Advantages and Disadvantages of Privatization


Meaning of Privatization

Privatization refers to the process of transition where publicly-owned business, operation or property becomes owned by private persons or non-governmental party. Under this process, companies trading publicly are taken over by few peoples and general public is barred from taking its ownership. The stock of a company undergoing privatization process gets removed from stock market as it is no longer listed and start using word ‘private limited’ in its name. It can be also be termed like denationalization or deregulation of government operations or services. Private entities are tasked with application and management of public activities such as law enforcement, prison management and revenue collection.

Advantages of Privatization

Different advantages provided by concept of privatization are as follows: –

Increase performance level

The process of privatization enables companies to perform more efficiently which results in better performance level. Private companies are profit-incentivised unlike government companies that are politically motivated. Privatization eliminates the unnecessary elements such as red-tape and overwhelming bureaucracy from the enterprise. In addition to this, employees are accessed by private companies on the basis of their performance which spur the overall organizational performance. 

Better customer service

Private companies offers better customer service in market as they are profit driven. They operate in a competitive environment where their primary focus is on grabbing more customers by providing quality services. However, this feature is lacked by state-owned companies which are neither financially motivated nor faces any competition. Overall customer experience gets enhanced by availing services of private sector due to removal of unnecessary bureaucratic hassle.   

Rid of political intervention

The primary benefit provided by privatization process is removal of governmental influence in business operations. Public companies are mostly driven by political agenda which prevent company from taking any decisions bring economical benefits to them. However, private companies are not influenced by any political factors and driven by profitable decisions only. 

Attraction of investments

Privately-run companies are more easily able to gain investor confidence due to their financially and economically sound infrastructure. This companies bolsters the economy via high inflow of investments both from national as well as foreign level. 

Increased competition

Companies which are owned and run by government enjoys monopoly in market and remain uninterrupted by competition. However, the private firms coming in market due to privatization engages more in more active manner and encourages competition. It will turn accelerate the rate of economic as well as industrial growth and avoid monopolistic sluggishness in the market. 

Promotes market dynamism

An economy is liberated from government control by the process of privatization. The market operates in an organically manner in absence of government regulations and dictating market progression. Lack of interference from government enables market in following integral economic values of demand and supply and make them more dynamic. Higher revenue and good customer response is attained by market which are dynamic in nature and running organically. 

Long-term goals and ambitions

Private sector companies have well established long-term goals and ambitions which they follow by carrying out activities efficiently. On the other hand, state-run companies can at times only think about the upcoming elections. Their goals may be of short-term which are focused towards gaining favors of voting public.

Disadvantages of Privatisation

Problem of Regulating Monopolies

The private sector can exploit their monopoly and ignore social costs. Privatization of certain state entities such as water and electricity authorities may just create single monopolies.

Public Interest

The industry which performs an important public service, e.g. health care, education, and public transport. In these industries, profit should not be the primary objective. For example, Scholars point out that the private sector in India has grown independently without any major regulation; InPrivate health sector, some private practitioners are not even registered doctors and are known as quacks.


The public does not have any control or oversight of private companies. Privatization has a bad side of accountability because Investors has full authority to do anything.

Concentration of wealth

Profits from successful enterprises end up in private, often foreign hands instead of being available for the common good.