Privatization

Privatization (also spelled privatisation) can mean different things including moving something from the public sector into the
private sector. It is also sometimes used as a synonym for deregulation when a heavily regulated private company or industry
becomes less regulated. Government functions and services may also be privatized; in this case, private entities are tasked with the
implementation of government programs or performance of government services that had previously been the purview of state-run
agencies. Some examples include revenue collection,law enforcement, and prison management.[1]

Another definition is the purchase of all outstanding shares of a publicly traded company by private investors, or the sale of a state-
owned enterprise or municipally owned corporation to private investors. In the case of a for-profit company, the shares are then no
longer traded at a stock exchange, as the company became private through private equity; in the case the partial or full sale of a state-
owned enterprise or municipally owned corporationto private owners shares may be traded in the public market for the first time, or
for the first time since an enterprise's previous nationalization. The second such type of privatization is the demutualization of a
mutual organization, cooperative, or public-private partnershipin order to form a joint-stock company.[2]

Contents
Etymology
Definition
History
Pre-20th century
20th century onwards
Medicare and Medicaid managed care
Welfare privatization
Public education
Private prisons
Foreign affairs

US Constitution
Forms of privatisation
Secured borrowing
Results
Opinion
Support
Opposition
Economic theory
See also
Notes
References
External links

Etymology
The Economist magazine introduced the term "privatization" (alternatively "privatisation" or "reprivatization" after the German
Reprivatisierung) during the 1930s when it covered Nazi Germany's economic policy.[3][4] It is not clear if the magazine
coincidentally invented the word in English or if the term is a loanword from the same expression in German, where it has been in
use since the 19th century. [5]
Definition
The word privatization may mean different things depending on the context in which it is used. It can mean moving something from
the public sphere into the private sphere, but it may also be used to describe something that was always private, but heavily regulated,
which becomes less regulated through a process of deregulation. The term may also be used descriptively for something that has
[6]
always been private, but could be public in other jurisdictions.

There are also private entities that may perform public functions. These entities could also be described as privatized. Privatization
may mean the government sells state-owned businesses to private interests, but it may also be discussed in the context of the
privatization of services or government functions, where private entities are tasked with the implementation of government programs
or performance of government services.Gillian E. Metzger has written that: "Private entities [in the US] provide a vast array of social
services for the government; administer core aspects of government programs; and perform tasks that appear quintessentially
governmental, such as promulgating standards or regulating third-party activities." Metzger mentions an expansion of privatization
[7]
that includes health and welfare programs, public education, and prisons.

History

Pre-20th century
The history of privatization dates from Ancient Greece, when governments contracted out almost everything to the private sector.[8]
In the Roman Republic private individuals and companies performed the majority of services including tax collection (tax farming),
army supplies (military contractors), religious sacrifices and construction. However, the Roman Empire also created state-owned
enterprises—for example, much of the grain was eventually produced on estates owned by the Emperor. Some scholars suggest that
the cost of bureaucracy was one of the reasons for thefall of the Roman Empire.[8]

Perhaps one of the first ideological movements towards privatization came during China's golden age of the Han Dynasty. Taoism
came into prominence for the first time at a state level, and it advocated the laissez-faire principle of Wu wei ( 無 為 ), literally
meaning "do nothing".[9] The rulers were counseled by the Taoist clergy that a strong ruler was virtually invisible.

During the Renaissance, most of Europe was still by and large following the feudal economic model. By contrast, the Ming dynasty
in China began once more to practice privatization, especially with regards to their manufacturing industries. This was a reversal of
[10]
the earlier Song dynasty policies, which had themselves overturned earlier policies in favor of more rigorous state control.

In Britain, the privatization of common lands is referred to as enclosure (in Scotland as the Lowland Clearances and the Highland
Clearances). Significant privatizations of this nature occurred from 1760 to 1820, preceding the
industrial revolution in that country.

20th century onwards

The first mass privatization of state property occurred in National Socialist Germany between 1933-37: "It is a fact that the
government of the National Socialist Party sold off public ownership in several state-owned firms in the middle of the 1930s. The
firms belonged to a wide range of sectors: steel, mining, banking, local public utilities, shipyard, ship-lines, railways, etc. In addition
to this, delivery of some public services produced by public administrations prior to the 1930s, especially social services and services
, mainly to several organizations within the Nazi Party."[11]
related to work, was transferred to the private sector

Great Britain privatized its steel industry in the 1950s, and the West German government embarked on large-scale privatization,
including sale of the majority stake in Volkswagen to small investors in public share offerings in 1961.[8] However, it was in the
1980s under Margaret Thatcher in the United Kingdom and Ronald Reagan in the United States that privatization gained worldwide
momentum. Notable privatization attempts in the UK included privatization of Britoil (1982), Amersham International PLC (1982),
British Telecom (1984), Sealink ferries (1984), British Petroleum (gradually privatized between 1979 and 1987), British Aerospace
(1985 to 1987), British Gas (1986), Rolls-Royce (1987), Rover Group (formerly British Leyland, 1988), British Steel Corporation
(1988), and the regional water authorities (mostly in 1989). After 1979, council house tenants in the UK were given the right to buy
their homes (at a heavily discounted rate). One million purchased their residences by 1986.

Such efforts culminated in 1993 when British Rail was privatized under Thatcher's successor, John Major. British Rail had been
formed by prior nationalization of private rail companies. The privatization was controversial, and the its impact is still debated
rail subsidy.[12]
today, as doubling of passenger numbers and investment was balanced by an increase in

Privatization in Latin America flourished in the 1980s and 1990s as a result of a Western liberal economic policy. Companies
providing public services such as water management, transportation, and telecommunication were rapidly sold off to the private
sector. In the 1990s, privatization revenue from 18 Latin American countries totaled 6% of gross domestic product.[13] Private
ging economy.[13]
investment in infrastructure from 1990 and 2001 reached $360.5 billion, $150 billion more than in the next emer

While economists generally give favorable evaluations of the impact of privatization in Latin America,[14] opinion polls and public
protests across the countries suggest that a large segment of the public is dissatisfied with or have negative views of privatization in
the region.[15]

In the 1990s, the governments in Eastern and Central Europe engaged in extensive privatization of state-owned enterprises in Eastern
and Central Europe and Russia, with assistance from the World Bank, the U.S. Agency for International Development, the German
Treuhand, and other governmental andnongovernmental organizations.

Ongoing privatization ofJapan Post relates to that of the national postal service and one of the largest banks in the world. After years
of debate, the privatization of Japan Post spearheaded by Junichiro Koizumi finally started in 2007. The privatization process is
expected to last until 2017. Japan Post was one of the nation's largest employers, as one-third of Japanese state employees worked for
it. It was also said to be the largest holder of personal savings in the world. Criticisms against Japan Post were that it served as a
channel of corruption and was inefficient. In September 2003, Koizumi's cabinet proposed splitting Japan Post into four separate
companies: a bank, an insurance company, a postal service company, and a fourth company to handle the post offices and retail
storefronts of the other three.

After the Upper House rejected privatization, Koizumi scheduled nationwide elections for September 11, 2005. He declared the
election to be a referendum on postal privatization. Koizumi subsequently won the election, gaining the necessary supermajority and
[16]
a mandate for reform, and in October 2005, the bill was passed to privatize Japan Post in 2007.

Nippon Telegraph and Telephone's privatization in 1987 involved the largest share offering in financial history at the time.[17] 15 of
the world's 20 largest public share offerings have been privatizations of telecoms.[17]

In 1988, the perestroika policy of Mikhail Gorbachev started allowing privatization of the centrally planned economy. Large
privatization of the Soviet economy occurred over the next few years as the country dissolved. Other Eastern Bloc countries followed
suit after the Revolutions of 1989 introduced non-communist governments.

The United Kingdom's largest public share offerings were privatizations of British Telecom and British Gas during the 1980s under
the Conservative government of Margaret Thatcher, when many state-run firms were sold off to the private sector. The privatization
received very mixed views from the public and the parliament. Even former Conservative prime minister Harold Macmillan was
critical of the policy, likening it to "selling the family silver".[18] There were around 3 million shareholders in Britain when Thatcher
took office in 1979, but the subsequent sale of state-run firms saw the number of shareholders double by 1985. By the time of her
[19]
resignation in 1990, there were more than 10 million shareholders in Britain.

The largest public shares offering in France involvedFrance Télécom.

Egypt undertook widespread privatization under Hosni Mubarak. He was later overthrown in the 2011 revolution, the public called
for re-nationalization as the privatized firms were accused of practicingcrony capitalism with the old regime.[20]

Medicare and Medicaid managed care

In the United States, under the Medicare managed care the government pays a managed care organization (MCO) a fixed amount
called the "capitated rate" for all medical services received by a beneficiary in a given period. Enrollment in the programs has
increased substantially since 1990; in 2002 60% of Medicaid beneficiaries and 12% of Medicare beneficiaries were being treated by
MCOs. Private sector involvement in Medicare and Medicaid is not limited to MCOs; private doctors, hospitals, nursing homes
provide medical care; reimbursement claims are processed by private intermediaries; and peer review organizations, utilization
review committees and accreditation organizations like JCAHO are staffed by private medical personnel.[7]

Welfare privatization
Homeless shelters and food banks are run by private organizations, who also provide treatment services, operate Head Start programs
and work with child welfare agencies. Privatization of welfare system expanded in 1996, when the Aid to Families with Dependent
Child (AFDC) program was replaced with the Temporary Aid to Needy Families (TANF) program. Welfare services that are often
[7]
privatized include workforce development, job training and job placement are often privatized.

Public education
There is also some private sector involvement in the public education system including charter schools, Educational Management
Organizations (EMOs), and school voucher programs. EMOs are usually for-profit and manage charter schools and sometimes
traditional public schools as well. The United States Supreme Court upheld school voucher programs against an Establishment
Clause challenge in Zelman v. Simmons-Harris.[7]

Private prisons
In the US in 2001, private prison facilities housed 12.3% of all federal prisoners and 5.8% of state prisoners. Contracts for these
private prisons regulate prison conditions and operation, but the nature of running a prison requires a substantial exercise of
[7]
discretion. Private prisons are more exposed to liability than state run prisons.

Foreign affairs
Both for-profit and non-profit entities are tasked with various responsibilities related to the US foreign aid budget such as providing
emergency humanitarian relief,development assistance, as well as post-conflict reconstructionefforts. Similarly, private entities have
started to perform tasks that have traditionally been regarded as falling within the government's diplomatic and military authority like
participating in peace negotiations, military training, intelligence gathering and other security services or combat-related missions.
Many of the military interrogators at Abu Ghraib prison were provided by a private contractor and lacked formal military training;
Fay report.[21]
this was subsequently identified as a contributing factor to detainee abuse at the prison by the

The United Nations uses private subcontractors as well, and in some cases, "failed states" have relied on private entities extensively
for a range of tasks including building critical infrastructure, managing social services programs and using
private military companies
during the course of armed conflicts.

US Constitution
The United States Constitution only constrains state action and, with few exceptions, "erects no shield against merely private
conduct, however discriminatory or wrongful".[22][7] Gillian Metzger writes:

Adequately guarding against abuse of public power requires application of constitutional principles to every exercise
of state authority, regardless of the formal public or private status of the actor involved: 'It surely cannot be that
government, state or federal, is able to evade the most solemn obligations imposed in the Constitution by simply
resorting to the corporate form' and thereby transferring operation of government programs to private hands"
Even if private actors can't be held accountable through the traditional constitutional mechanism, they may be bound by other
regulatory or contractual requirements. Tort law might be another avenue of protection, and some may argue that this protection
.[7][21]
could be even more effective as public agencies and employees usually enjoy some degree of immunity from civil liability

Forms of privatisation
There are five main methodsof privatization:

1. Share issue privatization: Shares sale on the stock market.

2. Asset sale privatization: Asset divestiture to a strategic investor, usually by auction or through the Treuhand model.
3. Voucher privatization: Distribution of vouchers, which represent part ownership of a corporation, to all citizens,
usually for free or at a very low price.
4. Privatization from below: Start of new private businesses in formerly socialist countries.
5. Management buyout or employee buyout: Distribution of shares for free or at a very low price to workers or
management of the organization.
The choice of sale method is influenced by the capital market and the political and firm-specific factors. Privatization through the
stock market is more likely to be the method used when there is an established capital market capable of absorbing the shares. A
market with high liquidity can facilitate the privatization. If the capital markets are insufficiently developed, however, it would be
difficult to find enough buyers. The shares may have to be underpriced, and the sales may not raise as much capital as would be
justified by the fair value of the company being privatized. Many governments, therefore, elect for listings in more sophisticated
markets, for example,Euronext, and the London, New York and Hong Kong stock exchanges.

Governments in developing countries and transition countries more often resort to direct asset sales to a few investors, partly because
those countries do not yet have a stock market with high capital.

Voucher privatization occurred mainly in the transition economies in Central and Eastern Europe, such as Russia, Poland, the Czech
Republic, and Slovakia. Additionally, privatization from below had made important contribution to economic growth in transition
economies.

In one study assimilating some of the literature on "privatization" that occurred in Russian and Czech Republic transition economies,
the authors identified three methods of privatization: "privatization by sale", "mass privatization", and "mixed privatization". Their
fective method.[23]
calculations showed that "mass privatization" was the most ef

However, in economies "characterized by shortages" and maintained by the state bureaucracy, wealth was accumulated and
concentrated by "gray/black market" operators. Privatizing industries by sale to these individuals did not mean a transition to
"effective private sector owners [of former] state assets". Rather than mainly participating in a market economy, these individuals
could prefer elevating their personal status or prefer accumulating political power. Instead, outside foreign investment led to the
efficient conduct of former state assets in the private sector and market economy.[23]

Through privatization by direct asset sale or the stock market, bidders compete to offer higher prices, generating more revenue for the
state. Voucher privatization, on the other hand, could represent a genuine transfer of assets to the general population, creating a sense
of participation and inclusion. A market could be created if the government permits transfer of vouchers among voucher holders.

Secured borrowing
Some privatization transactions can be interpreted as a form of a secured loan[24][25] and are criticized as a "particularly noxious
form of governmental debt".[24] In this interpretation, the upfront payment from the privatization sale corresponds to the principal
amount of the loan, while the proceeds from the underlying asset correspond to secured interest payments – the transaction can be
considered substantively the same as a secured loan, though it is structured as a sale.[24] This interpretation is particularly argued to
apply to recent municipal transactions in the United States, particularly for fixed term, such as the 2008 sale of the proceeds from
Chicago parking meters for 75 years. It is argued that this is motivated by "politicians' desires to borrow money surreptitiously",[24]
due to legal restrictions on and political resistance to alternative sources of revenue, viz, raising taxes or issuing debt.
Results
Literature reviews[26][27] find that in competitive industries with well-informed consumers, privatization consistently improves
efficiency. The more competitive the industry, the greater the improvement in output, profitability, and efficiency.[28] Such efficiency
gains mean a one-off increase in GDP, but through improved incentives to innovate and reduce costs also tend to raise the rate of
economic growth. Although typically there are many costs associated with these efficiency gains,[29] many economists argue that
these can be dealt with by appropriate government support through redistribution and perhaps retraining[citation needed] . Yet, some
empirical literature suggests that privatization could also have very modest effects on efficiency and quite regressive distributive
impact. In the first attempt at a social welfare analysis of the British privatization program under the Conservative governments of
Margaret Thatcher and John Major during the 1980s and 1990s, Massimo Florio points to the absence of any productivity shock
resulting strictly from ownership change. Instead, the impact on the previously nationalized companies of the UK productivity leap
under the Conservatives varied in different industries. In some cases, it occurred prior to privatization, and in other cases, it occurred
upon privatization or several years afterward.[30]

A study by the European Commission found that the UK rail network (which was privatized from 1994–97) was most improved out
of all the 27 EU nations from 1997–2012. The report examined a range of 14 different factors and the UK came top in four of the
[31]
factors, second and third in another two and fourth in three, coming top overall.

Privatizations in Russia and Latin America were accompanied by large-scale corruption during the sale of the state-owned
companies. Those with political connections unfairly gained large wealth, which has discredited privatization in these regions. While
media have widely reported the grand corruption that accompanied those sales, studies have argued that in addition to increased
operating efficiency, daily petty corruption is, or would be, larger without privatization, and that corruption is more prevalent in non-
privatized sectors. Furthermore, there is evidence to suggest that extralegal and unofficial activities are more prevalent in countries
that privatized less.[32]

A 2009 study published in The Lancet medical journal initially claimed to have found that as many as a million working men died as
a result of economic shocks associated with mass privatization in the former Soviet Union and in Eastern Europe during the
1990s,[33][34] although a further study revealed that there were errors in their method and "correlations reported in the original article
are simply not robust."[35] Historian Walter Scheidel, a specialist in ancient history, posits that economic inequality and wealth
[36]
concentration in the top percentile "had been made possible by the transfer of state assets to private owners."

In Latin America, there is a discrepancy between the economic efficiency of privatization and the political/social ramifications that
occur. On the one hand, economic indicators, including firm profitability, productivity, and growth, project positive microeconomic
results.[13] On the other hand, however, these results have largely been met with a negative criticism and citizen coalitions. This
neoliberal criticism highlights the ongoing conflict between varying visions of economic development. Karl Polanyi emphasizes the
societal concerns of self-regulating markets through a concept known as a "double movement". In essence, whenever societies move
towards increasingly unrestrained, free-market rule, a natural and inevitable societal correction emerges to undermine the
contradictions of capitalism. This was the case in the2000 Cochabamba protests.

Privatization in Latin America has invariably experienced increasing push-back from the public. Some suggest that implementing a
less efficient but more politically mindful approach could be more sustainable.[37]

In India, a survey by the National Commission for Protection of Child Rights (NCPCR) —Utilization of Free Medical Services by
Children Belonging to the Economically Weaker Section (EWS) in Private Hospitals in New Delhi, 2011-12: A Rapid Appraisal—
indicates under-utilization of the free beds available for EWS category in private hospitals in Delhi, though they were allotted land at
subsidized rates.[38]

In Australia a "People's Inquiry into Privatisation" (2016/17) found that the impact of privatisation on communities was negative.
The
report from the inquiry "Taking Back Control"
https://d3n8a8pro7vhmx.cloudfront.net/cpsu/pages/1573/attachments/original/1508714447/T
aking_Back_Control_FINAL.pdf?
1508714447 made a range of recommendations to provide accountability and transparency in the process. The report highlighted
privatisation in healthcare, aged care, child care, social services, government departments, electricity, prisons and vocational
education featuring the voices of workers, community members and academics.

Opinion
Arguments for and against the controversial subject of privatization are presented here.

Support
Studies show that private market factors can more efficiently deliver many goods or service than governments due to free market
competition.[26][27][28] Over time this tends to lead to lower prices, improved quality, more choices, less corruption, less red tape,
and/or quicker delivery. Many proponents do not argue that everything should be privatized. According to them, market failures and
natural monopolies could be problematic. However, anarcho-capitalists prefer that every function of the state be privatized, including
defense and dispute resolution.[39]

Proponents of privatization make the following ar

guments:

Performance. State-run industries tend to bebureaucratic. A political government may only be motivated to improve
a function when its poor performance becomes politically sensitive.
Increased efficiency. Private companies and firms have a greater incentive to produce goods and services more
efficiently to increase profits.
Specialization. A privatebusiness has the ability to focus all relevant human and financial resources onto specific
functions. A state-owned firm does not have the necessary resources to specialize its goods and services as a result
of the general products provided to the greatest number of people in the population.
Improvements. Conversely, the government may put off improvements due to political sensitivity and special
interests—even in cases of companies that are run well and better serve their customers' needs.
Corruption. A state-monopolized function is prone tocorruption; decisions are made primarily for political reasons,
personal gain of the decision-maker (i.e. "graft"), rather than economic ones. Corruption (or principal–agent issues)
in a state-run corporation affects the ongoing asset stream and company performance, whereas any corruption that
may occur during the privatization process is a one-time event and does not fect af ongoing cash flow or performance
of the company.
Accountability. Managers of privately ownedcompanies are accountable to their owners/shareholders and to the
consumer, and can only exist and thrive where needs are met. Managers of publicly owned companies are required
to be more accountable to the broader community and to political "stakeholders". This can reduce their ability to
directly and specifically serve the needs of their customers, and can bias investment decisions away from otherwise
profitable areas.
Civil-liberty concerns. A company controlled by the state may have access to information or assets which may be
used against dissidents or any individuals who disagree with their policies.
Goals. A political government tends to run an industry or company forpolitical goals rather than economic ones.
Capital. Privately held companies can sometimes more easily raise investment capital in the financial markets when
such local markets exist and are suitably liquid. While interest rates for private companies are often higher than for
government debt, this can serve as a useful constraint to promote ef ficient investments by private companies,
instead of cross-subsidizing them with the overall credit-risk of the country . Investment decisions are then governed
by market interest rates. State-owned industries have to compete with demands from other government departments
and special interests. In either case, for smaller markets,political risk may add substantially to the cost of capital.
Security. Governments have had the tendency to "bail out" poorly run businesses, often due to the sensitivity of job
losses, when economically, it may be better to let the business fold.
Lack of market discipline. Poorly managed state companies are insulated from the same discipline as private
companies, which could go bankrupt, have their management removed, or be taken over by competitors. Private
companies are also able to take greater risks and then seek bankruptcy protection against creditors if those risks
turn sour.
Natural monopolies. The existence ofnatural monopolies does not mean that these sectors must be state owned.
Governments can enact or are armed withanti-trust legislation and bodies to deal with anti-competitive behavior of
all companies public or private.
Concentration of wealth. Ownership of and profits from successful enterprises tend to be dispersed and diversified -
particularly in voucher privatization. The availability of more investment vehicles stimulates capital markets and
promotes liquidity and job creation.
Political influence. Nationalized industries are prone to interference from politicians for political or populist reasons.
Examples include making an industry buy supplies from local producers (when that may be more expensive than
 buying from abroad), forcing an industry to freeze its prices/fares to satisfy the electorate or control
inflation,
increasing its staffing to reduce unemployment, or moving its operations tomarginal constituencies.
Profits. Corporations exist to generate profits for their shareholders. Private companies make a profit by enticing
consumers to buy their products in preference to their competitors' (or by increasing primary demand for their
products, or by reducing costs). Private corporations typically profit more if they serve the needs of their clients well.
Corporations of different sizes may target different market niches in order to focus on marginal groups and satisfy
their demand. A company with goodcorporate governance will therefore be incentivized to meet the needs of its
customers efficiently.
Job gains. As the economy becomes more ef ficient, more profits are obtained and no government subsidies and less
taxes are needed, there will be more private money available for investments and consumption and more profitable
and better-paid jobs will be created than in the case of a more regulated economy .[40]

Opposition
Opponents of certain privatizations believe that certainpublic goods and servicesshould remain primarily in the hands of government
in order to ensure that everyone in society has access to them (such as law enforcement, basic health care, and basic education).
There is a positive externality when the government provides society at large with public goods and services such as defense and
disease control. Some national constitutions in effect define their governments' "core businesses" as being the provision of such
things as justice, tranquility, defense, and general welfare. These governments' direct provision of security, stability, and safety, is
intended to be done for the common good (in the public interest) with a long-term (for posterity) perspective. As for natural
monopolies, opponents of privatization claim that they aren't subject to fair competition, and better administrated by the state.

Although private companies will provide a similar good or service alongside the government, opponents of privatization are careful
about completely transferring the provision of public goods, services and assets into private hands for the following reasons:

Performance. A democratically elected government is accountable to the people through a legislature, Congress or
Parliament, and is motivated to safeguarding the assets of the nation. The profit motive may be subordinated to
social objectives.
Improvements. the government is motivated to performance improvements as well run businesses contribute to the
State's revenues.
Corruption. Government ministers and civil servants are bound to uphold the highest ethical standards, and
standards of probity are guaranteed through codes of conduct and declarations of interest. However , the selling
process could lack transparency, allowing the purchaser and civil servants controlling the sale to gain personally .
Accountability. The public has less control and oversight of private companies.
Civil-liberty concerns. A democratically elected government is accountable to the people through parliament,
a and
can intervene when civil liberties are threatened.
Goals. The government may seek to use state companies as instruments to further social goals for the benefit of the
nation as a whole.
Capital. Governments can raise money in the financial markets most cheaply to re-lend to state-owned enterprises.
Cuts in essential services. If a government-owned company providing an essential service (such as the water
supply) to all citizens is privatized, its new owner(s) could lead to the abandoning of the social obligation to those
who are less able to pay, or to regions where this service is unprofitable.
Natural monopolies. Privatization will not result in true competition if anatural monopoly exists.
Concentration of wealth. Profits from successful enterprises end up in private, often foreign, hands instead of being
available for the common good.
Political influence. Governments may more easily exert pressure on state-owned firms to help implementing
government policy.
Profit. Private companies do not have any goal other than to maximize profits. A private company will serve the
needs of those who are most willing (and able) to pay , as opposed to the needs of the majority , and are thus anti-
democratic. The morenecessary a good is, the lower the price elasticity of demand, as people will attempt to buy it
no matter the price. In the case of a price elasticity of demand of zero (perfectly inelastic good), the demand part of
supply and demand theories does not work.
Privatization and poverty. It is acknowledged by many studies that there are winners and losers with privatization.
The number of losers—which may add up to the size and severity of poverty—can be unexpectedly large if the
method and process of privatization and how it is implemented are seriously flawed (e.g. lack of transparency
leading to state-owned assets being appropriated at minuscule amounts by those with political connections, absence
of regulatory institutions leading to transfer of monopoly rents from public to private sector
, improper design and
inadequate control of the privatization process leading toasset stripping).[41]
Job loss. Due to the additional financial burden placed on privatized companies to succeed without any government
help, unlike the public companies, jobs could be lost to keep more money in the company .
 Reduced wages and benefits. A 2014 report by In the Public Interest, a resource center on privatization,[42] argues
that "outsourcing public services sets off a downward spiral in which reduced worker wages and benefits can hurt the
local economy and overall stability of middle and working class communities." [43]

Inferior quality products. Private, for-profit companies might cut corners on providing quality goods and services in
order to maximize profit.[44]

Economic theory
In economic theory, privatization has been studied in the field of contract theory. When contracts are complete, institutions such as
(private or public) property are difficult to explain, since every desired incentive structure can be achieved with sufficiently complex
contractual arrangements, regardless of the institutional structure (all that matters is who are the decision makers and what is their
available information). In contrast, when contracts are incomplete, institutions matter. A leading application of the incomplete
contract paradigm in the context of privatization is the model by Hart, Shleifer, and Vishny (1997).[45] In their model, a manager can
make investments to increase quality (but they may also increase costs) and investments to decrease costs (but they may also reduce
quality). It turns out that it depends on the particular situation whether private ownership or public ownership is desirable. The Hart-
Shleifer-Vishny model has been further developed in various directions, e.g. to allow for mixed public-private ownership and
endogenous assignments of the investment tasks.[46]

See also
Nationalization
Category:Privatization by country

Privatization in the United States

Corporatization
Deregulation
Marketization
Private sector development
Privatization of British Rail
Privately owned public space
Private prison
Special Economic Zone
Structural adjustment

Notes
1. Chowdhury, F. L. ‘’Corrupt Bureaucracy and Privatisation of a
Tx Enforcement’’, 2006: Pathak Samabesh, Dhaka.
2. "Musselburgh Co-op in crisis as privatization bid fails"(http://www.thenews.coop/index.php?content=story&id=835).
Co-operative News. 2005-11-01. Retrieved 2008-05-21.
3. Edwards, Ruth Dudley (1995). The Pursuit of Reason: The Economist 1843–1993
. Harvard Business School Press.
p. 946. ISBN 978-0-87584-608-8.
4. Compare Bel, Germà (2006). "Retrospectives: The Coining of 'Privatisation' and Germany's National Socialist Party".
Journal of Economic Perspectives. 20 (3): 187–94. CiteSeerX 10.1.1.694.2842 (https://citeseerx.ist.psu.edu/viewdoc/
summary?doi=10.1.1.694.2842). doi:10.1257/jep.20.3.187 (https://doi.org/10.1257%2Fjep.20.3.187).
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 Segerfeldt, Fredrik (2006)."Water for sale: how business and the market can resolve the world's water crisis"(PDF).
Stockholm Network. Retrieved 31 October 2018.
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L'Harmattan. ISBN 978-2-343-00839-4.
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investment tasks". Journal of Public Economics. 94 (3–4): 258–268. doi:10.1016/j.jpubeco.2009.11.009.
Kemp, Roger L. (2007).Privatization: The Provision of Public Services by the Private Sector . Jefferson City, North
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Unindexed

David T. Beito, Peter Gordon, and AlexanderTabarrok (editors); foreword by Paul Johnson (2002).The voluntary
city: choice, community, and civil society. Ann Arbor: University of Michigan Press/The Independent Institute.
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Bel, Germà (2006). "The coining of 'privatisation´and Germany's National Socialist Party"(PDF). Journal of
Economic Perspectives. 20 (3): 187–194. doi:10.1257/jep.20.3.187.
Clarke, Thomas (ed.) (1994) "International Privatisation: Strategies and Practices" Berlin and Nework:Y Walter de
Gruyter, ISBN 3-11-013569-8
Clarke, Thomas and Pitelis, Christos (eds.) (1995) "The Political Economy of Privatisation" London and Nework: Y
Routledge, ISBN 0-415-12705-X
D'Souza, Juliet; Megginson, William L. (August 1999)."The Financial and Operating Performance of Privatised Firms
during the 1990s" (PDF). Journal of Finance. 1999. Retrieved 31 October 2018.
von Hayek, Friedrich, (1960)The Constitution of Liberty
Kosar, Kevin R. (2006), "Privatisation and the Federal Government: An Introduction" , Report from the Congressional
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Großbritannien, Frankreich, Italien und Deutschland , VS Verlag, Wiesbaden, ISBN 3-531-14918-0
Megginson and Netter, From state to market:A survey of empirical studies on privatization,Journal of Economic
Literature 39(2), June 2001, 321-89.
Onses, Richard (2004). Benchmarking Privatization: the building of privatization index using fuzzy logic
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International Conference on Modeling and Simulation . ISBN 978-84-688-7867-6.
Onses, Richard (2004). The privatization leaders guide. e-privatization.com publication.ISBN 978-84-607-9613-8.
Nico Perrone (2002), Economia pubblica rimossa, Milan, Giuffrè ISBN 88-14-10088-8
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Jeb Sprague, 2007. Haiti: Workers Protest Privatisation Layoffs. Inter Press Service.
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von Weizsäcker, Ernst, Oran Young, and Matthias Finger (editors): Limits to Privatisation. Earthscan, London 2005
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External links
Privatization's Rise from the Dean Peter Krogh Foreign Affairs Digital Archives
Reports of the Public Services International Research Unit at the University of Greenwich Research database with
many articles on the effects of privatization
Parker, David (1991). "Privatisation ten years on : a critical analysis of its rationale and results"
. Cranfield University,
School of Management.

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