Advantages and Disadvantages of Privatization

Advantages and Disadvantages of Privatization

Advantages of Privatization

(a) Increase in efficiency: Privatization is associated with improved efficiency due to the profit incentive. Private companies will ensure they improve their operational efficiency in order to reduce their costs and improve in profits.

(b) Professional management: Government owned enterprises make poor economic management compared to private owned enterprises. This is because of the fear of negative publicity. Private ownership makes bold management decisions due to their strong foundation at international level.

(c) Increase in competition: Privatisation of state-owned monopolies occurs alongside deregulation i.e. policies to allow more firms to enter the industry and increase the competitiveness of the market. It is this increase in competition that can be the greatest spur to improvements in efficiency.

(d) Reduction in economic burden of Government: Since the ownership, control and management of many PSUs are transferred to private, the burden and responsibility of government has comparatively reduced.

Disadvantages of Privatization

(a) Lack of welfare: Majority of private companies whose main motive is profit-making, do not indulge in public interest or welfare services like free education to poor, free medical treatment, etc.

(b) Political pressure: When private companies fail to deliver, the public has no powers to intervene and government does not always have time or expertise to force them to keep their promises.

(c) Ignores the weaker sections: Privatisation often goes hand in hand with encouraging richer people to pay more and opt for best quality services. This leads to division, making it harder to provide excellent public services for weaker sections.