StudentShare
Contact Us
Sign In / Sign Up for FREE
Search
Go to advanced search...
Free

Benefits of Privatization - Essay Example

Cite this document
Summary
The term privatization is used to refer to the process of change of ownership of an organization that is owned by the government sector to organization’s ownership by the private sector…
Download full paper File format: .doc, available for editing
GRAB THE BEST PAPER97.7% of users find it useful
Benefits of Privatization
Read Text Preview

Extract of sample "Benefits of Privatization"

Benefits of Privatization Introduction The term privatization is used to refer to the process of change of ownership of an organization that is owned by the government sector to organization’s ownership by the private sector. Privatization can be conducted in several forms, in several cases, the entire organization is privatized and in other instances certain departments and functions of the organization are conducted by private organizations and individuals. Privatization has been experienced by various organizations throughout the world over a long period of time. Various organizations that were owned and controlled by the government sector have been privatized due to the several benefits associated with privatization. One of the main reason due to which government’s tend to choose to privatize a previously state owned business is the failure of the government to operate the business in a an effective and efficient manner. This is mainly because government’s end up operating the business for the interest of politicians that are ruling the government and not working in the favor of the public of particular nation. This writing will focus on the various benefits that have experienced by organization due to privatization while debating the other side of the coin. Body Benefits of Privatization There have been various theories that favor privatization and there have been various practical incidences when privatization has resulted in huge benefits to organizations and even nations. Privatization is pursued by organizations because the public sector has failed to operate in a profitable manner and the management of public organizations has not done their job in a proper manner. Governments themselves favor privatization and this happens as a result of the increased burdens experienced by government because of state ownership of organizations. When organizations are controlled by the government, governments tend to provide goods and services to the public in shape of subsidies, the management of such organizations work for the benefit of the overall population rather than meeting the demands of individual groups due to which organizations fail to meet the demands of the public and the unions in state owned organizations exercised higher amount of power than unions of organizations that are controlled by the private sector. Due to failure of the government sector to address the needs and wants of the individual groups, individuals experienced dissatisfaction. According to surveys conducted by Donahue, in the region of United States organizations have experienced lower operating cost when they were privatized as compared to the period when they were under the control of the government (Holzer 88). Another reason due to which organizations become privatized is that governments do not operate with the main aim of maximizing profits for the organization and the shareholders of the organization. There tends to be ample amount of changes in the governance of organizations due to which these organizations become inefficient. Lastly, the pressure on governments is low as they do not have to worry about the bankruptcy of the organization as these organizations are never allowed to fail and they are financed by the tax money. Another reason due to which organizations are privatized is because this process helps the government in increasing their revenue. When organizations are owned by the public sector, organizations do not pay taxes and become a burden on the tax payers to continue operating as they even do not work to attain profits. When organizations are privatized, they are obliged by the regulations to pay taxes on the profits they make and the profits they earn are used to fund the operations of the organization. Due to increase in the amount of taxes obtained through private enterprises, government is able to decrease its budget deficit as they do not need to obtain loan for operating the nation and they operate the nations with the revenue earned from private organizations. Another theoretical perspective that is in favor of privatizing a nation’s organization is that privatization leads to efficient operations of markets. According to the supporters of welfare economics, higher amount of efficiency can be obtained if the competition with markets elevates and since privatization is a promoter of competition, it leads to efficiency in the operation of organizations. If organizations are privatized, they will start operating with the objective of maximizing profits and in order to maximize profits they will create goods and services while taking into consideration the needs and wants of the consumers. Muller concluded through his studies that the organizations operate in a much efficient manner when they are owned and controlled by private sector as compared to organizations owned and controlled by the government (Baker 76). Since what is being produced will be consumed, efficient utilization of resources will take place. In government owned businesses, organizations fail to satisfy the individual needs of consumers, due to this consumers do not appreciate purchasing government produced goods and services and the resources utilized to produce these goods and services are wasted which leads to ineffective operations of the market. If a nation wants its privatized organizations to attain efficiency and operate in an effective manner, the nation will need to exercise liberalization and deregulation of the markets. Organizations that are operated by the governments are monopolistic in nature and monopolization leads to ineffective use of resources as the consumers have to purchase what they are offered and they end up being dissatisfied with the goods and services. Another major benefit of privatization of organization is that when organizations become privatized, the public interest is secured and their say in the operations of the organization increases. When organizations are owned by the government, government tends to decide what to produce, how to produce and for whom to produce on its own. While making these decisions, government may obtain information regarding needs and wants of the consumers but they may fail to satisfy the needs and wants of all the consumers as the government organization operate with the aim of maximizing the benefits for the entire population and not for an individual or a group within the society. Similarly, studies conducted by Lopez de Silanes in the region of Mexico even support the claim that the amount of profit earned by private organizations is higher than the government organizations (Chong 392). In the case of private organizations, the aim is to maximize profits and profits can be maximized when sales of an organization increases and sales can only increase if the needs and wants of higher number of consumers is satisfied. This means that consumers have high degree of say in private organizations as private organizations operate with the aim of satisfying consumer needs. Another issue experienced by organization owned by the government is that these organizations are heavily politicized. This means that the decision makers in these organizations represent political parties and they may operate in order to favor the political parties they represent and the people who support their political parties. Due to this a very small percentage of the population may benefit and the rest of the population may have to accept what is offered. Privatization is a response to such activity as private organizations work for the benefit of the organization and the organization can only benefit if a huge amount of consumers are benefiting from the goods and services offered by an organization. World Bank even confirms through its studies that organizations efficiency is increased when these organizations are owned by private sector and have a policy of maximizing the profitability of the organization (World Bank 171). Opponents of Privatization There are several benefits associated with privatization of organizations, still there are various limitations associated with privatizations. Opponents argue that privatization cannot satisfy the basic necessities of human beings and these necessities are essential for the survival of human beings. They believe that needs such as need for water, health and education can be fulfilled by all individuals if privatization occurs. This is because private sector aims at maximizing profits and they create goods and services while giving emphasis to the needs of certain percentage of the population and they charge high prices for goods and services. Due to this, several individuals within the society fail to access goods and services provided by private firms. This is why several goods and services remain under the control of the public sectors, such as: militia. Another issue with privatization is that as privatization of a public company takes place, several individuals are unemployed because private sector aims at reducing cost by cutting down on labor cost. Conclusion There are several benefits associated with privatization of organizations. These include: efficiency of market operations, high protection of the interest of the consumers, revenue for the government which helps in decreasing budget deficit, decrease in government’s burden as government has to sell goods and services at subsidized prices in order to ensure that these goods and services are accessible by all consumers, efficient management, reduction cost of production which leads to proper allocation of resources and increased competition in the market. Even though there are several benefits of privatization, still there are certain downsides of this process. Works Cited Baker, Andy. The market and the masses in Latin America: policy reform and consumption in liberalizing economies. Cambridge: Cambridge University Press, 2009. Print. Chong, Alberto. Privatization in Latin America Myths and Reality.. Washington: World Bank, 2005. Print. Holzer, Marc. Public productivity handbook. 2nd ed. New York: M. Dekker, 2004. Print. World development report 2006 equity and development.. Washington, D.C.: World Bank ;, 2005. Print. Read More
Cite this document
  • APA
  • MLA
  • CHICAGO
(“Benefits of Privatization Essay Example | Topics and Well Written Essays - 1250 words”, n.d.)
Retrieved from https://studentshare.org/macro-microeconomics/1475193-what-is-the-benefit-of-privatization
(Benefits of Privatization Essay Example | Topics and Well Written Essays - 1250 Words)
https://studentshare.org/macro-microeconomics/1475193-what-is-the-benefit-of-privatization.
“Benefits of Privatization Essay Example | Topics and Well Written Essays - 1250 Words”, n.d. https://studentshare.org/macro-microeconomics/1475193-what-is-the-benefit-of-privatization.
  • Cited: 0 times

CHECK THESE SAMPLES OF Benefits of Privatization

Debate over Airport Privatization

The shifting of governmental operations and responsibilities to the private sector is referred to as privatization where sale or lease of public assets constitutes to the most extensive functions (United States General Accounting Office, 1996).... hellip; Airport privatization is a significant part of the aviation industry and the participation of private sector in the development and operation of airports is quite a conventional notion world-wide....
9 Pages (2250 words) Essay

Corporate Ethics & Corporate Social Responsibility

The essay mostly focuses on corporate social responsibility in the context of increasing privatization of schools in the United Kingdom.... hellip; After the introduction of what CSR is, as well as privatization in general and with particular references to education, both in the context of the UK is given, the researcher provides a deeper analysis of CSR with reference to education....
14 Pages (3500 words) Essay

Medicaid Costs Allocation

Among the political Benefits of Privatization is credit claimed by elected officials--including governors for--reforming and shrinking government, thereby reducing taxpayer burdens (Wallin, 1997; Chi, 1993).... Among the political Benefits of Privatization is credit claimed by elected officials--including governors for--reforming and shrinking government, thereby reducing taxpayer burdens (Wallin, 1997; Chi, 1993).... privatization and contracting out have enjoyed widespread popularity in the current climate of government reform....
2 Pages (500 words) Essay

Social Security Privatization in Sweden

The economic status of a country is the main factor which decides the privatization of social security.... The administration is also an important aspect since privatization requires an efficient administration that can manage social security much better than how the government does.... This privatization can be achieved by implementing a strategy that ensures that it provides more benefits to the country as a whole.... Though privatization seems to be an easier task, the amount of risk involved is high....
9 Pages (2250 words) Research Paper

Cost-Benefit Analysis

One of the most visible benefits of the privatization of prisons is that it solves the problem of overcrowding and space.... Prison privatization involves the takeover of existing public detention centers or jails by third parties contracted by the government, as well as the construction and operation of additional and new prisons by prison companies that involves making profits.... This essay will provide a cost-effective analysis of prison privatization, whereby all its benefits will be identified and added, together with the negatives and the costs....
5 Pages (1250 words) Research Paper

The Mandate System

One of these concepts that was introduced in the light of these activities was the concept of Mandate systems(Tucker and Roberts, p.... 742).... The Mandate system was actually a colonial concept that had been re named.... hellip; These areas came under the subject and question of colonial control in the form of formal disintegration of the Ottoman Empire....
6 Pages (1500 words) Essay

Privatization in UK

This paper makes a conclusion that the Benefits of Privatization are not easy to achieve.... This means either that the privatization process is not being benefiting from the right way of doing it or that the theoretical Benefits of Privatization do not have the possibility of materializing into real benefits that the public can feel at the macroeconomic level.... The UK has been on the first line of privatization and it has seen the highest number if privatization among its peer nations....
7 Pages (1750 words) Assignment

The Term Privatization

There are a number of Benefits of Privatization.... Another type of privatization is when the government selects a private organization to deliver services to the general public.... This type of privatization is known as outsourcing.... The main concept of privatization is to introduce more efficiency in business place brought in by the private sector.... Governments usually operate in the form of monopolies and as a result of privatization, demonopolization occurs which further results in free markets and greater choice (Privatization, Web)....
1 Pages (250 words) Essay
sponsored ads
We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.
Contact Us