GPA 332-Public Enterprise (2).docx - Introduction Privatization is a fuzzy concept that evokes sharp political reactions It covers a great range of

GPA 332-Public Enterprise (2).docx - Introduction...

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Introduction Privatization is a fuzzy concept that evokes sharp political reactions. It covers a great range of ideas and policies, varying from the eminently reasonable to the wildly impractical. Yet however varied and at times unclear in its meaning, privatization has unambiguous political origins and objectives. It emerges from the countermovement against the growth of government in the West and represents the most serious conservative effort of our time to formulate a positive alternative. Privatization proposals do not aim merely to return services to their original location in the private sphere. Some proposals seek to create new kinds of market relations and promise results comparable or superior to conventional public programs. Hence it is a mistake to define and dismiss the movement as simply a replay of traditional opposition to state intervention and expenditure. The current wave of privatization initiatives opens a new chapter in the conflict over the public-private balance. This paper mainly looks at Savas analysis of privatization as the key to better governments, but before we talk about Savas analysis we will define privatization and briefly look at it from a different perspective. Privatization, also spelt privatization (in English), has several meanings. Primarily, it is the process of transferring ownership of a business, enterprise, agency, public service, or public property from the public sector (a government) to the private sector, either to a business that operates for profit or to a nonprofit organization. It may also mean the government outsourcing of services or functions to private firms, for example, revenue collection, law enforcement, and prison management. Privatization may also describe ownership changes not involving the public/government sector. The first is the purchase of all outstanding shares of a publicly traded company by private investors. The shares are then no longer traded at a stock exchange, as the company became private through private equity. The second such type of privatization is the demutualization of a mutual organization or cooperative in order to form a joint-stock company (Adams, 1990). Literature reviews 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. 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 1
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efficiency gains, many economists argue that these can be dealt with by appropriate government support through redistribution and perhaps retraining. Yet, some empirical literature suggests that privatization could also have very modest effects on efficiency and quite regressive distributive impact (Savas, 1995).
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