Privatisation Flashcards
(14 cards)
What is privatisation?
Privatisation is when state owned assets are sold to the private sector
Why is privatisation undertaken?
It makes markets more contestable thus more efficient
How does privatisation make markets more efficient?
Private firms have a profit incentive to be more efficient whereas in nationalised industries managers do not share any profits
How is it a benefit that privatisation means there is no political interference?
Governments/ nationalised firms make decisions motivated by political pressures not those which are economically efficient such as employing too much labour to reduce unemployment
How is it an advantage that privatized firms don’t have a short term view?
Governments only think in terms of the next election, thus unwilling to make long term investments unlike privatized firms
How is it a benefit that privatised firms have shareholders?
Shareholders pressure the firm to perform efficiently to earn profits, nationalised firms don’t
How is it an advantage that privatisation leads to more competition?
Increased competition increases efficiency
Do governments receive revenue from privatisation?
Yes governments can sell state owned assets for revenue, could also argue it will lead to more corporation tax
How can privatisation lead to natural monopolies?
State owned industries tend to be those with significant natural barriers to entry meaning only one firm can be efficient in this market. Therefore it must be considered whether it’s better to have an inefficient nationalised firm but will pursue social welfare, or a privatised firm that will be efficient but under allocate?
How does privatisation go against the national interest?
Markets such as healthcare, education or public transport should be allocated efficiently for the national interest. The profit motive shouldn’t be the primary interest of these markets
How does the government miss out on potential dividends by privatising?
Many privatised companies are profitable which the government misses out on by privatising
How could the government still need to be involved in the market after privatising?
Privatised firms may still need to be regulated to prevent abuse of monopoly power, thus the government is still involved as if the market is still nationalised
Why is it a disadvantage that privatisation leads to fragmentation of industries?
Privatisation fragments industries to the point where it’s unclear who has responsibility, for example rail
How can private firms be argued to be short term focused like nationalised firms?
In order to please shareholders privatised firms may chase short term profits and avoid long term investments. Also shareholders can immediately leave or enter the firm so they may have an event shorter term view than governments
