Privatization

Privatization is an existing mechanism in the economy through which the government makes an industry or an activity no longer part of the public sphere, being transferred or transferred from the State to private companies or organizations.

The concept of privatization is often related to tools to improve competition , which help companies to improve their cost structure, allowing products to be of higher quality and at lower prices, favoring the consumer .

Since privatization reduces state participation in the economy, it is identified with capitalist policies. This tool is opposed to nationalization .

Thanks to the economic phenomenon of privatization, individual and collective agents of a country’s private spectrum can participate in the control and ownership of different industries and sectors of economic life. Thus, they improve the competitive level of the nation and the range of companies present in the market.

At the same time, privatization supposes the reduction of power that the State has in the day-to-day business and finances, giving more weight to private agents and the government is in charge of supervising the markets.

By its very nature and definition, private companies seek business development and the exploitation of goods and services to maximize their profit, while the State seeks to satisfy the needs of citizens.

In this sense, debates are frequent on which sectors or areas should be privatized or not, attending to points such as security, the welfare of citizens, social justice or different ideological or political points of view.

Proponents of the privatization of the means of production often argue that private enterprise is generally a better manager than the state, which is prevented by the bureaucracy or its many responsibilities from carrying out this task efficiently.

Furthermore, when a company is public, it is the citizens who bear the possible losses resulting from improvable management. On the other hand, when it is private, it is the company itself that bears all the risk.

Liberals defend that in a market where there is competition, companies are able to improve products and services, changing the cost structure in order to offer more quality at lower prices. For this reason, reducing the role of the State and its interference in the markets is one of the bases of capitalism and of the most recent western economy.

Privatization methods

Some forms of privatization are:

  • Sale of formerly state-owned companies to private agents.
  • Transfer functions of administration of public goods and services to private, which do not become owners of the same but can manage their exploitation during a certain period. It is usually done through public contests.
  • Partial privatization, in which the State purchases certain services from private companies so that they do not have to develop them themselves.

 

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