa’s iron and steel production. Privatisation also had no influence on the business philosophy of the company because it was structured according to the Companies Act of 1973 and it was managed similar to a private company. (Saayman 1989:36-49). A very good marketing campaign to change perceptions of the employees and the public was launched and awareness of available shares were communicated to the general public and the employees were kept informed of developments continuously and a shareholding scheme were developed for them. The success can be contributed to all these factors and in the end Iscor was sold for R3, 7 billion. (Saayman 1989:53-59).
Provide an example of an unsuccessful privatisation from South Africa. Why was it a failure?
On the contrary and based on the same company, situations can arise when privatisation can be seen as failing because of the abusing of power as in the case of Mittal Steel SA, the former Iscor, which was a government corporation who experienced market decline in the steel business for years, almost since their privatisation. Privatised government organisations almost...
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