Question

Explain the term privatization and ways of achieving it

Answer 1

privatization is the transfer of ownership of assets to the private sector. All types of privatization have the potential to increase so-called static efficiency-what economists like to call X-efficiency-which means pushing enterprises to operate cost-effectively on their production frontier. potential benefits of privatisation include improvement in efficiency in using resources, less political intrusion, and enhanced competition. however, every coin has another side too. thus, privatisation has some disadvantages as well. it can lead to a case of natural monopoly if the most efficient seller is one, also it can be a case that public interest is not served as a government is concerned with public welfare but privatisation may not necessarily lead to public welfare. so whether privatisation is beneficial or not that depends on the type of industry. for e.g. in case of health care, privatisation is not suggested. similarly, how can we achieve privatisation depends on what you want to privatise. basically, there are three steps to achieve privatisation:

(1) a conducive environment need to be created which can encourage competition. it should remove obstacles for private firms to enter and exit the market, and proper legal reforms should be taken so as to avoid any misconduct to happen.

(2) privatisation should not be conducted involving few actors with power lying with them. rather it should involve many actors and the whole procedure should be transparent. and the most important factor where transparency is must is to set the value of enterprise to be privatised. The situation is far worse in developing countries, where the accounts may be out of date and inaccurate. Expert advice plays an important role in the privatization process.Governments of privatizing countries must assess what technical advice is necessary, and hire a team of different kinds of advisors, including people who can help them design regulatory and policy frameworks to maximize the benefits from privatization to the economy as a whole.

(3) last is that governemtn should make the enterprise to be privatised attractive so as to attract the potential buyers. Government must also work with the labor force to win acceptance of the sale.In addition, government can better develop a social safety net to help ease the social costs of unemployment. Government must deal with redundant labor.

thus, if the privatisation is done is a systematic manner, its advantages can be reaped.