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What are the advantages and disadvantages of the privatisation of government-owned companies such as airlines?

The advantages of transferring government-owned assets to the private sector are increased efficiency and profits, largely because competition incentivizes innovation and improvement. The disadvantages of privatization are decreased regulation and government revenue. Institutions not owned by the government do not directly deliver the government revenue, and these institutions also have more freedom to pursue their own interests, which may negatively affect consumers, without government control.

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Tim Mbiti eNotes educator | Certified Educator

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Privatization is the transfer or sale of government-owned assets/institutions to the private sector.

Advantages

Privatization is most of the time associated with improved efficiency due to the profit incentive. Private companies will ensure they improve their operational efficiency in order to reduce their costs and improve on profits.

Privatization reduces the government’s political interference. The government sometimes seems incapable of making hard decisions especially when they impact their political footing such as layoffs and pay cuts which are bound to attract negative publicity.

Privatization urges improvements in the company through competition. When a state owned entity is privatized it loses its government protection and is forced to adapt to the market by providing better services or products in order to survive and thrive.

Disadvantages

Privatization of certain state entities such as water and electricity authorities may just create single monopolies. These may eventually seek to increase prices at the detriment of the consumer with no controls.

The government loses dividends after privatization as seen with most successful companies that are developed through privatization. These dividends are instead channeled to wealthy individuals.

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There are both pros and cons of privatizing companies or businesses held by the government. 

Selling off a business gives the government access to instant capital which can be used elsewhere, as needed. It also ensures that the government will not need to worry about recurring expenses like wages, maintenance, etc. This is especially important for a business making a loss. And the government will not have to divert taxpayers' money to save such business. Privatization, however, will also mean that a profit making entity can...

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