Privatization, which has gained momentum since around the 1980s, has become the hallmark of the new wave of economic reforms sweeping the globe. It refers to the transfer of ownership or management of a company from the public sector to the private sector. It also means the withdrawal of the state from an industry or sector, partially or totally. Privatization marks a shift from dogmatism to pragmatism and amounts to a change in policy. It is clear that the rate of economic growth has multiplied since privatization began.
The performance of SOEs in many countries has generally been far from satisfactory. This can be attributed to the prevalence of bureaucracy and the red carpet in most public sector administration. They have often placed heavy burdens on public budgets and foreign debt. Economic inefficiencies in productive activities with high production costs, inability to innovate, and costly delays in the delivery of produced goods are some of the shortcomings of the public sector. There is also inefficiency in the provision of goods and services, such as the failure to meet the expected objectives, the diversion of benefits to elite groups and political interference in the management of companies. The relationship between management and unions is tense due to the expansion of the bureaucracy.
These problems have led governments to undertake public sector reform programmes. One of those reforms is the privatization of public management activities to eliminate inefficiencies and improve the rate of economic growth. For privatization to be successful:
- Privatization cannot be sustained unless the political leadership is committed to doing so and unless it reflects a change in public preferences arising from dissatisfaction with the performance of other alternatives. Today, private sector companies have begun to dominate even core industries such as oil, energy, and communications, under the leadership of visionaries who may be heads of state or owners of such private organizations.
- Public services to be provided by the private sector must be specific or have a measurable result.
- Consumers should be able to link the benefits they receive from a service to the costs they pay for it. Since then they will shop more wisely for different services.
- Private services must be less susceptible to fraud than government services to be effective.
- Equity is an important consideration.
Privatizing state companies reduces corruption and the benefit goes to society. The process encourages entrepreneurship and leads to intensive development of the capital market. Governments generally want to sell the least profitable companies, those that the private sector is not willing to buy at a price acceptable to the government. The government may even fear that if it gives free rein to private sector management, its power could be at stake. All said and done, most governments view privatization as an important economic rejuvenation strategy.
