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Evidence from Privatization - Essay Example

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The paper “Evidence from Privatization” seeks to evaluate the transfer of ownership and the management of state-owned enterprises to private firms. Governments should be less corrupted so as to increase the efficiency of state-owned corporations and the public sector…
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Evidence from Privatization
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Evidence from Privatization

However, due to limited budgets, governments have been unable to develop all part of the economy equally. Further problems like inadequate use of knowledge, experience and specialization in the management of the various sectors occur and citizens may not receive goods and services from the public enterprises effectively. Lack of competition in the public sector contributes a great deal in the inefficiencies, corruption and lack of motivation in public enterprises (Khan et al., 2012). The main reason governments have opted for privatization is the belief that private firms can make a more efficient and effective use of available resources than governments and at the same time profit the government from the higher revenues privatisation creates. It is also believed that privatisation may result to increased efficiency productivity and liquidity in the financial markets but on the other hand, lead to unemployment and dependency on foreign capital from multinational companies hence decline in a nation’s wealth and social welfare (Han, 2012). Full privatisation may have occurred especially in the services sector but it is generally not ideal for governments to conduct a full privatisation. Where natural resources and sensitive goods and or services for instance nuclear energy, partial privatisation is preferred. In this case, the government gives part of the ownership to a private firm, so that it can still have active control in the operations. Privatisation can take place either through share issue privatisation (SIP) which involves selling shares on the stock market or selling the whole firm or part of it to a strategic buyer by auction, asset sale, voucher privatisation or shares of ownership distributed to all citizens (at a low fee or even for free). SIP is the most common and it extends the domestic capital markets and increases the investment opportunities which in turn will stimulate economic growth though some risk is involved. Finding enough buyers could be a problem and as a result the prices drop and the capital gains become insignificant, in turn the transaction costs become high. Asset sale privatisation is common in developing countries. Voucher privatisation was common in the former socialist economies during the transition process. Asset sale and share privatisation are usually beneficial to the government as bidders normally compete and hence offer a high price which makes more money for the government (Walailuck and Christian-Oliver, 2011). Evaluation of privatisation should be from a point of view of the society’s well-being, not from the profit maximisation of the firms. The welfare of the people and the country in general and the state of its economy should be continually improved. There is a general view that all government involvement in the market represents some restrictions to business liberty so it has become intrinsically detrimental. Privatisation is a form of withdrawal of government involvement in business. Since 1980, many European countries have launched privatisation programs with the Great Britain being referred to as the origin of modern privatisation (Ioannis, 2012). Privatisation leads to enhanced economic performance.  ... Read More
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