PRIVATISATION
The concept of Privatisation
The term privatisation represents both narrow and broad meanings.
Narrow meaning; it simply means a shift of productive activities from the public sector to private
sector ownership and control.
Broader meaning; refers to a process by which the role of a government in an economy is
restricted, while that of the private sector is deliberately expanded.
Generally; Privatisation is a process in which the private sector is involved in the ownership and
management of the public sector or transfer of ownership and management in the private sector
and economic democracy is been established by reducing government control in economic
activities.
Reasons for Privatisation
(i) Disintegration of socialist economies/Introduction of a market economy: Creating a market
economy is thus seen as inextricably tied to the establishment of the institution of private
property and the privatisation of state assets.
(ii) To increase economic efficiency and productivity of operations: This is a fairly traditional
objective of privatisation programs everywhere. The expected efficiency gains can be;
producing the same or higher levels of output at lower cost, efficiencies from escaping
bureaucratic regulation and indirect management as well as resources become employed in
their most productive and most valued uses.
(iii) To generate maximum government revenue: Funds are raised almost instantly when the
state reduces its subsidies to inefficient firms and sells their assets. Revenues are raised
permanently if the economy moves to a higher growth path as a result of privatisation and
taxes are thus higher than they would otherwise be.
(iv) To establish democracy and guaranteeing political freedoms: The most openly ideological
interest in privatisation is the belief that economies based on private property are better at
establishing democratic political institutions and preserving individual freedoms than
economies where the productive apparatus is socially owned.
(v) To reduce financial and administrative burden on the public sector: Governments often
outsource operations due to the potential cost savings. Private sector service providers are
often able to deliver the same services as the public sector but at a lower price.
(vi) Risk transfer/Risk sharing: Governments often desire to transfer the risks of certain
projects to the private sector. By contracting out for certain services, the public sector is
exchanging the risks associated with those services for a monetary sum. In these
transactions, the private sector obtains the monetary rewards for doing these services, but
also takes on the risk that these services will cost more or take longer to provide than
estimated when agreeing to do them.
(vii) Timeliness: The timeliness with which a project needs to be completed can also lead to
privatisation. In some situations, the government may have the skills to complete a project
but they may not be able to complete it within the desired time frame due to a lack of
resources or time. Private groups can supplement the government's efforts and allow a
project to maintain a time schedule that would otherwise not be met.
(viii) To promote private sector involvement in the economy: Motive announced by some
governments for privatisation is to increase opportunities for private investors, either
directly or through share purchases. The intent is to create enhanced entrepreneurial
activity with anticipated multiplier effects throughout the economy.
