Privatisation

Question 1

What is privatisation?

Answer 1

Privatisation involves selling state-owned assets to the private sector such as Royal Mail.

Question 2

Benefits of Privatisation

Answer 2

1. Reduced government intervention
2. Removing borrowing limits, private companies are free to borrow and invest in new lines
3. Private companies are usually more efficient as there is usually little incentive to cut costs and increase profits
4. Improved public finances
5. Increased competition

Question 3

Issues with Privatisation

Answer 3

1. Barriers to entry, there are significant barriers to entry which may make it difficult to keep costs high and may prove difficult to increase competition. Industries like water and railways can be seen as a natural monopoly. Therefore, privatisation could create a single private monopolist and not actually increase competition.
2. The argument that public services should be in the publics interest, but firms may have profit incentivising interests.
3. Positive externalities, if the government manages these industries such as railway they may be able to correct market failure.