Privatisation Flashcards
Privatisation
A firm or industry is transferred from a state of ownership into private ownership
What are the 2 meanings of privatisation ?
De- nationalisation
Contracting out - state own firms hired private firm to provide ancillary services
Problems with privatisation
If service can be run for profit , price can’t be allocatively efficient
Cutting costs to improve efficient may also reduce quality
May not be profitable and , government may need to step in anyways
Short term gains in cash and long term loss in tax revenue
Advantage of privatisation
Reduces budget deficit and raise revenue allowing government to reduce taxes
In privatisation how much are asssets sold for?
Significantly less than their true value
In privatisation how much are asssets sold for?
Significantly less than their true value
Who values the business higher the market or the government ?
The market
Advantages of privatisation
Revenues raised for government (from sale of asset and corporation tax)
Reduced public spending/ borrowing
potentially promotes competitions
Market forces and competition promotes productive and allocative efficiency
Popular capitalism promotes and enterprise culture
Disdavtage of privatisation
Risk of abuse of monopoly power
Short termism vs long term view
Seeking capital assents to pay for day to day expenditure
Risk of selling assets too cheaply to promote popular capitalism and quick sale
Disdavtage of privatisation
Risk of abuse of monopoly power
Short termism vs long term view
Selling capital assents to pay for day to day expenditure
Risk of selling assets too cheaply to promote popular capitalism and quick sale
Risk of abuse of monopoly power
Poor quality (offering inferior products) since consumers have no other alternatives
Predatory pricing- setting prices so low rival firms cannot compete and are forced to leave the market
Setting prices too high
Short termism vs long term view
Focuses on immediate profit and quick return on investment at expense of sustainable growth and innovation
