There are a number of advantages and disadvantages to privatization. Whether the benefits outweigh the costs depends on the circumstances.
One of the advantages of privatization is that it increases competition. Competition drives the economy and improves the quality of goods and services. Consumers also receive better service. Privatization also provides jobs.
Another advantage of privatization is that it enables private firms to compete fairly. Competition results in a fairer pricing of goods and services.
Private firms can use retained earnings to finance research or purchase new capital equipment. They may also use them to reduce unit production costs.
Privatization also creates a more efficient and dynamic economy. Without the government’s interference, the market operates in an organic way. This allows for good customer response and higher revenue. It also gives citizens more choice and advantages.
Some of the downsides to privatization are the possibility of monopoly. A monopoly may set higher prices, fix wages and compromise the quality of goods and services.
The private sector generates over 90% of the country’s jobs. In developing countries, 80% of the government revenues come from the private sector. Similarly, in many countries, the private sector is responsible for most of the essential public services.
Private companies tend to operate on a profit-maximizationmaximization basis. Profit is more important to them than political motivations. That’s why they are often more competitive than publicly owned firms.
The privatization of loss making PSUs can raise fresh capital. In turn, it can bring in new leadership and directions. Moreover, it can improve the company’s performance in the long run.
