D.
Advantage and Disadvantages of Privatization
ADVANTAGE: INCREASED COMPETITION
In the business world, competition is a good thing. Competition drives
entrepreneurs and service providers to innovate the products and services they
offer and work to make their offerings more appealing to consumers than their
competitors'. When the government is the sole provider of a service, there is no
impetus to consistently innovate or serve the consumer – resident under the
government's jurisdiction – better than he was being served before. Competition
pushes service providers to lower their operating costs, which can mean the
savings are passed onto consumers. Greater efficiency cuts down operating
costs, which in turn benefits consumers by serving them promptly.
ADVANTAGE: IMMUNITY FROM POLITICAL INFLUENCE
When a public service is privatized, it can become immune to political influence.
This is because instead of having companies and special interest groups vie for
favor from the government office in charge of the service by making strategic
campaign contributions and providing vocal support, the private provider is
focused on profit. That doesn't mean there's no chance for corruption, though. In
some ways, privately operated public services have a greater corruption risk than
services provided by the government.
ADVANTAGE: TAX REDUCTIONS AND JOB CREATION
By providing public services more efficiently and at a lower cost by privatizing
them, governments can lower the taxes they impose on residents. In some
cases, privatizing a public service like a prison can create job opportunities for
residents in an area, increasing the quality of life for them and strengthening the
local economy.
DISADVANTAGE: LESS TRANSPARENCY
One important disadvantage to recognize is the opportunities for bribery and
corruption that come with privatization. Typically, private companies are less
transparent than government offices, and this reduced transparency paired with a
drive for profit can be a breeding ground for corruption.
DISADVANTAGE: INFLEXIBILITY
There is also the issue of inflexibility that can come with privatization. Typically,
governments sign lengthy contracts with private service providers. These
contracts can span for decades, locking residents into one service provider for
lifetimes. Although a private company might make itself attractive to win a
contract, its service can take a quality nosedive once it's in place and its
consumers are complacent.
DISADVANTAGE: HIGHER COSTS TO CONSUMERS
Although privatization is usually promoted on the basis that it will reduce
consumers' costs, it can also drive costs up. According to nonprofit consumer
advocacy group Food & Water Watch, a proposed private water service for
Milwaukee would cost residents 59 percent more than they were paying for
public water service.
PRIVATIZATION PROS AND CONS AT A GLANCE
In short, privatization pros and cons are:
Pros
Greater efficiency.
Lower taxes for residents.
Reduced opportunities for political influence to drive services.
Better services through competition.
Cons
A greater opportunity for fraud and corruption to occur.
Higher costs for consumers.
Inflexibility due to long-term contracts.
Profit, rather than residents' needs, as a primary motivator.
It is clear that many of the benefits and drawbacks of privatization stem from the same
root cause. The quest for profits by private entities and the need for efficiency on the
part of governments are the driving forces behind privatization. Each and every benefit
and drawback associated with privatization is, in some way or another, a direct or
indirect consequence of this obsession with profit.
E. Case Studies in Other Countries
“Privatization, telecommunications and growth in selected Asian countries: An
econometric analysis.”
C Chakraborty and B Nandi, 2003
This case study explores the effects of privatization on telecommunications and growth
in a number of Asian countries. The authors use econometric research to examine the
impact of privatization on the telecommunications sector in Malaysia, India, and
Thailand.
The authors examine the influence of privatization on the quality of services supplied by
the telecommunications sector in particular. They discover that privatization of the
telecommunications sector has resulted in a significant improvement in the quality of
services offered by the telecoms industry in the nations studied. Furthermore, the
authors examine the influence of privatization on economic growth in the nations
studied.
They discover a positive relationship between privatization and growth. This shows that
privatization of the telecommunications sector has led in increased economic growth in
the nations studied.
Thus, case study presents evidence that privatization of the telecommunications
industry has resulted in a considerable improvement in service quality and an increase
in economic growth in the selected Asian countries.
https://citeseerx.ist.psu.edu/document?
repid=rep1&type=pdf&doi=b1549f9e66c6fb53dd4ba83edd19239bad9cef04
"The privatization of Japan railways and Japan post: Why, how, and now."
Kim & Huang, 2021
The privatization of Japan's railways and postal services has drawn criticism in recent
years and continues to be a controversial issue in the country. In their work, CJ Kim and
MC Huang studied the history as well as the current situation of Japan's efforts to
privatize public services. They stated that the process of privatizing these services
began in the 1980s as a result of efforts made by the Japanese government to
deregulate its markets so that it could continue to compete with other sophisticated
countries.
In addition, the notion that private rivalry will boost efficiency while simultaneously
reducing costs has served as the primary impetus for these endeavors. On the other
hand, Kim and Huang stated that the Japanese public has been largely opposed to the
privatization of these services because of the idea that it may lead to increased costs
and a lower quality of service.
In spite of this criticism, the government of Japan has persisted in its pursuit of
privatization in the intention of making the economy of the country more competitive. As
of the year 2021, the privatization of Japan's railway and postal systems is still in the
process of being carried out, and it is unknown what consequences these efforts will
have.
https://www.adb.org/sites/default/files/publication/539746/adbi-wp1039.pdf
"The market for force: The consequences of privatizing security."
DD Avant, 2005
In recent times, a significant trend that has been observed is the privatization of
security. This pattern has resulted in a variety of outcomes, some of which are favorable
while others are less so. Because private companies are able to undercut the cost of
government-based security services, on the one hand, the cost of providing security
services has decreased, which is a positive development.
In addition, private companies are able to provide services that the government is either
unable to supply or is unwilling to provide. These services include the protection of
corporate assets and military activities. On the other hand, privatization security might
provide challenges in terms of monitoring and accountability. Because private
companies are not subject to the same transparency and scrutiny as government-run
security agencies, it can be challenging to monitor the operations of private corporations
and determine whether or not appropriate standards are being fulfilled. The employment
of private security might also result in a lack of standardization in security standards,
which makes it more difficult to ensure that all citizens are kept safe.
In the end, the implications of privatizing security need to be thoroughly considered
before any judgments can be made.
https://books.google.com/books?
hl=en&lr=&id=HWuLbkWCRwAC&oi=fnd&pg=PR9&dq=The+Pros+and+Cons+of+Privat
ising+Military+Force&ots=tmNfsOsBmL&sig=6VQ138NyvfoRzwpJ6bWhrJHXj44
