how privatization works
privatization of specific government operations happens in a number of ways though generally the government transfers ownership of specific facilities or business processes to a private for profit company privatization generally helps governments save money and increase efficiency in general two main sectors comprise an economy the public sector and the private sector government agencies generally run operations and industries within the public sector in the united states the public sector includes the u s postal service public schools and universities the police and fire departments the national park service and the national security and defense services enterprises not run by the government comprise the private sector private companies include the majority of firms in the consumer discretionary consumer staples finance information technology industrial real estate materials and healthcare sectors there are two types of privatization government and corporate however the term generally applies to government to private transfers public to private privatization vs corporate privatizationcorporate privatization allows a company to manage its business or restructure its operations without the strict regulatory or shareholders oversight imposed on publicly listed companies this often appeals to companies if the leadership wants to make structural changes that would negatively impact shareholders corporate privatization sometimes takes place after a merger or following a tender offer to purchase a company s shares to be considered privately owned a company cannot get financing through public trading via a stock exchange dell inc is an example of a company that transitioned from being publicly traded to privately held in 2013 with approval from its shareholders dell offered shareholders a fixed amount per share plus a specified dividend as a way to buy back its stock and delist once the company paid off its existing shareholders it ceased any public trading and removed its shares from the nasdaq stock exchange completing the transition to being privately held 1 in 2018 dell reverted to being a public company dell 2advantages and disadvantages of privatizationproponents of privatization argue that privately owned companies run businesses more economically and efficiently because they are profit incentivized to eliminate wasteful spending furthermore private entities don t have to contend with the bureaucratic red tape that can plague government entities on the other hand privatization naysayers believe necessities like electricity water and schools shouldn t be vulnerable to market forces or driven by profit in certain states and municipalities liquor stores and other nonessential businesses are run by public sectors as revenue generating operations real world examples of privatizationbefore 2012 the state of washington controlled all sales of liquor within the state meaning that only the state could operate liquor stores this policy allowed the state to regulate how and when liquor was sold and to collect all revenue from liquor sales within the state however in 2012 the state moved to privatize liquor sales 34once privatized private businesses such as costco and walmart could sell liquor to the general public all previously state run stores were sold to private owners or closed and the state ceased collecting all revenue from liquor sales one of the most famous and historically important examples of privatization occurred after the fall of the soviet union the soviet union s form of government was communism where everything was owned and run by the state there was no private property or business privatization began before the collapse of the soviet union under mikhail gorbachev its then leader who implemented reforms to hand over certain government enterprises to the private sector after the soviet union collapsed there was mass privatization of previous government enterprises to a select portion of the populace in russia known as oligarchs that dramatically increased inequality within the nation 5