The mode of privatisation has an important bearing on the outcome. The resultant increase in contestability has bought about huge improvements in efficiency. There are several ways of regulating a privatized industry with strong monopoly elements. Do those industries just attract different kinds of people who are not as motivated by profit as other industries? Against this background, it is easy to believe a European Commission estimate that complete liberalisation of the European airline would bring about a 10% decline in costs and prices which will bring benefits of some $1 billion per year, obtained through lower pay costs, more efficient deployment of the workforces and lower overheads. It is argued governments make poor economic managers. In the UK following the privatisation of state-owned companies (BT, BG, Water, etc.) Deregulation has been applied to many industries in addition to those controlled by the state monopolies. Often privatisation of state-owned monopolies occurs alongside deregulation – i.e. Major changes has been made in the rules governing banks, stock broking, and so on. Privatisation creates private monopolies, such as the water companies and rail companies. The last one must have an income distribution effects. Commentdocument.getElementById("comment").setAttribute( "id", "a033c0e2fa8345dc07d0319a297687bd" );document.getElementById("d5c9dd04ef").setAttribute( "id", "comment" ); Cracking Economics The resultant fall in unit costs can be passed on to the consumer in terms of lower prices and better quality In the UK, it was estimated that telephone charges fell by 35% in real term between 1984 Electricity charges also declined in real terms. A natural monopoly occurs when the most efficient number of firms in an industry is one. Another possibility is to set maximum prices. Thus, we introduced the subject here.

Regulation: Regulatory Reform and Natural Monopolies: Regulatory reform is designed to promote competition, regardless of whether the industry is in state ownership or private ownership. In practice, rate of return considerations are implicit in setting the value of X. importance of property rights is captured by economist Hernando de Soto as he states, “Modern market economies generate growth because widespread, formal property rights permit massive, low-cost exchange, thus fostering specialization and greater productivity” (1996). It is easier to cut public sector investment than frontline services like healthcare. However, if you apply it to industries like health care or public transport the profit motive is less important. The Global Response seeks to ensure that governments do not abrogate their obligation to ensure that every student has access to free, quality public education by facilitating the growth in the privatisation of education. The economists described the Railway privatisation as a disaster. However, critics argue private firms can exploit their monopoly power and ignore wider social costs. Fiscal benefits could also accrue on the state’s capital account from the sale of the assets. The price paid for the company is thus a crucial variable. The pros of privatisation are How the costs and benefits back up in this instance? Where the new regulation achieves a superior outcome to direct provision of the goods or services by the state company depends on the effectiveness of the regulatory system. No less important was technological change. The effect on government revenue is more complex than it might appear. They suffered extensive x-inefficiencies. What exactly is the argument here? The second step is how to deal with the natural monopoly element. If this was done while the companies remained in the state ownership, their chances of successfully coping with competition would be increased by being run by the private sector rather than public sector. In many of these countries, governments had large budget deficits and a limited capacity to raise revenues through higher taxes. After privatisation, private businesses could sell liquor to the general public.

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Essay on the Reasons for Privatisation: There are many reasons for privatisation. Privatisation can suggest several things, including migrating something from the public sector into the private sector. Welcome to EconomicsDiscussion.net! In the UK, rail privatisation led to breaking up the rail network into infrastructure and train operating companies. Different rail companies has increased the complexity of rail tickets.
Some instances involve law enforcement, revenue collection, and prison management.

has been associated with the issue of privatisation. Before publishing your Articles on this site, please read the following pages: 1.

For example, East Germany had privatized some 12,000 firms, about 85% of all firms in the previous regime operating under state-ownership.
(b) Break-even or average return to capital: Alternatively the regulator can insist on a price that allows the firm to just break-even. If you work for a government run industry managers do not usually share in any profits. For any economy, privatisation is important, as it creates jobs and builds a healthy competition in the market.

For example, the UK is suffering from a lack of investment in new energy sources; the privatised companies are trying to make use of existing plants rather than invest in new ones. Former communist countries have been profoundly affected by the privatisation of their economies. 2.

It is also seldom used as a metonym for deregulation when a massively regulated private firm or industry becomes less organised. For one thing, these countries where being transformed from a situation in which almost the entire economy was state-owned. We briefly review each of these. Natural monopolies were until recently regarded as dominant in the energy, transport and telecommunication and so on. Q.2- Which of the following is the aim of Privatisation? Improving the efficiency of public sector undertaking (PSU’s). Share Your Word File For example, technical advance has made even very small electricity generating plants more efficient then previously. It is argued that a private firm has pressure from shareholders to perform efficiently. In a highly generalized way one can say that privatisation has been more or less successful in the UK while unsuccessful in Russia. Your email address will not be published. When doctors treat patients, they are unlikely to try harder if they get a bonus. A question rises here that if we want progress acountry we should give education to the whole public Government companies are transformed into private companies in 2 ways.

A look at the arguments for and against privatisation. This involves three interrelated strands pricing, access and quality of service. Nationalisation of broadband internet – pros and cons, Advantages and disadvantages of monopolies, However, privatisation doesn’t necessarily increase competition; it depends on the nature of the market. Management buy-outs are another possibility (NF Corporation 1992 and several Bus Companies in Britain). If the firm is inefficient then the firm could be subject to a takeover. because of this the monopoly will be grow fastly between them. Share Your PDF File A government many think only in terms of the next election. Essay on Privatization: Meaning, Reasons and Effects! Transfer of control of State or municipally controlled enterprises. Not surprisingly there has been frequent disputes over the definition and measurement of rates of return in these cases. Their task was to prevent the abuse of monopoly power and find ways of promoting competition. 3.2 Privatisation patterns in Africa: a few countries only 14 3.3 Privatisation in South Asia: a slow opening 15 4 Regulation and competition 18 4.1 Approaches and Regulatory framework in … Therefore there is no scope for having competition amongst several firms.

This can be achieved through direct sale of the assets to the private sector. Government will raise revenue from the sale. For example, there is now more competition in telecoms and distribution of gas and electricity. These initiatives were inspired by belief in the merits of the free market. The US was a significant absentee from this trend, mainly because it has very few nationalized industries to privatize. E.g.

In electricity through a network.

The public will often perceive such pricing structures as unfair, even if based on sound economic principles. Also share can be sold too cheaply to the public in order to carry popular favour or to ensure that the floatation will be a success as happened in several west European countries. Thanks a lot. By unbundling the industry into its different potentially competitive and natural monopoly components, efficiencies can be secured through the market system. Is the market contestable and competitive? Privatisation aims at providing a strong base to the inflow of FDI. Some companies were given a special category of Navratna and Mini-Ratna. According to OECD estimates, revenues from privatisation between 1990-98 amounted to 24% of Hungary’s GDP in 1998, 20% of Portugal’s GDP and 15% of New Zealand’s. Can you create incentives in a nationalised firm?

Privatisation can then proceed, though whether deregulation come before or succeeds privatisation can have an important bearing on how much revenue is obtained from the sale. However, the origin of their privatisation programmes and the context in which these are being implemented are obviously very different to those of the west. Increased inflow of FDI improves the financial strength of the economy. It depends on the industry in question.

For example, state-owned hotel and restaurant and some manufacturing companies, where prompt decisions are needed and also some industries created on the ground of economies of scale, have never become very successful enterprises. This is the case of natural monopoly. Privatisation of the public sector undertakings by selling off part of the equity of PSUs to the private sector is known as disinvestment. This means the government misses out on their dividends, instead going to wealthy shareholders.

World-wide revenue from privatisation amounted to $600 billion between 1990 and 1999. The state has replaced one asset (the state-owned company) with another (cash). Privatisation works for maximizing profit by improving customer services and goods and services standard. Privacy Policy3. 1.


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