Public ownerhsip Vs privatisation

• What is public ownership?

  • Public ownership is government ownership of firms, industries or other assets
  • Also known as state ownership
• What is nationalisation?

  • Nationalisation is the transfer of assets from the private sector into public ownership
  • This is often used in the case for public goods and merit goods
• What are some advantages of public ownership?

  • Provision of goods that may not be provided or would be underprovided in a free market
  • Nationalised industries can prioritise social welfare over profit
  • Governments can take account of externalities. Some nationalised industries yield strong positive externalities
  • E.g. By using public transport, congestion and pollution are reduced
  • State-run monopolies are more likely to produce at allocatively efficient output
  • Some industries were historically considered too important to be run by private organisations E.g. Water supply
• What are some disadvantages of public ownership?

  • The Government may lack the expertise to run the business
  • Higher expenditure for the government which means higher taxes
  • Publicly owned firms/industries are inefficient and lack dynamic efficiency as they lack competition. Leads to market failure
  • Firms are hesitant to enter an industry when the dominant firm is owned by the government and has access to all of the government's resources
  • Can create a natural monopoly
  • For example, it is inefficient to have multiple sets of water pipes. Therefore, only one firm provides water
• What is privatisation?

  • Privatisation is the transfer of assets from the public sector (state) to the private sector
  • The asset is then under the control of a firm and left to the free market and private individual's
  • E.g. British Airways was privatised in the UK and now operates in the competitive market
• What are advantages of privatisation?

  • sale of state-owned assets raises short-term revenue for government
  • Reduces public spending 
  • Privatisation encourages new entrants to the industry as they feel they can compete more effectively with private firms which perhaps have less resources available
  • Promotes efficiency
  • Increased competition in the free market may create incentives for profit maximising firms to become more efficient and lower costs
  • May lead to productive efficiency and dynamic efficiency
  • Competition might also result in lower prices
• What are disdvantages of privatisation?

  • Government assets are often sold well below their actual market value
  • Privatised, profit maximising monopolies can restrict output to generate supernormal profits
  • The price of the good/service usually increases as firms seek to maximise their profit
  • Private firms often provide a substandard goods or services as they cut quality to increase profits
  • Many privatised companies still maintain considerable market power and need to be regulated
• What would those favouring the free market want?

  Those favouring the free market would encourage greater privatisation and less regulation, others would recommend tighter regulation and increased state ownership.
• What happened during the 1980s and 1990s?

  During the 1980s and 1990s several state-owned businesses were privatised in the UK, including British Gas, British Rail, and more recently Royal Mail.