Public Ownership vs Privitisation

What is public ownership?

What is another name for public ownership?

State ownership.

What is nationalisation?

Moving a business from private ownership → government ownership.

Why does the government nationalise industries?

To provide important goods/services that the market may not provide properly.

What types of goods are often nationalised?

• Public goods

• Merit goods

Why is public ownership good for society?

It focuses on social welfare, not profit.

How does it help with market failure?

Government can consider externalities.

Example of positive externality?

Public transport reduces pollution and congestion.

Why might public firms be allocatively efficient?

They aim to produce where price = social cost.

Why are some industries suited to public ownership?

They are too important (e.g. water supply).

Why might governments run firms inefficiently?

Lack of competition → less incentive to improve.

What type of inefficiency is common?

Lack of dynamic efficiency (less innovation).

What is the cost to the government?

High spending → may require higher taxes.

Why might private firms avoid entering these markets?

Government firms have more resources → unfair competition.

What is privatisation?

Selling government-owned businesses to the private sector.

What happens after privatisation?

Firms operate in the free market.

How does privatisation help government finances?

Raises money from selling assets.

How does it affect efficiency?

Firms aim to maximise profit → become more efficient.

What type of efficiency can improve?

• Productive efficiency

• Dynamic efficiency

How does it affect competition?

Encourages new firms to enter markets.

What might happen to prices?

May fall due to competition.

Why can privatisation be criticised?

Assets often are sold too cheaply.

What happens if a privatised firm is a monopoly?

• Prices ↑

• Output ↓

• Supernormal profits

How might firms increase profits?

By cutting quality.

Why do privatised firms still need regulation?

They may still have market power.

When is public ownership better?

• Natural monopolies

• Public/merit goods

• Large externalities

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When is privatisation better?

• Competitive markets

• When efficiency is needed

• When innovation is important

Biggest overall trade-off?

Efficiency vs equity (fairness)