Objectives of Privatization

Topics: British Rail, Privatization, Privatisation of British Rail Pages: 6 (2121 words) Published: April 24, 2013
What are the main objectives and methods of privatisation?
This essay will look at the main objectives and methods of privatisation, it will begin with the brief history of privatisation and how it came about, it will then move onto what privatisation really is by defining it, having done so it will look at the general objectives of privatisation and after this it will move onto the general methods of privatisation, having gone through this it will move onto a case of privatisation in the UK from the 80s onwards, it will discuss the advantages obtained from the privatisation of the enterprise in question and then it will also look at the disadvantages obtained from it and ultimately the essay will conclude on whether the case has been successful or unsuccessful. Before the process of privatisation was introduced in the 1980s, many sectors of business and employment were under government control and ownership, as time went on it became increasingly obvious that this was an inefficient way to control these businesses due to many factors such as instead of making a profit many of these industries required subsidies which added to government spending and that management of these industries became inefficient as they knew that any mishaps or failures would be corrected by the government, which in effect created a morale hazard situation. A major policy change then occurred in the 1980s with the introduction of Privatisation, which has since been replicated in many other countries and refers to the transfer of services traditionally performed by a public entity (government) to privately owned businesses or otherwise where exchangeable property rights of a resource are given by the previous holders (state), to the new holders (private sector), by transferring the responsibility for these services to the economy’s private sector, the policy seeks to create economic efficiency, fully develop the service being provided, make improvements in governments budget and redistribute income. Generally speaking there are many objectives of privatisation, however some of the key ones are; redistribution of income, efficiency (service and macroeconomic) and also fiscal improvement. Firstly, with regard to redistribution of income, privatisation aims to give back the rights and ownership of industries within the economy to its people. Entrepreneurship is believed to be able to excel under privatisation as rather than giving full responsibility to the government, citizens can own a business and help contribute to their own well-being. Secondly from a macroeconomic point of view as well as a service point of view, privatisation aims to create higher efficiency. The exchange of goods and services without any government intervention drives the idea of free enterprise, and also supports the idea of a market economy whereby there is competition as well as prices for goods and services being determined by supply and demand. With regard to efficiency in services, privatisation allows for example, more than one utility company to provide their services meaning consumers are able to gain the benefits of lower prices through competition between firms. Thirdly, privatisation aims to improve the fiscal stance of the government, by this we mean that when services become privatised, they are no longer under government responsibility and as a result this means they are no longer financially responsible either, therefore shifting this responsibility means that the government can gain income from the sale of the business or service and improve its fiscal situation, this gained income can then be used to reduce its budget deficit or can be further reinvested into the economy in the form public spending, for example on new hospitals, improved roads or new schools. Having mentioned the general objectives of privatisation, we will now look at some of the general methods of privatisation. There are three keys ways of doing this, firstly is to sell shares to...

Bibliography: Parker, David. International Handbook on Privatization (Edward Elgar Publishing, 2003)
Ricketts, Martin
[ 3 ]. Parker, David. International Handbook on Privatization, Page 94 (Edward Elgar Publishing, 2003)
[ 4 ]
[ 5 ]. Peacock, Alan and Ricketts, Martin. (2001): Government, Industry and Privatisation.., Module 9, Page 3 (Second edition)
[ 6 ]
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