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Economics explained


microeconomic policies



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Privatisation is the policy of selling off state-owned assets such as property or public-sector businesses to the private sector if they can be run more efficiently.

Privatisation can improve efficiency in one of two ways.

If the effect of privatisation is to increase competition, the effect might be to reduce or eliminate allocative inefficiency.

The effect of denationalisation might be to make the industries more cost-conscious, because they will be directly answerable to shareholders and under scrutiny from stock market investors.

The case for privatisation

Market forces.

The first argument is that privatisation will expose these industries to market forces, from which will flow the benefits of greater efficiency, faster growth and greater responsiveness to the wishes of the consumer. This benefits consumers in the form of lower prices, wider choice and a better quality product or service

Reduced government interference.

Privatisation reduces bureaucratic and political meddling in the industries concerned

Financing tax cuts.

The privatisation issue of shares earns money directly for the government and thus reduces the amount it needs to borrow. Effectively, then, the government can use the proceeds of privatisation to finance tax cuts

Other reasons

The sale of nationalised industries can generate substantial income for the government over a long period of time.

Privatised companies can be successful in raising capital, lowering prices and cutting out waste; they are more efficient than state-owned operations.

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