Topic Videos
Privatisation - 2021 Revision Update
- Level:
- AS, A-Level, IB
- Board:
- AQA, Edexcel, OCR, IB, Eduqas, WJEC
Last updated 6 Feb 2021
Some of the key arguments for and against privatisation are explored in this revision video.
What are the core arguments for privatisation?
- Fundamental belief in the power of markets and the price mechanism
- Private companies have a profit incentive to cut costs and be more productively efficient by raising labour productivity.
- Government gains significant revenue from the sale of assets. This money may then help to lower government (national) debt as a % of GDP
- Privatisation might help to create a shareholder democracy– more dispersed share ownership.
- 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?
- Social objectives are given less importance when a business operates for private profit
- Some activities are best run by the state because they are strategic such as water supply and railways with features of a natural monopoly
- Government (and taxpayers) lose out on dividend income from any future profits.
- Public sector assets are often sold too cheaply – Example: water companies were handed to private companies almost free of debt in 1989.
- Shares often bought by large institutions such as pension funds, insurance funds
- State-owned firms can be dynamically efficient (see Mazzucato’s “Entrepreneurial State”)
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