Question

Discuss the arguments for and against privatization

Answer 1

Arguments for privatization.

1. Increase in efficiency - private firms have greater incentives to cut costs and hence find alternatives and invest in R&D to reduce costs and upgrade technology and capital.

2. Reduced political interference - private firms usually are less influenced by political pressures and hence operate independently using the market forces.

3. Increased competition - privatization leads to easier entry of the new firms into the market thereby increasing competition which proves to be beneficial for the consumers and the market.

Arguments against privatization.

1. May lead to natural monopoly - privatization may give rise to natural monopoly which is not desirable. A public monopoly is preferred over private monopoly.

2. Lost government revenue and dividends - the government sources revenue in the form of dividends and profit shares for owning the companies or firms. This gets lost when the SEOs get privatised.

3. Lost Public Interest - the private firms do not always act in the manner which is best in the interest of the public. Also, certain industries when privatized such as national defense, public transportation, education and others the emphasis shifts to generation of profits from provision of services and goods.

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