Th3.6: Advantages of Privatisation

Question 1

What are the five advantages of privatisation?

Answer 1

greater competition
accountable
reduce the public sector net cash requirement
reduces government interference
utilities into the hands of people

Question 2

Greater competition

Answer 2

it encourages greater competition which reduces X-inefficiency and ensures low prices and high quality as firms realise they need to be competitive

Question 3

Accountable

Answer 3

managers become more accountable, since they know poor performance will mean a fall in share prices and/or shareholders wanting them to be replaced

Question 4

Reduce the public sector net cash requirement

Answer 4

in both the long and short run it can reduce the public sector net cash requirement (PSNCR) as the initial state of shares raises revenue for the government and they no longer have to cover any of the firm’s losses

Question 5

Reduces government interference

Answer 5

reduces government interference which some see as a benefit itself. this also means that firms can invest with greater certainty, instead of worrying about change when a government is elected every 5 years

Question 6

Utilities into the hands of people

Answer 6

an idealogical argument is that it puts utilities into the hands of people, since they can own shares. workers will be more motivated as they know their hard-work will be rewarded by high dividends