Costs and benefits of privatization

As the name suggests, privatization is a term that is used in the field of economics to refer to the transfer of business, property or ownership from the government to the private sector, owned largely or fully by individuals. In the immediate aftermath of the Second World War that crippled many industries and the world economy, the state-led rebuilding efforts contributed to the emergence of a state-monopoly model in almost every sector of the economy. This model was highly successful in the first few decades but has become less fashionable over the past few decades. The arguments and reasons for privatization of government properties industries are many and vary from one case to another. Improving the effective service delivery as well as disposal of inefficient and loss-making government entities are some of the main reasons that have been used to justify privatization in many parts of the world.

Governments privatize some public organizations as a way of improving the quality of services delivered to their citizens. In most cases, the government reimburses failing public companies thus the management may not be concerned a lot more in taking things seriously. In this case, they are not motivated to operate efficiently and make profits. However, the private companies’ management will do all they can to ensure that their companies make profits and minimal losses. All privatized companies tend to improve their efficiency in operations and their quality of service in order to appeal to more customers and investors as well. To worsen the situation, many of these government entities run into losses due to various factors including mismanagement and inefficiencies. Privatization of these government entities allows governments to reduce expenditure and cut unnecessary loses associated with running loss-making entities.

The disposal of loss-making entities to the hands of private companies or individuals allows the governments to direct their resources and efforts to critical sectors such as healthcare and education. As a result of this enables governments to make a significant impact on the lives of their people. For example, the money saved from the disposal of government entities that run on losses can be directed to critical issues in the field of healthcare including medical research on diseases such as cancer, HIV Aids, and diabetes (Sheshinski 435). Privatization of these sectors presents an opportunity to address these issues and challenges associated with a government monopoly. Competition, which is critical for robust economic areas for the benefit of consumers in regards to prices, is dependent on the liberation of industrial sectors in the sectors where Government corporations enjoy monopolies.

Apart from this, the economic freedom will also be reflected across the entire marker chain and as a result triggering other positive impacts in the entire economic landscape. Improvement in productivity is also commonly associated with the economic liberalization brought about by privatization (Schmidt 15) Costs of Privatization There are chances that privatization would create a private natural monopoly; a dangerous form of monopoly on the interests of the public. A natural monopoly happens when the most productive and efficient number of firms in an industry is one. There are numerous enterprises which play out an essential public service role, for example; education, medical services, and public transportation. In these ventures, the benefit motive should not be the primary target of firms and the business.

For instance, on account of health care, it is dreaded privatizing health care services would mean a more noteworthy priority is given to profits as opposed to serving patients effectively and as required. Likewise, in an industry like health care, apparently we need not bother with profit intentions to enhance quality. At the point when medical specialists treat patients, they are probably not going to invest more energy on the off chance that they get a reward. This keeps the cost of administration growing as number of privatized organizations increases since the government will require people and computer systems to monitor the operations of the privatized companies. There are high chances that the government will get very little income from the deals on long-term basis since such organizations may make little taxable income due to adjustments made on loans and expenses.

The public bares the costs of maintaining privatized companies without realizing any tangible returns. According to Barad (Par. 7), privatization of some essential organizations has been quite costly to Ukrainians; brought about division of the population into haves and have-nots and shifted public interests. Privatization of public companies has contributed to a trend whereby governments look for short-term solutions to serious problems (Shapiro, par. The government is being motivated by short term pressures, a something that private firms may do as well in order to please shareholders they may seek to increase short term profits and avoid investing in long term projects. For example, the UK is suffering from a lack of investment in new energy sources; the privatized companies are trying to make use of existing plants rather than invest in new ones (Shapiro, par.

This is likely to limit the countries from expanding the industry (Barad, par. Privatization Evaluation Privatization is a tool that can be used to develop the economics of a public or contribute significantly to its down fall. Privatized companies happen to improve their processes as one way of enhancing their competitiveness in the industry. Governments privatize some public organizations as a way of improving the quality of services delivered to their citizens. In most cases, the government reimburses failing public companies thus the management may not be concerned a lot more in taking things seriously. Privatization of government entities has a role in the distribution of wealth within an economy. Wealth distribution is a critical public policy issue that is used in gauging the level of social economic development within a country.