Privatization
Privatization refers to the transfer of ownership of property or businesses from the government to the privately owned entity . This phenomenon has progressively become common since the 1970 ’ s .
The privatization of services like water , gas , railway , electricity , health care , education , transport and communications have increased resistance in countries across the globe as people find access to these services determined by their capacity to pay . Simultaneously , investors and companies are making large amount of money and profits with substantial shifts of capital from public to private ownership of wealth .
There are several arguments whether privatization makes the situation any better or not . Growing evidences of privatizations benefits corresponds with increasing dissatisfaction and opposition among citizens and policymakers . Few services are natural monopolies and it ’ s not possible for two different companies to do business at the same time like water , so competition doesn ’ t come into it .
Privatization has benefits as well as drawbacks . Potential benefits include improved efficiency . This is because private companies have profit incentive ; cuts cost and are more efficient . Companies like British Airways have shown immense efficiency and higher profitability since they are privatized . There is lack of political interference in privatization . It is believed that government creates poor economic managers as they have more political pressure than sound business sense . Consequently , state owned enterprises employ large number of employees that increases its inefficiency . Private corporations have pressures from the shareholders to perform efficiently , and if it ’ s vice versa , the firm is subjected to takeover . A state owned corporation does not have this pressure and so it is easier for them to be inefficient .
Privatization boosts competition and allows more firms to enter the market and increase competition . On the other hand , natural monopoly arises when there is only one efficient firm in the industry . For example , water , there is no need for having competition amongst a lot of firms as it will exploit the consumers by raising prices for a necessity good . If this is the case , privatization would just create a private monopoly which might exploit consumers by setting higher prices . Thus , public monopoly is better than a private monopoly that doesn ’ t exploit the consumers .