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What is privatisation? Privatisation is the selling of a resource or company that was once owned by the government.
How does it happen?The first step to privatising a resource or company is to
decentralise the industry in which it operates. This means removing government regulations on the industry. So, say for instance the government has a regulation in place which says that only one or two airlines are allowed to operate in Australia. If it wanted to decentralise the airline industry it would remove this regulation, therefore opening up the market. Most of the time regulations like these exist in industries where government-owned enterprises operate.
Decentralisation is a step towards
corporatisation, which means turning a government-owned and ran organisation into a company. The company is still owned by the government but it sets out to make a profit, rather than just providing a service. Corporatisation is a step towards the government selling a company it owns to the public.
Why does the government own businesses? In the past, governments saw ownership of many essential services as a way of controlling development. It also allowed them to control the population's access to services, including hospitals, schools, banks, telecommunications, water, electricity and gas. Under government ownership, these organisations operated to provide a service to the public, rather than earn a profit.
Why sell? Generally competition makes things cheaper. Government-owned organisations are usually the only organisations providing a particular good or service in the market. This means there is no competition, which is called a monopoly. Operating in a monopoly allows a company to pretty much set their own prices.
So, government-owned organisations usually have a free range to set prices, which arguably leads to money being wasted. This is because these organisation's don't generally operate to make a profit, which means they could be run more cost-effectively.
Selling a government-owned organisation and deregulating the market they operate in, allows for competition which means prices are pushed lower and lower as competitors compete for consumers. An example of this is the deregulation of the Australian telecommunication industry in the 1990s.
Telstra, formerly Telecom, was once the only choice consumers had for phone services. After deregulation, competitors were able to enter the market and more choice was available in the form of companies like Optus and Vodafone. Around a half of Telstra was sold in the late 1990s and as time goes by more and more of the company is being sold into the public ownership.
If stuff get cheaper what’s wrong with privatisation? The system of government-owned services was in part established to allow some equality in the population's access to services. There are concerns that privatisation will lead to companies withdrawing services from particular markets because there is no means for profit. For example, after the privatisation of the Commonwealth Bank in 1991 many of the bank's branches in rural Australia closed because they couldn’t operate at a profit. So, there is concern that further privatisation of government-owned services will mean that some members of the public are denied access to these services due to circumstances largely beyond their control.
Big examples of Privatisation!
- The Howard Government has been selling Telstra to the public, step by step. Some people think this will lead to fewer services for the bush. Others argue that it guarantees a more cost effective way of operating the telecommunications industry.
- Many states have privatised services such as electricity and gas.
- The Commonwealth Bank was privatised in 1991.
How do I know this?Kryger, T 2005, 'The incredible shrinking public sector', Parliament of Australia Parliamentary Library,
http://wopared.aph.gov.au/Library/pubs/rn/2005-06/...Sloman & Norris 2002,
Macroeconomics, Second edition.
Taylor, J & Frost L 2002,
Microeconomics, Second edition.
