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Privatization

Published: 
Sunday, October 22, 2017

Not every venture that a government establishes or acquires turns out to be as successful as initially envisioned. In such a case, the State is usually confronted with the options of continuing the enterprise and incurring losses, shutting down the enterprise altogether, or selling it off to an entity that can potentially be more successful at operating the business. The last option is the essence of privatization.

Formally defined, privatization refers to the act of transferring ownership of specified property or business operations from a government organization, to a privately owned entity. It may also refer to the removal of restrictions preventing private individuals and businesses from participating in a given industry. The private enterprise becomes fully responsible for handling the enterprise once owned by the government.

Privatization has been an ongoing trend in many parts of the developed and developing world. In fact, the history of privatization dates back to as far as ancient Greece when governments contracted out almost everything to the private sector. It was in the 1980’s however, under Margaret Thatcher in the United Kingdom and Ronald Reagan in the United States that privatization gained worldwide momentum.

Arguments both for and against privatization remain hotly contested, with several proponents on both sides of the divide. Those who support privatization maintain that the competition in the private sector fosters more efficient practices, which eventually yields better service and products, lower prices and less corruption.

On the other hand, critics of privatization argue that some services—such as health care, utilities, education and law enforcement—should be in the public sector to enable greater control and ensure more equitable access.

Literature reviews have found that in competitive industries with well-informed consumers, privatization consistently improves efficiency. The more competitive the industry, the greater the improvement in output, profitability, and efficiency.

While most of the literature on privatization has focused on the developed world, the experience in the developing world is somewhat different. The privatization efforts of most developing countries have been inhibited by embryonic financial markets, weak regulatory capacity, and a public sector that accounts for a large share of GDP.

Many low income countries lack some of the main ingredients for successful privatizations, such as capital, entrepreneurs, and competent managers. T&T has had it’s own experience with privatization. In 1989, for example, the Iron and Steel Company of T&T (ISCOTT) was sold to Mittal Steel (the precursor to ArcelorMittal).

Similar privatizations have taken place in the areas of cement production, (Trinidad Cement Limited (TCL) being divested by the state) and electricity generation (The Government sold off the power generation component of Trinidad & Tobago Electricity Commission (T&TEC) to Power Generating Company of Trinidad & Tobago (PowerGen).