Privatisation refers to the process by which the government transfers the productive activity from the public sector to the private sector. It is basically the transfer of ownership from the central government to the private sector. A vast majority of economies have been supporting privatisation and have launched massive privatisation programmes during the last two-three decades ago. The supporters believe that privatisation and disinvestment has many advantages.
The first and foremost being improvement in efficiency and performance. Since private sector is profit oriented, the decision making is inclined more towards efficiency. Moreover, privatisation establishes a market for managers which improves the quality of management. Here fixing responsibility is much easier. Public enterprises cannot be held responsible for any lapse i their responsibilities but this is not the case with private sector. That is way the performance of private sector is better.
Decision making is faster in private sector in comparison to public sector. Delayed decision making is often equivalent to making no decision at all. The problem of red tapism which is present in public sector is absent in the private sector. In the contemporary businesses environment, it has become important to take spot decisions without wasting time. Remedial measures are also taken early in private sector. Because private sector faces threats of takeover, liquidation, loss of assets etc., the likelihood of taking remedial measures in advance is very common which is not quite often observed in the public sector.
The succession is well planned out in private sector. The public sector enterprises however, remain headless for long periods of time. This causes confusion and delayed decision making. Such a situation does not exist in private sector.
Privatisation leads to better customer service. This is due to the fact that the survival of a private sector enterprise depends on customer satisfaction, since it is the satisfaction that insures repeated buying and profit generation. For creating sustained markets for themselves, the quality of services offered by private sectors for their customers are quite good.
The critiques have however, criticised privatisation and disinvestment on the following grounds.
There has been undervaluation of assets. The performance on disinvestment front has been dismal. The main reason for this is the fact that disinvestment was carried out in a hasty, unplanned and hesitant way. It was launched without a required condition of its take off. Adequate efforts were not made for the much needed linkage between public enterprise and capital market. Considerable under pricing of public enterprises shares results in considerable loss to the government.
Critiques argue that privatisation leads to unemployment. Supporters call it marginal retrenchment of labour but still, the future employment scenario for labour is a cause of worry. Having low productivity jobs in public sector is a better alternative to unemployment as the later does not increase a nation’s income definitely does not increase welfare of workers.
Privatisation of PSUs is more risky. Since private sector is more interested in profit generation, critiques argue they won’t worry much about local labours and the costs would be borne by customers.