Privatisation
A Game Changer or a Recipe for Disaster?
Privatisation becomes a trend on or off the global stage, where the state transfers ownership and control of public assets and services from the government to private entities.
Privatisation is a controversial topic with advantages and disadvantages; its implementation varies by country and industry.
The trend of privatisation has been happening globally for decades.
The idea behind privatisation is to bring about more efficiency, innovation, and cost savings in certain industries traditionally managed by the government.
It provides opportunities for private companies to enter markets and compete with state-owned enterprises.
Many countries privatised industries such as telecommunications, airlines, and utilities.
In some cases, privatisation led to significant improvements in service quality and cost savings; in others it led to negative consequences, such as job losses and higher prices for consumers.
The process of privatisation is complex and varies by country and industry. While it can have potential benefits, it also has potential risks and requires careful consideration and planning to be successful.
In 2021, the Indian government announced plans to privatise parts of its railway network, including passenger and freight operations.
The same year, the Brazilian government completed privatisation of its State-owned oil company, Petrobras, by selling off its remaining shares.
In 2013, the United Kingdom government privatised Royal Mail, selling 60 per cent of postal service to private investors.
In 2019, the Saudi Arabian government partially privatised its Stateowned oil company.
In 2016, Greece privatised 14 of its regional airports.
These nations had their reasons to privatise, the success of which will be known only in years to come.
What is privatisation?
Privatisation is the process of transferring ownership and control of a State-owned or publiclyowned asset, property, or service, to a private entity, usually a corporation or an individual.
It can involve the sale, lease, or transfer of ownership or management from the government to private individuals or businesses.
The aim is often to improve efficiency, reduce government involvement in the economy, and promote competition in the market.
Privatisation can occur in various sectors, including healthcare, education, transportation, and utilities such as water, electricity, and telecommunications.
For and against
Private companies, compared to State-owned companies, are often incentivised to increase efficiency and profitability, in order to stay competitive.
This can lead to cost savings and increased productivity in previously State-run industries.
Privatisation can make industries more attractive to investors, leading to increased investment and growth.
It is also possible to sell Stateowned assets to generate revenue for governments, which can be used to pay off debt or invest in other areas.
Privatisation can lead to reduced access to essential services, particularly for marginalised communities who may not be able to afford the cost of services provided by private entities.
It can often lead to job losses as private companies may seek to reduce costs by laying off workers or outsourcing jobs.
Privatisation can often result in an unequal distribution of benefits, with profits and benefits accruing to a small group of shareholders or executives, rather than reinvested in public, or used to improve working conditions or wages for workers.
This can lead to reduced accountability and transparency in decision-making processes, which can have negative impacts on workers and communities.
In some cases, markets may not function efficiently, leading to market failures that can result in reduced quality of services or products, or even negative externalities, such as environmental damage or social harm.
Approach to Privatisation
There are several options for privatisation; the appropriate option will depend on the specific circumstances of the asset or entity.
The choice of privatisation option will depend on a range of factors, including the goals of the privatisation initiative, the political and economic context, and preferences of stakeholders.
Asset sale is the most common method of divestment, which involves selling the asset or entity outright to a private entity,
Another popular approach is public-private partnership (PPP), where the government partners with a private entity to jointly own, operate and manage the asset or entity.
This can be done through various structures, such as build-operatetransfer (BOT) or build-own-operate-transfer (BOOT) models.
In some instances, a management contract-approach is used at the initial stage.
Under this option, a private entity is contracted to manage the asset or entity on behalf of the government, for a specified timeframe.
The government retains ownership of the asset or entity, but the private company takes over the day-to-day operations.
Best option
Is the Peoplisation the same as privatisation?
In general, the concept of peoplisation could be understood as the process of prioritising people and their needs, over other factors, such as profit or efficiency.
In the 1990s, Sri Lanka ventured into privatisation of its stateowned tea plantation, with more than 500,000 employees.
All plantations were grouped into 15 companies and listed on the stock exchange by selling the majority on live bidding process.
The balance of the shares were to sold to the public.
Government held one golden share in every company with special rights, thus becoming a successful model of peoplisation.
Global Stage
In 1984, the UK privatised British Telecom, which at the time was the country’s largest State-owned company.
The move helped modernise the telecommunications sector in the UK. British Telecom went on to become one of the world’s leading telecommunications companies. In late 1980s, Chile implemented a comprehensive privatisation programme that included the privatisation of the country’s pension system.
The system has been highly successful in providing retirement benefits to Chilean workers, and was emulated by many other countries.
In 1987, Japan privatised its national railway system, which was one of the largest State-owned enterprises in the country.
The move helped improve efficiency and reduce costs, while promoting competition in the rail industry.
In 1985, Singapore privatised Singapore Airline, which became one of the most successful airlines in the world, for its high levels of service and efficiency.
While there are many examples of successful privatisation initiatives, there are also instances where the process did not go as planned, or resulted in negative consequences.
After the fall of the Soviet Union, Russia implemented mass privatisation in the 1990s.
The process was marred by corruption, insider dealing, and the emergence of oligarchs who became wealthy through the privatization of State-owned assets.
This has been criticised as a major factor in the country’s economic and political instability in the years since.
In the late 1990s, California de-regulated its electricity market, which was intended to promote competition and reduce costs.
However, the process led to market manipulation, price spikes, and power outages, which had significant negative impacts on consumers and the economy.
In the mid-1990s, the UK privatised the country’s rail network, which was intended to improve efficiency and reduce costs.
However, the process faced significant criticism because of issues such as reduced service quality, increased fares, and the fragmentation of the rail network.