Privatization
Privatization
Privatization is the transfer of government assets and activities to the private sector. In other words, it is the involvement of private sector in the management of the public enterprise, or to sell, or lease it, or transfer of government ownership to private ownership.
Benefits of privatization
The benefits of privatization are as follows:
Most of the public enterprises operate with monopoly power. Therefore, imperfect competition exists in the market. When government sells its enterprises, monopoly power will disappears and there will be competition among the private sector firms. The increases in competition increases efficiency which will benefit consumers in the form of cheaper price and high quality goods.
2. Reduction in cost push inflation: In the public enterprises, rise in wages is not matched but rise in productivity. Even without rise in productivity of labour, wage rate is raised. This results cost push inflation. But in the private sector, rise in wage rate in matched by rise in productivity. Therefore, privatization helps in reduction of cost push inflation.
The broadening of share ownership is another aim of privatization policy of the government. By selling share of public enterprises, small savings can be encouraged, which will help in further capital formation.
4. Raising revenue for the government: Privatization not only raises the revenue but also helps to reduce budget deficit in the developing countries like Nepal. The revenue gained from the sale of public enterprises can be used in the development of infrastructure. Similarly, extra government revenue can be generated imposing corporate tax to the privatized enterprises.
5. Generation of employment opportunities:
The privatized enterprises operate efficiently because of reduced interference of the government. Due to free entry, price deregulation etc. number of enterprises will also increase. This will result increase in employment opportunities in the country.
6. Increase efficiency and innovation: Private ownership can stimulate innovation. Competition forces private firms to develop innovative and efficient methods for providing goods and services in order to keep costs down and keep contracts. These incentives, for the most part, do not exist in the public sector.
7. Streamline and downsize government:
Privatization is one tool to make bureaucracies smaller and more manageable. Large private corporations often sell off assets that are underperforming or proving too difficult to manage efficiently. Under new owners and leaner management, such divisions often receive a new lease on life. Entrepreneurial governments can replicate this experience.