4.1.8.8. Advantages and Disadvantages of Privatisation

lower prices, increased efficiency, move innovation/consumer choice, reduced gov. spending

What are the advantages of privatisation?

competition forces companies to improve services and cut prices

How does privatisation lead to lower prices for consumers?

competition => firms are profit maximisers => pressure for better management => more efficiency

How does privatisation lead to increased efficiency?

1987, privatisation of British Airways led to it cutting losses and improving its international reputation

Application for increased efficiency

competition => firms are profit maximisers => pressure to modernise to attract more customers => improved production

How does privatisation lead to more innovation?

1984, British Telecom invested heavily on new technology, i.e. mobile services and rollout of fibre optics, following privatisation

Application for more innovation/consumer choice?

gov. no longer needs to spend on running org. => gov. saves money => gov. can focus on other areas => reduced pressure on gov. finances

How does privatisation lead to reduced gov. spending?

In the UK, the nationalised car company British Leyland required major gov. support in the 1970s prior to parts of it being sold or privatised

Application for reduced gov. spending

job losses, loss of public control, risk of monopolies, profit over service

what are the disadvantages of privatisation?

increased efficiency => firms are profit maximisers => look to cut costs by reducing labour => job losses

How does privatisation lead to job losses?

Downsizing of British Coal in 1980s and 90s led to job losses, and social and economic problems in Wales, Yorkshire, and Scotland

Application for job losses

industry no longer in hands of gov. => private firms(profit maximisers) may not align with public needs => essential services cater less to public needs and are harder to regulate

How does privatisation lead to loss of public control?

public concern over rising executive pay and lack of investment in infrastructure, despite high consumer bills, following privatisation of English and Welsh water industries

Application for loss of public control

natural monopolies => after privatisation => a few large firms may dominate => depends on how well gov can regulate prices and quality

How does privatisation lead to risk of monopolies?

natural monopolies

expensive to have multiple networks in one area for some industries

Concern have often been raised about the “Big Six” that control the UK energy market

application for risk of monopolies

firms(profit maximisers) => get rid of unprofitable areas, even if they are socially important => uneven access to those less profitable to serve, i.e. elderly or people in rural areas

How does privatisation lead to profit over service?

privatisation of the railways lead to rural and less used routes to be reduced or made more expensive

application for profit over service