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- 6 Marks
Question
a) Privatisation can refer to the act of transferring ownership of specified property or business operations from a government organisation to a privately owned entity, as well as the transition of ownership from a publicly traded, or owned, company to a privately owned company.
Required:
i) Describe THREE potential benefits of privatisation. (3 marks)
ii) State THREE disadvantages of privatisation.
(3 marks)
Answer
i) Potential benefits of privatisation:
- Improved Efficiency: Private companies have a profit incentive to cut costs and be more efficient.
- Lack of Political Interference: Governments are often poor economic managers, influenced by political pressures rather than sound economic and business sense.
- Increased Competition: Often occurs alongside deregulation, allowing more firms to enter the industry and increase market competitiveness.
ii) Disadvantages of privatisation:
- Does Not Necessarily Increase Competition: Whether competition increases depends on the nature of the market.
- One-off Sale Proceeds: The government loses out on future dividends from the profits of public companies.
- Potential Exploitation: Private companies may exploit the public, leading to higher costs and lower standards.
- Tags: Business Ownership, Government Policy, Privatisation
- Level: Level 1
- Topic: The Business Organisation and its Stakeholders
- Series: MAY 2017
- Uploader: Dotse