Privatisation Flashcards
What is privatisation?
The Government trying to reduce the role of the public sector and increase the role of the private sector by selling off businesses that it runs to the private sector.
Define deregulation?
The government makes it easier for private businesses to compete against public sector businesses where they used to have a monopoly. E.g- Local buses would be provided by local councils.
What is contracting out?
This is where the Government allows private businesses to provide services that the Government used to provide. E.g- Cleaning, most cleaners are employed by a cleaning company that is hired by firms rather than having their own cleaners, usually done to try and decrease costs.
Explain the Private Finance Initiative (PFI)
Where the Government gets the private sector to pay for major projects such as new schools or hospitals, they then rent it back from the private sector.
This saves money in the short term but is more expensive in the long run.
What are the 3 arguments for privatisation?
1) The Government uses privatisation to raise money, E.g- BBC, money could be used to improve public services or decrease tax.
2) Can be used to increase competition, which should lead to more choice and lower prices for consumers
3) Should lead to increased efficiency due to more competition (partly) and because the services are now run by private businesses that are under pressure to make a profit and so try be efficient.
Explain 3 disadvantages of privatisation
1) The public assets are sometimes sold off at a very low price, costing the Government a lot of money
2) They’ve not always succeeded in increasing competition (E.g- Water and Rail)
3) Often the main people that benefit from these privatisations have been the shareholders because they get more profit; and shareholders are often people that are already fairly well off. This increases inequality.
The main people who have lost out are:
1) The consumers, they have to pay a higher price
2) The workers, partly because of wages decrease, but some of them lose their jobs due to contracting out to save costs.
What is renationalisation?
This is where the Government buys back businesses it used to own.
What are the 3 arguments for renationalisation?
1) Privatisation hasn’t delivered the improvements it promised. Ie- has it lead to more competition? Lower prices? Or increased quality? No.
2) Since they’ve been privatised the businesses have paid out far too much of their profit to their shareholders and too little has been re-invested
3) Many of these businesses are natural monopolies and therefore it’s better if it’s run by the government to protect consumers.
Explain 2 arguments against renationalisation
1) Very expensive to buy all shares back so they take it back and give the shareholders barely anything in return which risks rich shareholders investing elsewhere, therefore opportunity cost must be considered.
2) Once renationalised the business knows it will never go bust because the Government can bail it out and therefore is under less pressure to be efficient.
