Supply Side Policies are one of the three government economic policies to achieve some of the six government economies objectives. They are set by the government to make the local domestic economy more efficient in comparison with economies of other countries. Supply side policies include: privatization, training and education for workers, deregulation (increasing competitiveness), adjusting domestic policy and foreign policy.
Definition of privatization
Privatization means transferring the ownership of the business from the public sector to the private sector. By transferring, we mean the government selling off public corporations to investors from the private sector.
The privatized state-owned business will not be owned and controlled by the government anymore, therefore it will result in change in objectives. Now, instead of serving the general public, the business will most likely maximize profits for the private owners.
How can privatization make the economy more efficient?
The main benefits for the country from privatization include the following points:
- Improved business performance. Competitiveness in the economy will be increased as businesses are now driven by the profit motive. It is more important for private owners to achieve a profit as they care about profitability and future growth above everything else. With private owners in place, there will be much less political interference. All business decisions will be made based on efficiency as politics becomes separated from the market making politicians less involved in business-decision making.
- Better use of scarce resources. Business enterprises in the private sector will be using resources much more efficiently than state-owned behemoths. Large national public companies tend to be inefficient and become complacent because of no or limited competition. Private businesses will get rid of any unproductive assets to minimize costs. Some workers may be made redundant to streamline business operations. So, many employees previously employed by the state could end up without jobs.
- Deregulated markets. As a result of privatization, many national monopolies are going to be broken apart. Because of that, certain industries will see increased competition within. Some businesses will be out of the market or will be acquired or taken over by stronger competitors.
- Improved competition. In the longer term, quality of products will improve as a result of intense competition leading to customers having more choices. New and more goods and services will be offered to customers who now have greater choice. In the more market-oriented economy, prices can be adjusted both up and down depending on demand from customers and supply from producers. In this new environment, some businesses may thrive while other firms may go bankrupt and cease operations.
- Increased share ownership. More individuals can now become owners of companies in the private sector by buying shares. They will actively participate in the market; hence more people will care about the status of the whole economy.
- Additional revenue to be used more productively. The government will see increased revenue by selling state-owned enterprises, from sale of land, from sale of forests or any other state property. Earnings received from this sale of public assets can be allocated into more effective public projects or to start new public enterprises to boost the country’s economy.
One of the previous articles ‘Privatization – Selling Government-Owned Businesses to Private Individuals’ described the impact of privatization on businesses.
In summary, the main aspect of privatization is the transfer of ownership of state-owned companies from the public sector into the private sector. It is mainly done by creating private limited companies and public limited companies.
Here is the list of 10 of the Most Famous Public Companies That Went Private provided by Investopedia.com. It might be worth checking – Investopedia always has great business resources.
