Privatisation Advantages and Disadvantages

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  • Created by: TessAni
  • Created on: 19-01-13 12:59

Privatisation Advantages and Disadvantages

Advantages

  • Privatisation allows businesses to focus more on long-term planning and less on meeting short-term political requirements
  • Public sector transport services are inefficient; private sector organisations are more efficient and likely to operate where price = marginal cost. Cross-subsidisation would be eliminated under private sector ownership
  • Private sector management would be more motivated and have a greater emphasis on customer service provision
  • Privatisation would provide a new source of investment funding for transport; public sector borrowing was limited, particularly in relation to other demands being placed upon the Exchequer

Disadvantages

  • The natural monopoly argument. Economies of scale meant that imade snese to have a single provider of (e.g.) a rail network or local public transport services. It also avoided the problem of duplication and the consequent waste of resources
  • Transport is an essential service that is fundamental to economic and social well-being. This being so. It was argued that is hould not be left to the private sector to providde and that a degree of central public control was necessary to develop a meaningful transport policy
  • The transport system produces large external benefits that may not be taken into account by private sector providers
  • the lack of empirical evidence to support privatisation. This was a particular issue in the privatisation of railways
  • Private monopolies will replace public sector monopolies - more likely to charge at the profit maximisation level
  • The benefits from privatisation are only short term. The longer-term problem is that once privatised there is the issue of having sold off the 'family silver' with its wider implications

Evaluation

The key period of privatisation was 1979-1997 under Thatcher. This led to the deregulation of the railways and bus market most prominently. There have been varying arguments over how successful it has been. Passengers have increased rapidly but there is not the same evidence for a decrease in prices. In fact both markets have become oligopolies and lack contestability. 

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