Chap 12

• Privatisation


  Selling a company or an activity controlled by the government to private investors
• Monopoly


  A business activity is controlled by only one company or by the state and has no other competitors
• Privatisation


  • Transferring public sector resources to the private sector – operating more efficiently without government interference
  • Examples: British Airways, Rolls-Royce, British Airport Authority
• Nationalised industries


  Private sector companies taken into state ownership
• Reasons for nationalised industries

  • Services unprofitable in remote areas
  • Natural monopolies (can serve the entire market at a lower cost than would be if market comprised of many smaller firms)
  • Serving customers more effectively under state control
• Many nationalised businesses were sold back to private sector afterwards such as British Airways, British Telecom and British Rail
• Contracting out


  Private sector companies given the chance to bid for services supplied by the public sector (i.e. school meals, hospital cleaning, building/road construction, various state projects)
• Sale of land and property

  State-owned properties be sold to private individuals (offering generous discounts)
• Reasons for privatisation


  • Generates income for the government
  • Public sector is inefficient
  • Reduce political interference
• Countries under pressure i.e. Greece, Cyprus

  Forced by EU/IMF to privatise companies
• Public sector inefficiency


  Lacks incentive to make profits since has the back up of the state versus private sector
• Private sector


  Cuts costs, improves services and returns to shareholders, accountable to customers
• Constant government interference


  Can held back performance – lack of investments
• Effects of privatisation on consumers


  • Private sector under pressure to meet consumers' needs – efficient, provide good quality products, quicker service, reasonable prices
  • Exploitation of consumers – too high prices, aim is profit so quality could suffer in some cases in order to reduce costs, not everyone can afford their goods/services
• Effects of privatisation on workers

  • Mass redundancies to cut costs which could weaken companies because of loss of experienced staff, undue pressure to raise productivity, stressful working environment – must adopt to flexible working practices
  • Job losses create a pressure necessary in order to compete global markets
• Effects of privatisation on businesses

  • Left without government support – need to face competition – main objective in now profitability
  • Increase of (foreign) investments, mergers and acquisitions (takeovers), diversification of business' activities which could benefit country's economic welfare and international competitiveness
• Effects of privatisation on government

  • Privatisation can be expensive (advertising), state assets in the event of emergency could be sold off too cheaply failing to maximise the revenue, hostile takeovers (company being taken over does not want or agree to) after privatisation
  • Huge amount of revenue injected to the state funds, problematic companies costing too much for government to operate are transferred to more experienced hands removing high expenses of the state (i.e. salaries)