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Privatization: Governments
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Privatization is a management approach that is of widespread interest to many - academicians, politicians, state employees, private sector vendors, and the public at-large. According to some experts in the field, privatization's competitive nature offers flexibility, innovation and, in many cases, cost-savings. Tags: Sourcing, Privatization, Government, Purchasing & Procurement, Strategy, Leadership, Financial Accounting, Business Operations, Management, Finance White papers 2005-04-29
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Privatization is the incidence or process of transferring ownership of business from the public sector (government) to the private sector (business). In a broader sense, privatization refers to transfer of any government function to the private sector including governmental functions like revenue collection and law enforcement. [1].
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Privatization may show short-run savings. This is because private contractors will purposely under-estimate costs at the beginning in order to get a contract. This is called "low-balling" or "buying in." But once government work is turned over to a private business, the drive to produce profits takes over and contract costs rise. Contractors will pad later contracts with unnecessary expenses. After a while, government loses the ability to perform the work and becomes dependent on the contractor, no matter what the cost.
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Privatization emerged within the context of growing government activity in such fields as education, public safety, welfare, libraries, health, and transportation. As governments grew, reformers pushed to centralize administration, employ experts, and keep out politics in order to promote efficiency and accountability. But in the 1980s and 1990s, privatization became an increasingly popular management tool for local officials responding to financial limitations, citizen demands for services, opposition to tax increases, and unfunded intergovernmental mandates. Under Mayor Richard M. Daley, the city of Chicago privatized a variety of services, including janitorial services, parking at O'Hare Airport, parking enforcement, street resurfacing, engineering, purchasing, vehicle towing, and delinquent tax collections. According to city estimates, Chicago saved approximately $56.6 million from 1989 through 1995 through privatization and consolidation of services.
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In 1993, cash privatization was the main type of privatization implemented in Bulgaria. In this type, 20% of the government owned assets of a company are issued to the employees, by purchasing shares at 50% of the set price of value. Another type of privatization which occurred along side this initial phase of cash privatization was insider privatization, This has continued along side the other type of privatization as well, mass privatization. Insider privatization... known as management-employee buyouts, entails the transfer of shares to workers and managers. But, the catch with this type is that the managers are the true winners. And it is also important to note that managers started to obtain more independent control of their companies before the fall, and this power has continued in the current process of privatization.
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Privatization in Africa remains highly controversial and politically risky. There have been numerous strikes against proposed sell-offs of state enterprises as unions fear lost jobs or reduced benefits. Student activists, academics and others have condemned both the theory and practice of privatization. Some indigenous business groups have criticized the prominent role of foreign companies in the privatization process. Even high-level government officials, such as Gabonese Interior Minister Louis Gaston Mayila, have denounced privatization as a form of "economic recolonization." In a few countries, opposition to privatization has been cited as one factor in the ouster of incumbent governments, either through election or military coup.
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