PRIVATIZATION  ABSTRACT:

Privatization is the incidence or process of transferring ownership of a business, enterprise, agency, public service or property from the public sector (the state or government) to the private sector (businesses that operate for a private profit) or to private non-profit organizations. Privatization generally is believed to improve the output, profits and efficiency of the organizations that are privatized.

 DEFINATION:
1. The transfer of ownership of property or businesses from a government to a privately owned entity. 2. The transition from a publicly traded and owned company to a company which is privately owned and no longer trades publicly on a stock exchange. When a publicly traded company becomes private, investors can no longer purchase a stake in that company.

 METHODS OF PRIVATIZATION:
There are four main methods of privatization: 1. 2. 3. 4. Share issue privatization (SIP) - selling shares on the stock market Asset sale privatization - selling an entire organization (or part of it) to a strategic investor, usually by auction Voucher privatization - distributing shares of ownership to all citizens, usually for free or at a very low price. Privatization from below - Start-up of new private businesses in formerly socialist countries.

 FORMS OF PRIVATIZATION:
There are five forms of Privatization,they are: 1) Complete Privatization Complete privatization is the outright sale of government assets to the private sector. This type of privatization not only confers assets but also the related responsibilities of ownership to the private sector. Government run industries and assets have generally been completely privatized through one of three main ways. The first way is share issue

privatization. The government sells shares of the government run company which can then be traded on various stock markets. 2) Privatization of Operations The privatization of operations is the turning over of managerial and operational responsibilities of publicly owned facilities to private sector firms. This kind of privatization is often seen with the running of sports and concert venues. Under this arrangement, the private sector firm generates revenue through the collection of fees from individual customers of the government asset. For example, the sports stadiums in New York City are managed by the baseball teams that use the facilities during the baseball season but are run by the New York City Department of Parks during the off season. This kind of arrangement can also be seen in transactions concerning the operation and maintenance of toll roads and toll bridges. 3) Contracting Out Contracting out is the production of designated services by a private firm under a contract. Under this scenario, the private sector firm is paid directly by the government for their services. The government finances these services through the taxes or the collection of user fees. This type of arrangement is commonly used for the collection and disposal of solid waste. Other types of services that have been privatized through this type of agreement include security services, data processing services, and consulting services for numerous professions. 4) Franchising Franchising is the awarding of exclusive rights to perform services within a specific geographic area to a private firm by a governmental unit. The private firm generates revenue by collecting user fees. Cable television is the most common example of this kind of privatization. Utilities such as electricity, gas, and water service could also fall under this category. 5) Open Competition Open competition is the last form of privatization under this classification. Open competition is similar to pure competition as many private firms are allowed to compete for customers within a governmental jurisdiction. This type of privatization can potentially be seen in telephone and internet service providers. This type of privatization is not appropriate for some services as it most likely would not be efficient to have multiple suppliers of electricity, gas, or water service.

 REASONS FOR PRIVATIZATION:

There are numerous reasons why governments turn to privatization.

1) Cost Reduction Governments often outsource operations due to the potential cost savings. Private sector service providers are often able to deliver the same services as the public sector but at a lower price. There are many reasons for this. Private contractors are not constrained by the restrictions of the civil service system and public employee collective bargaining agreements. Private contractors also have greater flexibility in personnel assignments and compensation packages. This leads to many private sectors offering salaries that can be increased via efficient operations, while public managers rarely have such bonus plans. 2) Risk Transfer Governments often desire to transfer the risks of certain projects to the private sector. By contracting out for certain services, the public sector is exchanging the risks associated with those services for a monetary sum. In these transactions, the private sector obtains the monetary rewards for doing these services, but also takes on the risk that these services will cost more or take longer to provide than estimated when agreeing to do them. The private sector could also face capital finance risks if they have agreed to finance a project also. By agreeing to these kinds of deals, governments are better able to budget as future expenses are less variable. 3) Source of Revenue The sale or lease of public assets can be used as a new revenue source. The sale/lease of toll roads, toll bridges, loan portfolios, buildings, and lotteries can be sources of large up front fees or extended fees depending upon the purchase or lease agreement. This new revenue can be used to pay down debt, fund new projects, or meet budgetary needs. This type of revenue generation is often used in lieu of taking on debt or raising taxes. 4) Quality of Service The quality of service provided can also be a reason for privatizing a service or asset. Private sector groups may be able to provide a higher level of service for a similar cost. Governments may be looking for a higher level of service but cannot provide it by themselves. The private sector may be able to meet the level of service desired without raising cost. 5) Expertise Contractors may be able to have expertise that governmental units do not wish to or cannot afford to provide in-house. These kinds of services

are often needed so rarely that it does not make financial sense to maintain staff with these skills. Examples of outside expertise that is often contracted for are architecture and engineering for the construction of buildings. 6) Timeliness The timeliness with which a project needs to be completed can also lead to privatization. In some situations, the government may have the skills to complete a project but they may not be able to complete it within the desired timeframe due to a lack of resources or time. Private groups can supplement the governments efforts and allow a project to maintain a time schedule that would otherwise not be met. 7) Flexibility Often, due to collective bargaining agreements, the public sector is unable to hire and release employees as easily as private contractors can. As such, private contractors are more able to cope with the seasonal demands of some projects which can call for a large amount of labor during parts of the year but less at other times. This can allow the public sector to complete projects without the hassle or cost of hiring and firing employees.

 PRIVATIZATION EXAMPLES:
This section will highlight examples of public private partnerships that have occurred around the world over the past few decades. The section will focus on six categories of transactions. Those categories include: 1) Toll Road, Bridges and Tunnels One of the most significant developments in public private partnerships is the lease of toll roads, bridges, and tunnels by state and local governments to private contractors. These kinds of transactions generally can take form in two ways, Brownfield projects and Greenfield projects. Brownfield projects are those that involve the use of previously in place assets or facilities. Brownfield projects occur when private vendors lease toll roads and bridges for a specified time period in exchange for a single upfront payment or an upfront payment and revenue sharing in the future. 2) Utilities Utilities.are mixture of private and public assets. Electric, gas, water, and sewer are services that have been provided by both public and private providers. These assets are usually provided at a regional level or municipal level when provided for by the public sector. The following section looks at how each of these services are provided in Illinois.

2.1) Electricity Eight investor-owned public utilities provide electric service to residential customers in Illinois.These companies are under the regulation of the Illinois Commerce Commission (ICC). These utilities include: AmerenCILCO AmerenCIPS AmerenIP Commonwealth Edison Company Interstate Power and Light Company MidAmerican Energy Company Mt. Carmel Public Utility Company South Beloit Water, Gas, and Electric Company Similar to electric service, there are local municipal gas systems about13,which are not under the regulation of the ICC and could be candidates for privatization. 2.2) Water and Sewer Water and sewer utilities tend to be the most publicly owned utility in Illinois. Of the 1,782 public water suppliers and 808 public sanitary sewage systems with treatment facilities within the state, only 31 water, 4 sewer, and 13 combined water and sewer utilities are investor owned. These privately owned utilities provide water for approximately 1.2 million people and sewer service to 127,000 people. These investor owned utilities are concentrated in the Chicago metropolitan area. 2.3) Airports Complete airport privatizations have been more prevalent throughout the world than in the U.S. Airport privatizations have taken place in Australia, Great Britain, Canada, Mexico, and The Netherlands. The major reason why airport privatizations have happened more frequently outside the U.S. is how airport planning, design, financing, and management have been organized. 2.4) Rail and Bus Service Rail and bus service that is provided by mass transit districts could be privatized. Under general law,local mass transit districts may be created to operate, maintain, or subsidize transit services through ordinance or resolution of one or more municipalities, counties, or any combination thereof. Examples of mass transit districts include the Metro East Mass Transit District, the Chicago Transit Authority, and the Springfield Mass Transit District. 2.5) Buildings Generally, the design and construction of buildings has been privatized. Recently the financing operation, and maintenance of buildings have been conducted more frequently by the private sector. Beyond the construction of buildings, they are also assets that can be leased or sold to the private sector.

The state owns hundreds of buildings, parking garages, parking lots, and land through its numerous departments and agents. A large amount of these assets are managed under the Department of Corrections, the Department of Natural Resources, and within state universities. 2.6) Educational Services Privatization of educational services has been a controversial issue around the country within recent years. The practice of using public money to fund private school vouchers has been tried in different areas around the country. During the 20042005, there were 3,884 schools in 879 districts within the State. Over 2 million students attended public schools during that school year. Over 225,000 students attended non-public schools. Illinois had 1,435 nonpublic elementary, secondary, unit, and special education schools. Between the 1994-95 and 2004-05 school years, the number of students attending public schools increased 9.4%, while the number of students attending nonpublic schools decreased by 14.4%.

2.7) Medical Services Approximately 23% of the 4,895 community hospitals in the U.S. are run by state or local governments. In 2001, the cost of a stay at a public hospital ($7,400) was 24% higher than a stay at a private-for-profit hospital ($5,972). Supporters of privatization in medical services cite bureaucracy, red tape, and outdated medical reporting and accounting systems as reasons for higher costs and lower quality of service in public hospitals.

 ADVANTAGES OF PRIVATIZATION
y Cost reduction:

Privatizing of public sector will lead to more competition in the market,this competition forces bussiness to become more efficient,so they use scarce resources.This reduces the cost which can be passed down to consumers in the forn of lower prices,hence Private sector service providers are often able to deliver the same services as the public sector but at a lower price. Private contractors also have greater flexibility in personnel assignments and compensation packages. This leads to many private sectors offering salaries that can be increased via efficient operations, while public managers rarely have such bonus plans.

Source of revenue:

The sale or lease of public assets can be used as a new revenue source. The sale/lease of toll roads, toll bridges, loan portfolios, buildings, and lotteries can be sources of large up front fees or extended fees depending upon the purchase or lease agreement. This new revenue can be used to pay down debt, fund new projects, or meet budgetary needs. This type of revenue generation is often used in lieu of taking on debt or raising taxes. y Improves the service quality:

transparent and competent this will surely improve the services. Today private sector is constantly working on how to satisfy thier customers and to get the number 1 position hence privatising would definately help to reduce the corruption

Increases work efficiency:

The main reason is in any private organizations contains so many employees. Here each and every employee should be monitored by the management and they believe in perfection, profits and efforts which will lead to a better service and performance as their main aim would be to establish in market and maintain the standards. And at the same time they will also have fear of competition among employs and companies so they strive for perfection and ultimately provides better services by private sector,even if any employee is denied to do their job properly, they can simply punished by management.This doesnt happen in government office, it is simply providing so many offer to the people but they can't able monitoring the things. That is the main drawback and in public sector each of the employee are able to get their salary with or without working properly.

In the private firm,one is paid proper salary if he/she does proper work so this utimately increases the work efficiencies of employee.Sometimes what happens in public sector is that employees tend to be casual in there duty n do not work properly which leads to delayed and inefficient work. It also leads to expose ones talent in a particular field and learn the work culture and also have privac in doing a work.

Development would be faster(due to competetion with the other private parties):

No political interference:

The public sectors which directly deals with the people should be privatized. There are major advantages in privatizing the public sectors, the work process can be made faster than in public sectors because the people work in private sectors have to do their jobs well because the wages in private companies depend on the performance which is totally contradict to the public sectors. In private sectors the employees are strictly prohibited to get bribes for people and if they do so we can immediately approach their higher officials without any hurdles or long procedure unlike in public sectors. y Innovative solutions (due to again competetion with the other private parties):

As it is owership oriented in private sector so no political parties are involved in it whereas in public sector political parties plays an important role or else totally rule the government in short so corruption increases which is explained later.

Less Corruption :

We all know corruption in public sector side like 2g scam, cwg, etc which ruled the entire country for the past 1year. It is very clear that public sector there is lot of corruption. Privatisation really will help in rooting out the corruption. Since privatizing the company would save us a lot of money as there won't be any queue or no government officer would be there to ask bribery. Private sector is more

In a market,if any company need to establish or stand separately then it should produce such a product which has unique features or good quality product so as to gain profit and attraction of the customers so this leade to the development of new innovative technology due to privatization y Other advantadges of privatizations are: o Increase the productivity o Significant Growth in the business o Effective & Time bound results o Introduction to new technology

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The improvement of infrastructure and delivery of public services by the involvement of private capital and expertise. Financially individual salary is increased,increases the economy of country The generation of additional government revenues by receiving compensation for privatizations. Increase in savings of country The enhancement of the capital markets.

Conclusion: Anyways,everyone want to see clean roads, better communications, no queues in any off the private sectors, better standard of living and after all a huge saving of taxpayers money, huge tax generation,this all are possible only due to privatization

 DISADVANTAGES OF PRIVATISATION
y Hamper coordination

 BENEFITS OF PRIVATIZATION in
y Banking sector: Due to privatization in banking sector o There was a great increase in the no.of bank branches from 8262 to 45,898. o Branches in rural or semi urban sectors increases from 2% to 40% after privatization. o Credits to agriculture increases from Rs.162 crore to Rs.4,46,496 crore. o Private sector banks provide many additional services to its customers. Airlines: Due to privatization o It improves the efficiency and services. o Utilize private funding to design,build and finance the airport facilities. o Minimize government involvement in operation and maintenance and public funding. o Modernize air and land side facility. o Help to increase the capacity of airport system. Medical services Education Other like urban bus transport, parcel delivery services, telecommunications, and gas and electricity supply.

Privatizing certain functions of government might hamper coordination, and charge firms with specialized and limited capabilities to perform functions which they are not suited for. In rebuilding a war torn nation's infrastructure, for example, a private firm would, in order to provide security, either have to hire security, which would be both necessarily limited and complicate their functions, or coordinate with government, which, due to a lack of command structure shared between firm and government, might be difficult. A government agency, on the other hand, would have the entire military of a nation to draw upon for security, whose chain of command is clearly defined. y Performance.

A democratically elected government is accountable to the people through a legislature or Parliament, and is motivated to safeguarding the assets of the nation. The profit motive may be subordinated to social objectives. y Improvements.

The government is motivated to performance improvements as well run businesses contribute to the State's revenues. y o Corruption. As many areas which the government could provide are essentially profitless, the only way private companies could, to any degree, operate them would be through contracts or block payments. In these cases, the private firm's performance in a particular project would be removed from their performance, and embezzlement and dangerous costcutting measures might be taken to maximize profits.

y y y

Government ministers and civil servants are bound to uphold the highest ethical standards, and standards of probity are guaranteed through codes of conduct and declarations of interest. However, the selling process could lack transparency, allowing the purchaser and civil servants controlling the sale to gain personally. Regarding political corruption, it is a controversial issue whether the size of the public sector per results in corruption. The Nordic countries have low corruption but large public sectors. However, these countries score high on the Ease of Doing Business Index, due to good and often simple regulations, and for political rights and civil liberties, showing high government accountability and transparency. One should also notice the successful, corruption-free privatizations and restructuring of government enterprises in the Nordic countries. For example, dismantling telecommunications monopolies has resulted in several new players entering the market and intense competition with price and service. The sales themselves give a large opportunity for grand corruption. Privatizations in Russia and Latin America were accompanied by large-scale corruption during the sale of the state-owned companies. Those with political connections unfairly gained large wealth, which has discredited privatization in these regions. Accountability.

Capital.

Governments can raise money in the financial markets most cheaply to re-lend to state-owned enterprises. y Strategic and Sensitive areas.

Governments have chosen to keep certain companies/industries under public control because of their strategic importance or sensitive nature. y o Cuts in essential services. If a government-owned company providing an essential service (such as the water supply) to all citizens is privatized, its new owner(s) could lead to the abandoning of the social obligation to those who are less able to pay, or to regions where this service is unprofitable. Severe increase in price hikes leading to many not being able to afford even basic needs. Non-payment or inability to pay will lead to disconnection Disconnection means people will shift to lesser quality supply if available. Else, serious political unrest. Agriculture sector, already in severe crisis, will be pushed even more into distress as water prices for irrigation zoom Dismantling of common public facilities meant for the poor like handpumps, public standposts etc. Available only to paying customers

The public does not have any control or oversight of private companies. y Civil-liberty concerns.

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A democratically elected government is accountable to the people through a parliament, and can intervene when civil liberties are threatened. y Goals. y

System transforms to cater to only paying customers. Those who cant pay the (steep) charges, will be thrown out or on the periphery Ultimately capture of water resources by those who can pay

Natural monopolies.

The government may seek to use state companies as instruments to further social goals for the benefit of the nation as a whole.

Privatization will not result in true competition if a natural monopoly exists. Privatization proposals in key public service sectors such as water and electricity in many cases meet with strong resistance from opposition political parties and from civil society groups, many of which regard them as natural monopolies. Campaigns typically involve demonstrations and

democratic political activities; sometimes the authorities attempt to suppress opposition using violence (e.g. Cochabamba protests of 2000 in Bolivia and protests in Arequipa, Peru, in June 2002). Opposition is often strongly supported by trade unions. Opposition is usually strongest to water privatizationas well as Cochabamba, recent examples include Haiti, Ghana and Uruguay (2004). In the latter case a civil-societyinitiated referendum banning water privatization was passed in October 2004. y Concentration of wealth.

squeezed, Suppliers are harassed, Govts are cheated, and the People at large in the Society are swindled and comfortably kept in darkness and taken for a ride, down the garden path A private company will serve the needs of those who are most willing (and able) to pay, as opposed to the needs of the majority, and are thus anti-democratic. The more necessary a good is, the lower the price elasticity of demand, as people will attempt to buy it no matter the price. In the case of price elasticity of demand is zero (perfectly inelastic good), demand part of supply and demand theories does not work. y Privatization and Poverty.

Profits from successful enterprises end up in private, often foreign, hands instead of being available for the common good. y Political influence.

Governments may more easily exert pressure on state-owned firms to help implementing government policy. y Downsizing.

Downsizing refers to reducing the overall size and operating costs of a company, most directly through a reduction in the total number of employees. When the market is tight, downsizing is extremely common, as companies fight to survive in a hostile climate while competing with other companies in the same sector. For employees, downsizing can be very unnerving and upsetting.As private parties try to extract work from minimum resources,downsizing is the common problem. Private companies often face a conflict between profitability and service levels, and could over-react to short-term events. A state-owned company might have a longer-term view, and thus be less likely to cut back on maintenance or staff costs, training etc., to stem short term losses. Many private companies have downsized while making record profits. y Profit.

If the private party is inefficent, there is every possiblity of the business winding up.It is acknowledged by many studies that there are winners and losers with privatization. The number of losers which may add up to the size and severity of povertycan be unexpectedly large if the method and process of privatization and how it is implemented are seriously flawed (e.g. lack of transparency leading to state-owned assets being appropriated at minuscule amounts by those with political connections, absence of regulatory institutions leading to transfer of monopoly rents from public to private sector, improper design and inadequate control of the privatization process leading to asset stripping y Job Loss.

Due to the additional financial burden placed on privatized companies to succeed without any government help, unlike the public companies, jobs could be lost to keep more money in the company.

Decision making

Private companies do not have any goal other than to maximize profits. On an average, private sector desire to make a very heavy profit, at least 25 to 30 % so that, they can recover their investments, along with interests there on, and also make profits for their leisurely luxurious but wasteful lives, with in a period of 5 to 6 years Profits can always be made, only when the Customers are exploited, Workers are

In the regime of Privatisation, Power and Responsibility for Decision making shift to private sector, particularly MNCs (Multinational Corporation); and hence rests with many private individuals y Power With the private sector making huge profits, they have grown stinkingly rich powerful, arrogant even if they are otherwise publicly

polite, and become a force to reckon with in their own rights, developing their own vested interests.As the private sector becomes powerful, they tend to influence the Govts Priorities, Decisions, Actions and control the Govts of the day y Competition As the private sector grows, the individual units compete - not with each other, but at the cost of common individuals first, then groups of people, local community, whole society, economy, the Govts and Nation to become MNCs and Global Players, by regulating their own Govts to control the Govts abroad, as well as their decisions policies and actions in their favour and easy profits y Privatization always violates and go against the Interests of All People, particularly the Weaker Sections such as the SC&ST Dalits, most Backward Classes including the Minorities - more specifically the Muslims the poor, labour and in general most Women and all the Working Classes with out really any exception Economy, Education, Society, Justice and Peace Movements, HealthCare, Human Rights, Leisure, Social Welfare, Sports etc Agriculture, Food Security, Heritage Centres, Historic Places, Public Properties, Common Assets and Common Ownership of Community Centres Land and other Properties Privatization only promotes, artificial demands too far and too fast than the purchasing capacity of the People and the society, and the carrying capacity of the area large and perpetually increasing needs and shortages, as well as increased consumption by the People and the Society, particularly the rich influential and the powerful rapid use of resources including the limited scarce water, fertile lands and power increasing rates of wastages avoidable pollution dangers of Urbanisation and Centralisation bribery, corruption,

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emergence of underworld, growth of mafia, organised crime, robbery, theft, white collar crimes alcoholism, arms running, drug peddling, trafficking in women etc all round penury, human indignities, homelessness, landlessness, relative poverty and absolute misery.

 Conclusion
Literature reviews find that in competitive industries with well-informed consumers, privatization consistently improves efficiency. The more competitive the industry, the greater the improvement in output, profitability, and efficiency. Such efficiency gains mean a one-off increase in GDP, but through improved incentives to innovate and reduce costs also tend to raise the rate of economic growth. The type of industries to which this generally applies include manufacturing and retailing. Although typically there are social costs associated with these efficiency gains,[citation needed] many economists argue that these can be dealt with by appropriate government support through redistribution and perhaps retraining. In sectors that are natural monopolies or public services (such as, say, passenger rail in the United States), the results of privatization are much more mixed, as a private monopoly behaves much the same as a public one in liberal economic theory. The government is actually seen as a more natural provider of public goods and services. However, the efficiency of an existing public sector operation can be put into question requiring changes to be made. Changes may include, inter alia, the imposition of related reforms such as greater transparency and accountability of management, an improved costbenefit analysis, improved internal controls, regulatory systems, and better financing, rather than privatization itself. certain public goods and services should remain primarily in the hands of government in order to ensure that everyone in society has access to them (such as law enforcement, basic health care, and basic education). Likewise, private goods and services should remain in the hands of the private sector.

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