Omar Ayoub G11 Economics

Economics Assessment

Privatization is known as the sale of public government-owned firms and assets, so run and controlled by the government, handed over to firms (the private sector). It is said that private owned firms, that pursue maximum profit have a great increase in potential output than nationalized companies. Government-owned firms and private firms have different goals: the government looks for the maintenance of employment or the provision of a service to an isolated market and for that reason they operate inefficiently. Therefore passing on the firms to the private sector, to a place where the firms have the knowhow and the knowledge to carry the firm's duty more efficiently. In Macroeconomics aggregate demand is of most importance because it represents a country's whole market.

When the firm or asset is government owned all the spending goes in the G, which is government spending. Once transferred to the private sector, all the company's spending are no longer up to the government, so this type of spending is now known as Investment because they come from the firm. In our situation prisons are being passed on from the government to the private sector in the United States. In this article some suggest that handing over the big house into private hands, will lead to efficiency and lower costs. This claim is soon countered by the argument that the private prisons only house the more healthy prisoners and leave the costly ones, the people with severe mental physical recovery to the taxpayers. Having to host the healthy convicts requires less medical attention thus fewer costs. Government owned prisons treat their inmates no matter the severity of the condition. Even though this may lead to slight inefficiency, it is a measure that is taken because necessary. Around 2.44 dollars is the amount of money it takes a public prison to be maintained more than the private prison. These come from the health related costs. Public prison's costs are also higher because of the security it requires is more extensive than the private ones, which could suggest a lower security level is offered in the private prisons, so in private prisons it is suggested that prisoners live with lower health services and lower security which put in question the whole process of handing over this responsibility in private hands. It is mentioned that choosing the prisoners is the only way for the private what seemed to be more economically efficient, so more and more inmates were being sent to the private sector creating more job opportunities so lower unemployment, however this leaves the firm to invest more in wages which leads to less money being available for adequately running the correction facility.

Omar Ayoub G11 Economics

For the governments choosing to pass prisons to the private sector leaves the head of state with more money to spend on other projects that could increase the government spending and eventually increase AD.

This shift of aggregate demand could possibly occur if enough money was saved as suggested in the article.

From the company's point of view, profit maximization is its purpose, appearing to be the cheaper alternative makes them look attractive to governments thus more inmates and therefore more spending from the government. These private facilities exist only because they try to appear cheaper. If it were not the case, no government would try to let the sentence of prisoners into the hands of private prisons.

Another factor appears which is transparency; public prisons are much more open to inspections and visitors then the private contractors, thus overview of the regulations and respect of laws and violations are much harder to grasp than in public establishments.

Omar Ayoub G11 Economics

Finally privatization is a possible way to go because there are increased returns on sales, assets, and equity, raised internal efficiency, improving capital structures, and increased capital expenditures. Revenue maximization should not be the primary goal of privatization. It is far better to eliminate monopoly power and unleash potentially competitive activities than to boost the sales price by depriving them into protected markets.

This article suggests that privatization is a negative thing but countries have benefited from privatizing management without privatizing the ownership of assets.