PRIVATIZATION VS NATIONALIZATION FULLY EXPLAINED

PRIVATIZATION and NATIONALIZATION are some of the recent words in discussions. 

Let us look at the details of each in a detailed manner. 

PRIVATIZATION

 is the process in which a domain, business, property etc., of value belonging to the public sector is transferred to the private sector, i.e., transfer of ownership from the government to a private sector, is termed privatization. It is considered to bring more efficiency to the company. 

Privatization can be done in 2 ways;

 (i) withdrawing the public sector (govt. in this case) from ownership and management of the same company or business or property. 

(ii) By Disinvestment (the outright sale of public sector companies/properties). 

NATIONALIZATION

It occurs when a private sector company’s assets are seized by the government either willingly or unwillingly. All the controlling powers/power of attorney is shifted from the owner to the government without paying for those assets. 

The company’s former owners may or may not be compensated for the losses they would incur in their potential income or net worth. NATIONALIZATION is a common thing in developing countries that see frequent regime changes.

DEMERITS OF NATIONALIZATION

 In these cases, the NATIONALIZATION is an excuse for the government to expand its economic resources and power. Public companies work for public benefit, and the profit goes directly to the government. The company’s workers are not motivated enough, and the company becomes less efficient. While the private companies work for profits and the profits go to the shareholders, the company needs to be as efficient as possible, so the workers get paid according to their work. 

Hence, the workers contribute their maximum to the company to get a promotion and get paid higher, thus bringing on the difference in efficiency compared to the nationalized or govt.-controlled companies.

 Privatization of companies brings competition in the market, letting private companies compete for the top position, ensuring better services at lower prices. In contrast, Nationalization demarks the market’s competitive nature as the profit incurred is directly sent to the Govt. Also, no competition means no innovation. While Nationalization aims for betterment for everyone, the same case does not apply to private sector companies. 

DEMERITS OF PRIVATIZATION

The profit incurred by the private companies goes to only some citizens, and other people are not benefitted. The best example is the privatization of the American education system, which included all schools being privatized. Privatization is sought to provide services at lower prices, but it is not always the same. The American schools, after being privatized, charged more for the education/services they provided. 

As the workers work for profits, a hike in the prices can be seen as every worker is ready to give their level best to get profits. And to keep up with the salaries of such hardworking workers, the prices for the services has to be increased. 

Also, many argue that free-market privatization majorly contributes to the formation of monopolies, i.e., for example, a company comes into the free market, bribes the official involved in law-making and passes a law that does not favour the other companies in the same department. The company becomes the monopoly of the same. Or, for another example, a foreign company comes to a country that is still developing. The shareholders see the companies competing have not grown enough, so the foreign company buys the companies in competition. This would result in single company supremacy, which is otherwise known as a monopoly. Of course, there are merits and demerits to both privatization and nationalization.

THE CONCLUSION

Both sides have their pros and cons, and hence the conclusion that comes out somewhat is the same as I said earlier. Both are favourable but only under certain circumstances. The government needs to enforce laws that prevent the general public from getting scammed or the companies establishing a monopoly in a particular industry during privatization and provision of a free market.

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