Define and explain the terms "Privatization" and "Deregulation".

Compare and contrast the arguments in

favor of privatization against the arguments in favor of deregulation.

Deregulation and Privatization

Due to the economic pressures resulting from the debts crisis faced by the developing countries, which
led to a huge decrease in the external finance, these countries tended to apply contractionary fiscal
policies to overcome this economic imbalance. These contractionary fiscal policies involved trials to
decrease expenditure and increase revenues as much a possible. In this respect, privatization has appeared
as part of the solution. For instance, for the Latin American countries, globalization represents a way for
stabilizing their economy, reducing their external debts, and a better way for redistributing the country's
resources and revenues. Privatization means that the country shifts the ownership of the public
organizations or projects partially or completely to the private sector.

The objectives of privatization:

1- It raises the level of economic efficiency by relying on the means of the market and competition.
2- It plays a role in decreasing the financial loads of the countries suffering from serious loss in the
public sector corporations. As a result, the state will be provided with financial resources to
finance other activities.
3- It also expands the size of the private sector and encourages relying more on it in the process of
development. Consequently, privatization also includes changing the work systems as it uses new
systems that give priority to competition and meeting the needs of the market. This in its turn
enhances the efficiency and productivity of organizations.

The advantages of privatization:

1- Enhancing the production efficiency and the performance of the privatized corporation
2- Improving the nature and quality of services and products via getting closer to the needs of the
customers, rationalizing costs, and increasing competition among companies.
3- Enhancing the effectiveness of the administration by decreasing the role of the state in managing
the public corporations, removing the governmental restrictions
4- Expanding the opportunities of investment whether domestically or internationally by attracting
domestic and international capital to buy or rent the public enterprises or services
5- Redistributing the state's resources and revenues in a better way as reducing the governmental
subsidy of the public projects leads to reducing the state's costs and relieving its burdens.

The ways of privatization: There are many ways used by countries to achieve privatisation which are as
follows:

1- Countries may end the ownership of the government to corporations by selling them, or
liquidating them partially or completely. Transferring ownership is in favour of investors,
directors in the corporation, or competitors.
2- Thy may allow the private sector to join business and production along with the governmental
projects. This includes removing restrictions imposed on the private sector and cancelling the
governmental subsidy to the public projects.
3- The government will mandate the private sector to do the activities that were carried out by the
public sector such as the services of telephone, water, and electricity.
4- The government would stop doing the public services or even ignore them to encourage the
private sector to join the market and do these services.
The drawbacks of privatisation:

1- Enhancing efficiency and reducing expenses may lead to some problems such as reducing
employees- the thing that may result in the unemployment of the public sector workers.
2- The private sector may raise prices or reduce the quality of the commodity by reducing expenses
in order to achieve profits. This may negatively affect the customers receiving the service.
3- It may result in the problem of foreign interference as the international capital is used to buy
public projects or introduce public services. This may include a kind of interference in the matters
of public projects, economic activities, or the state's policy.

How can an organisation succeed under privatization? The world nowadays which witnesses a great
tendency to use privatisation imposes strong competition among different companies and organisations.
The main slogan of this competition is "survival for the fittest" as survival is for the fittest countries,
companies, managers, and even for the fittest workers. The success of the organisation depends on its
ability to being distinguished with different competitive advantages and to adapt with reality to survive
and prove its existence and ability to compete.

Some of the things that should be taken into consideration in order to achieve the organisations'
success and survival in competition:

1- Giving concern to the customer and his needs as well as giving attention to the quality he needs.
2- Finishing production in the shortest possible time and with the lowest costs according to the
required quality criteria
3- Establishing good relationships between the customers and suppliers
4- Being able to market products efficiently- the thing that makes them reach the suitable category
of consumers
5- Having committed leadership that is able to achieve its aims and motivate employees and develop
their performance
6- The organisational restrictions have created artificial barriers. In addition, competition among
different parties, i.e. among different organisational structures was welcomed

The Definition of Deregulation:

There are kinds of deregulation that should be mentioned in order to know when they must be
cancelled and when they must not. These kinds include:

1- Obligatory regulations: Countries impose them on their organisations or for commercial

exchange among other countries. For example, OPEC organisation restricts all the countries
producing petroleum in it, but it does not restrict other producing countries that are not included
in the organisation.
2- Temporary regulation: They have specific short period or medium term imposed by some
countries to cooperate together in the market. The advantage of this kind of restrictions is giving
companies that work in the same field control over production and hence over market.
3- Political regulation: They depend on the government or the governing party. They change or
some of them are cancelled when the rule of government ends or when another authority becomes
responsible for managing the government.

The benefits of restrictions on the international trade:

Q They protect the national industry in a specific country and this for many reasons. The common
methods of imposing restrictions on international trade are as follows:

1- Tariffs: They are the taxes imposed on imports.

2- Quotas: They are fixed limits for the amount of imports allowed by the company on a specific
product.
3- Embargo: It refers to the full embargo on trade with a particular country, or the embargo of
importing a specific product.
4- Sanctions: Sanctions are a politically supported embargo that cancels the natural commercial
relations with a particular company.

The aids that a country can give:

1- Imposing criteria to restrict importing and subjecting them to specific tests

2- Financial aids: some countries give producers financial aids in order to be able to compete in the
international market.
3- Dumping policy: It is used to decrease the excess supply and it refers to selling large quantities with
a price lower than the costs.
4- The internet: it represents the international net that links millions of people around the world.

The disadvantages of deregulation:

- Deregulating the cash flows is considered one of the biggest obstacles that hinder signing the
Economic Partnership Agreement.
- The exemption from taxes on exports and imports will lead to a great decline in the revenues of the
developing countries that depend financially on exporting row materials. In addition, cancelling
taxes on exports will lead to depriving these countries from adding value to their primary
commodities in order to climb the value chain through exporting more row materials to the
European Union's markets for example.
- The economic relations among the countries of the region may be broken off due to cancelling the
restriction of the Economic Partnership Agreement.

The benefits of deregulation:

1- It results in developing the countries' economy. Deregulation includes:

- Decreasing or cancelling the tariffs on technical and industrial devices.

- Decreasing taxes on the national and international companies.
- Encouraging foreign investments to collaborate with local organisations.
- Allowing some local organisations to transfer some of their commercial business to other countries.

2- It increases the improvement in the production ratios compared to what they were before
deregulation.
3- It leads to getting rid of the old routines and complications and leads to having a flexible system
instead.
4- It results in cancelling the governmental restrictions on prices.

This reflects the relationship between privatisation and deregulation as well as the common factors
between them. For example, cancelling monopoly created better competition in the Saudi Telecom
Company (STC). When it followed the government, its prices were 5 times the prices after privatisation
and deregulation. Privatisation and deregulation result in relieving the government from paying
expenditures as well as decreasing supervision of applying restrictions and encouraging competition.