Privatization is a process where the ownership of a company owned by government of a country is transferred to private owners. Over the years there have been continuous debates as to whether privatization really has positive impacts on the economic growth especially in developing countries (Crowder, 2012). Privatization is an essential tool for supporting economic growth since it creates necessary structural changes in all sectors and it institutes property rights. With these changes in a free market economy, private owners are able to make investment decisions based on their interest there allowing cheaper transactions that supports specialization leading to greater overall productivity. Also when a government reduces the size of public sector it reduces its expenditure and instead it starts collecting taxes from these privatized companies thereby increasing the county’s GDP. However, the lack of essential market institutions in developing countries makes the impact of privatization less effective (Adams, 2007).
Although privatization is a great tool for economic growth, the social price that is paid by the citizens of the country makes it less favorable from their perspective. First it leads to less employment as these firms reduce their human capital in order to maximize their profits. When there are a large number of private firms in an economy the level of employment is determined by the forces of demand and supply (Latridis, 2000). Therefore less people are employed and on top of that those that secure employment opportunities are paid little wages compared to those in public sector. Privatization also leads to rise in price of goods. Since there are no regulations as to the standard price of goods in the private sector, the public is left to pay these high prices imposed by these privates firms. Therefore as much as privatization is important for economic growth additional government intervention is needed to ensure social justice.
References
Adams, S., & Old Dominion University. (2007). The impact of privatization on economic growth and income inequality in developing countries.
Crowder, S. (2012). Privatization. Delhi: Orange Apple.
Iatridis, D. S. (2000). Social justice and the welfare state in Central and Eastern Europe: The impact of privatization. Westport, Conn: Praeger.
