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Definition Privatization

The government has to provide all the infrastructure and accommodation for the country including
road, electricity, water supply and building and industrial facilities. This is because the private sector
in the country during that time did not have enough capital to finance the development projects.
The private sectors need assistance from the government to implement huge projects.
Privatization is said to improve eciency by changing the structure of incentives, reducing the
possibilities of damaging state interventions, improving monitoring and introducing competition.
The mainstream literature has largely focused on the correlation between privatization and
performance (by comparing public and private rms) and on establishing the causality between
private ownership and performance. However, the results of privatization have been mixed, with the
evidence of eciency gains inconclusive. These approaches are also usually hampered by
methodological diculties and there is a lack of general consensus on the correlation between
privatization (private ownership) and economic performance.
Thus, this would allow the government to reduce its stakes in some projects and releasing public
funds for other purposes. The burden of developing certain projects gradually shifted to private
companies. This initiative had widely opened the propensity to privatization and joint venture efforts
between the government and the private sector.
The Privatization in Malaysia
The Privatization Policy was introduced on the march 1983 by Tun Dr Mahathir Bin Mohamed after
the announcement of the Malaysia Incorporated Policy in 25th February 1983. Privatization policy
simply means the transfer of property or responsibility from the public sector (government) to the
private sector (business). Given the resource constraints, the government has decided that it will
facilitate the private sector to play the aggressive role in the future economic development of the
country. It is therefore apparent to the civil servants that to achieve this objective, a new
management culture is needed. Quick reactions and decisions are imperative and in fact critical to
enable the private enterprises to be competitive on a global scale.
Privatization was seen to be the means of stimulating and improving the overall efficiency of the
economy. Privatization will not only relieve the government of the financial and administrative
burden but also improve the efficiency and increase the productivity of the services. It will also
stimulate private entrepreneurship and investment thus accelerating the rate of growth of the
economy and able to reduce the size and presence of the public sector with the monopolistic
tendencies in the economy, and help to meet the objectives of the National Development Policy.
The Achievement of Privatization in Malaysia
The Malaysian government have achieve five achievement for privatization in its Guidelines on
Firstly, it has succeeded in reducing the financial and administrative burden of the government,
particularly in undertaking and maintaining services and infrastructure. The scope of government is
wide. They cannot cover all the aspects in the Malaysia. So the main objective for the government is
to reduce their burden in term of financial and administrative.
Secondly, it has successful to promote competition, improve efficiency and increase productivity in
the delivery of these services. The public sector can be more efficiently run, as has been
demonstrated by some other Public sectors. Also, privatization is not going to provide a miracle cure
for all the problems (especially the inefficiencies) associated with the public sector, nor can private
enterprise guarantee that the public interest is most effectively served by private interests taking
over public-sector activities.
Thirdly, privatization has stimulate private entrepreneurship and investment, and thus accelerate
economic growth. Privatization has postpone a fiscal crisis by temporarily reducing fiscal deficits, but
it would not necessarily resolve the underlying problem because the public-sector would lose
income from the more profitable public-sector activities, and would be stuck with financing the
unprofitable ones, which would undermine the potential for cross subsidization within the public
Fourthly, it has worked in helping to reduce the presence and size of the public sector, with its
monopolistic tendencies and bureaucratic support. Privatization would give priority to profit
maximization at the expense of social welfare and the public interest.
Fifthly, privatization has help to achieve NEP objectives, especially as Bumiputra entrepreneurship
and presence have improved greatly since the early days of the NEP and they are therefore capable
of taking up their share of the privatized services. Besides that, it has created more opportunity for
the Bumiputras to established private corporations. By giving more chances to the private sector,
the government will be able create the opportunity job for the people especially Bumiputras to
establish and join the private corporation. It also will encourage them to increase their economic
level for more growth and can compete with other races.
In other words, privatization has accomplished in accelerating growth, improve efficiency and
productivity, trim the public sector, reduce the governments financial and administrative role, and
redistribute wealth to the Bumiputras.
Government would select an appropriate agencies that deemed profitable and offers for complete
privatization or simply engaging in joint-venture projects with private enterprises. The result of
privatization is the lowered cost in government spending and open up opportunity to redistribute
the saved resources to other sectors such as helping the poor community. Privatization involves the
transfer of government equities to the private sector. The government selects suitable agencies that
deemed profitable and offers for complete privatization or engaging in joint-venture projects with
private enterprises. This program successfully implemented in developed countries. As a result,
privatization reduces cost in governments spending and expenditure. Besides that, it gives
opportunity for the government to redistribute the saved resources to help the poor citizens to
increase their standard of living (Mahathir Mohamad, 1984).
This policy can be considered as successful and later being example by other developing countries
that amazed with the rapid development in Malaysia. Among the example of agencies or
departments that had been successfully privatized were telecommunications department (now is
known as TELEKOM MALAYSIA BERHAD), national electricity board (now is known as TENAGA
NASIONAL BERHAD) and railway board (now is known as KTMB), (Rozalli Hashim, 2005).
The privatization of the Telecommunications Department (Jabatan Telekom Malaysia) has seen the
introduction of some better services such as improved counter services the option of a detailed
billing system reducing errors (for which one has to pay more), and quicker responses to applications
for telephone installations. There is no doubt that there has been some efficiency increase and
better services, but not without higher charges. Since privatization of the telecommunication
services in 1987, even basic telephone charges have increased. For example, a three-minute call unit
used to be charged 10 cent, but such a call has been charged 13 cent since corporatization, i.e. a 30
percent increase. It is highly unlikely that these improvements in services could not have been
achieved at much lower cost than the additional consumer charges. Hence, it can hardly be argued
that the consumers are better off on the whole since the improvements cost much less than the
extra they have to pay. This does not mean that Telekom Malaysia is less efficient than its
predecessor, but rather that it is capturing an enhanced rent from the private monopolistic position
it enjoys.
Although these agencies fully privatized because of governments interests in terms of government
ownership and budget, we can see the successfulness of the implementation of this policy. These
agencies transformed into GLC (Government Link Companies) that operate on their own, generate
their own revenues and compete with multi-national company. Besides that, there are also GLC that
buy shares from overseas company and own many subsidiaries in foreign countries and within
Malaysia. For example, Telekom Malaysia (TM) has many subsidiaries in foreign companies such as
Indonesia, Singapore, Sri Lanka and etcetera. This shows the successfulness of privatization of
telecommunication industry in Malaysia.