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Economics

Student Videos

Privatisation - 2021 Revision Update

Level:
AS, A Level, IB
Board:
AQA, Edexcel, OCR, IB, Eduqas, WJEC

Some of the key arguments for and against privatisation are explored in this revision video.

Privatisation - 2021 Revision Update

What are the core arguments for privatisation?

  1. Fundamental belief in the power of markets and the price mechanism
  2. Private companies have a profit incentive to cut costs and be more productively efficient by raising labour productivity.
  3. Government gains significant revenue from the sale of assets. This money may then help to lower government (national) debt as a % of GDP
  4. Privatisation might help to create a shareholder democracy– more dispersed share ownership.
  5. Private sector firms are more likely to be dynamically efficient (innovation) and increase investment spending in an industry

What are the core arguments against a policy of privatising state assets / businesses?

  1. Social objectives are given less importance when a business operates for private profit
  2. Some activities are best run by the state because they are strategic such as water supply and railways with features of a natural monopoly
  3. Government (and taxpayers) lose out on dividend income from any future profits.
  4. Public sector assets are often sold too cheaplyExample: water companies were handed to private companies almost free of debt in 1989.
  5. Shares often bought by large institutions such as pension funds, insurance funds
  6. State-owned firms can be dynamically efficient (see Mazzucato’s “Entrepreneurial State”)

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