N5 – Module 1
What should a country do? Nationalise and make the people feel that they share in national assets, but then also run the risk of inefficient and expensive services? Or should it privatise industries and corporations and encourage less waste, efficiency and cheaper products in a monopoly where other companies can compete and bring the price of the product down? They then run the risk of creating an ideological divide between the underprivileged and the capitalist (who has for many years been the demon to any socialist). This is why it is a thorny issue.
Reasons for Privatisation The main goal of privatisation is the restructuring and rationalisation of a country’s economy; a government would therefore seek to follow this policy for the following reasons: • to encourage a policy of private initiative within a market related economy, which is in line with a democratic constitution;
• to reduce excessive government spending which is seen as the main cause of high inflation; • to lower the financial burden of government (and therefore the taxpayer); • to promote the efficient/effective utilisation of resources in order to increase the economic prosperity of each taxpayer – private companies are almost always more efficient that government departments;
• to increase the tax base – hopefully privatisation will lead to increased economic activity through trade, which means increased employment, and more revenue.
Methods of Privatisation Before privatisation can take place a service is removed from the public budget and commercialised in order to see whether it is able to operate efficiently and at a profit – this process then proves a service worthy as a suitable candidate for privatisation (this was done with Telkom in South Africa) These services are subject to public accountability until they have proved themselves within an arena of competitiveness.
Denationalisation – taking the industry away from the government • There is simply a sale of assets; • There must be no protection from competition from other companies who wish to provide a similar service. Any monopoly encourages waste, inefficiency and sometimes even corruption.
Contracting out – allowing private individuals to supply services (see block above) This is a popular way of privatisation of public services – local or national authorities still have to pay for the service but the actual supply of the service is placed in the hands of private entrepreneurs under contract through tendering, (another example of the need for a legal staff function). Usually the lowest tender is accepted; this then reduces the cost of the service itself.
Deregulation – taking away legal/monetary obstacles (regulations or laws) so that an industry has no protection against competition from others This involves the removal of any law or regulation which stops private companies from competing with government departments or state corporations. An example would be the telephone service – in America there are various private companies who are permitted to install telephones and provide communication services.
At current, South Africa has four main licensed cellular phone providers (Vodacom, MTN, CellC and 8ta – a division of Telkom) and two licensed fixed line providers (Telkom and Neotel). Public lobby groups have been putting constant pressure on the government to further deregulate the telecommunications industry to increase competition and make the cost of telecommunications cheaper.
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