Privatization is
the transfer or sale of government-owned assets/institutions to the private sector.
Advantages
Privatization is most of the
time associated with improved efficiency due to the profit incentive. Private companies will
ensure they improve their operational efficiency in order to reduce their costs and improve on
profits.
Privatization reduces the governments political interference. The
government sometimes seems incapable of making hard decisions especially when they impact their
political footing such as layoffs and pay cuts which are bound to attract negative
publicity.
Privatization urges improvements in the company through
competition. When a state owned entity is privatized it loses its government protection and is
forced to adapt to the market by providing better services or products in order to survive and
thrive.
Disadvantages
Privatization of certain state entities such as water and electricity authorities may
just create single monopolies. These may eventually seek to increase prices at the detriment of
the consumer with no controls.
The government loses dividends after
privatization as seen with most successful companies that are developed through privatization.
These dividends are instead channeled to wealthy individuals.
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