Impact of Privatization on Organization’s Performance

Topics: Public sector, Privatization, Investment Pages: 8 (1799 words) Published: August 3, 2013
Impact of Privatization on Organization’s Performance

Abstract

The proposed research is intended to assess the impact of Privatization on Organization’s Performance. The main theme is to examine its impact on profitability, output, efficiency and employment. It will be analyzed to compare the performance of public and private sector organization in Pakistan.

Keywords: Privatization, profitability, output, efficiency and employment Introduction

Despite frequent changes in the governments since 1985, five regularly elected and six care takers, there has been consensus on the continuation of privatization policy and as such it is expected to be cornerstone of all the future government policies, at least in the near future. Instead of arguing the merits or demerits of the privatization policy, we explore its impact on the levels of efficiency. A large number of public sector units have already been divested and a number of other public enterprises including telecommunications and thermal power stations have been placed on the privatization list. Nevertheless, serious doubts have been expressed about transparency of the bidding process and the impact of privatization on efficiency, investment, production, prices, employment and fiscal deficit. Accordingly, there is a need to identify constraints in realizing various objectives of privatization with a view to suggesting concrete policy measures that may be taken to overcome the constrain and to improve the performance of the organization.

Divestiture of assets is not new to Pakistan though the motivation for divestiture has not been the same in different time periods. During the 50s and the 60s, public sector used to invest in non-traditional activities especially where the gestation period was long and private sector was reluctant to invest. While a large number of private sector units were nationalized and public sector expanded at a rapid rate in the 70s, an effort to divest public sector enterprises were made during the mid-eighties. However, the efforts to divest shares worth Rs 2 billion of various profit making public enterprises in the mid-eighties and 14 loss making industrial units for divestiture in 1988 did not succeed. Similarly, out of the six profit-making corporations identified for partial divestiture in 1990, only 10 per cent shares of Pakistan International Airlines could be divested. The slow pace of privatization led to the establishment of a Privatization Commission on January 22 1991, which offered 105 industrial units, four banks, and two development financial institutions for sale. Subsequently, initiatives were undertaken for privatization of thermal power units of the Water and Power Development Authority (WAPDA), private sector management of some sections of Pakistan Railways and partial divestiture of the Telecommunications Corporation of Pakistan (TCP). At present, as many as 46 industrial units, including all the remaining manufacturing units with the exception of Pakistan Steel, have been placed on the privatization list. Furthermore, two banks and six non-bank financial institutions; four units in the oil and gas sector; Karachi Electric Supply Corporation; six thermal power units and three area electricity boards of WAPDA; Pakistan Telecommunications; Pakistan Shipping Corporation and National Tanker Corporation; and Pakistan Railways are also on the privatization list.

Literature Review

Governments undertaking privatization have pursued a variety of objectives: to improve micro economic efficiency, to promote sustainable economic growth, to improve the fiscal position (to reduce the budgetary burden caused by inefficient state enterprises), to attract foreign direct investment, to create revenues for the government, to help develop domestic capital markets. In some developing countries, governments have embraced privatization as part of the structural conditions attaches to adjustment programs adopted...

References: 1. Adams, Christopher, Cavendish, William, and Mistry, Percy, Adjusting Privatization: Case Studies from Developing Countries, James Curry, London, 1992.
2. Bhaskar, V. (1992), “Privatization and the developing countries: the issues and the evidence Discussion Paper No.47, Geneva: UNCTAD.
3. Bishop, Mathew R., and John A. Kay, 1989, Privatization in the United Kingdom:
Lessons from experience, World Development, 643-657.
4. Boardman, A and A. Vining (1989), “Ownership and performance in competitive
environments: a comparison of the performance of private mixed and state-owned enterprises”, Journal of Law and Economics, 32, April.
5. Bourbakri, Narjess and Jean-Claude Cosset (1997), “The Financial and Operating
Performance of Newly Privatized Firms: Evidence from Developing Countries,” mimeo
6. Davis, Jeffrey, Rolando Ossowski, Thomas Richardson, and Steven Barnett (2000) Fiscal and Macroeconomic Impact of Privatisation. International Monetary Fund, Washington D.C.
7. De Luca, L. (ed.) (1997) Labour and Social Dimensions of Privatisation and Restructuring—Public Utilities Water, Gas, Electricity. Geneva: International Labour Organization.
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