Privatization vs Public Sector
What is privatization? It is the process of transferring ownership of a business, enterprise, agency, public service or public property from the public sector (a government) to the private sector, either to a business that operates for a profit or to a non-profit organization. The term can also mean government outsourcing of services or functions to private firms, What is public sector undertaking? In India, public sector undertaking (PSU) is a term used for a government-owned corporation (company in the public sector). From my point of view, privatization is going to be a remedy for the financial ailments of our public sector undertaking.
Let’s discuss some factors about these two types of organizations. 1. Performance. Public sector undertaking tends to be bureaucratic. A political government may only be motivated to improve a function when its poor performance becomes politically sensitive. 2. Increased efficiency. Private companies and firms have a greater incentive to produce more goods and services for the sake of reaching customer satisfaction and hence increasing profits. A public organization would not be as productive due to the lack of financing allocated by the entire government’s budget that must consider other areas of the economy. . Specialization. A private business has the ability to focus all relevant human and financial resources onto specific functions. A public sector undertaking does not have the necessary resources to specialize its goods and services as a result of the general products provided to the greatest number of people in the population. 4. Corruption. A public sector undertaking is prone to corruption; decisions are made primarily for political reasons, personal gain of the decision-maker, rather than economic ones.
Corruption in a public sector undertaking affects the ongoing asset stream and company performance, whereas any corruption that may occur during the privatization process is a one-time event and does not affect ongoing cash flow or performance of the company. 5. Accountability. Managers of privately owned companies are accountable to their owners/shareholders and to the consumer, and can only exist and thrive where needs are met. Managers of publicly owned companies are required to be more accountable to the broader community and to political “stakeholders”.
This can reduce their ability to directly and specifically serve the needs of their customers, and can bias investment decisions away from otherwise profitable areas. 6. Goals. A political government tends to run an industry or company for political goals rather than economic ones. 7. Capital. Privately held companies can sometimes more easily raise investment capital in the financial markets. public sector undertaking industries have to compete with demands from other government departments and special interests. 8. Lack of market discipline.
Poorly managed public sector undertaking companies are insulated from the same discipline as private companies, which could go bankrupt, have their management removed, or be taken over by competitors. Publicly owned enterprises in competitive environments would not perform better than privately owned companies in the same circumstances in terms of profitability, Privatization reduces the net transfer to public sector undertaking from government as unnecessary subsidies. These transfers become positive if the government actually starts collecting taxes from privatized firms. Thank you.
