Privatization

Privatization (also spelled privatisation) is the purchase of all outstanding shares of a publicly traded company by private investors, or the sale of a state-owned enterprise to private investors. In the case of a for-profit company, the shares are then no longer traded at a stock exchange, as the company became private through private equity; in the case the partial or full sale of a state-owned enterprise to private owners shares may be traded in the public market for the first time, or for the first time since an enterprise's previous nationalization. The second such type of privatization is the demutualization of a mutual organization or cooperative in order to form a joint-stock company.[1] Privatization may also refer to a government outsourcing services or functions to private firms, for example, revenue collection, law enforcement, and prison management.[2] The Economist magazine introduced the term "privatization" (or "privatisation") during the 1930s when it covered Nazi Germany's economic policy.[3][4]

Forms of privatisation

There are five main methods[citation needed] of privatization:

  1. Share issue privatization: Shares sale on the stock market.
  2. Asset sale privatization: Asset divestiture to a strategic investor, usually by auction or through the Treuhand model.
  3. Voucher privatization: Distribution of vouchers, which represent part ownership of a corporation, to all citizens, usually for free or at a very low price.
  4. Privatization from below: Start of new private businesses in formerly socialist countries.
  5. Management buyout or employee buyout: Distribution of shares for free or at a very low price to workers or management of the organization.

The choice of sale method is influenced by the capital market and the political and firm-specific factors. Privatization through the stock market is more likely to be the method used when there is an established capital market capable of absorbing the shares. A market with high liquidity can facilitate the privatization. If the capital markets are insufficiently developed, however, it would be difficult to find enough buyers. The shares may have to be underpriced, and the sales may not raise as much capital as would be justified by the fair value of the company being privatized. Many governments, therefore, elect for listings in more sophisticated markets, for example, Euronext, and the London, New York and Hong Kong stock exchanges.

Governments in developing countries and transition countries more often resort to direct asset sales to a few investors, partly because those countries do not yet have a stock market with high capital.

Voucher privatization occurred mainly in the transition economies in Central and Eastern Europe, such as Russia, Poland, the Czech Republic, and Slovakia. Additionally, privatization from below had made important contribution to economic growth in transition economies.

In one study assimilating some of the literature on "privatization" that occurred in Russian and Czech Republic transition economies, the authors identified three methods of privatization: "privatization by sale", "mass privatization", and "mixed privatization". Their calculations showed that "mass privatization" was the most effective method.[5]

However, in economies "characterized by shortages" and maintained by the state bureaucracy, wealth was accumulated and concentrated by "gray/black market" operators. Privatizing industries by sale to these individuals did not mean a transition to "effective private sector owners [of former] state assets". Rather than mainly participating in a market economy, these individuals could prefer elevating their personal status or prefer accumulating political power. Instead, outside foreign investment led to the efficient conduct of former state assets in the private sector and market economy.[5]

Through privatization by direct asset sale or the stock market, bidders compete to offer higher prices, generating more revenue for the state. Voucher privatization, on the other hand, could represent a genuine transfer of assets to the general population, creating a sense of participation and inclusion. A market could be created if the government permits transfer of vouchers among voucher holders.

Secured borrowing

Some privatization transactions can be interpreted as a form of a secured loan[6][7] and are criticized as a "particularly noxious form of governmental debt".[6] In this interpretation, the upfront payment from the privatization sale corresponds to the principal amount of the loan, while the proceeds from the underlying asset correspond to secured interest payments – the transaction can be considered substantively the same as a secured loan, though it is structured as a sale.[6] This interpretation is particularly argued to apply to recent municipal transactions in the United States, particularly for fixed term, such as the 2008 sale of the proceeds from Chicago parking meters for 75 years. It is argued that this is motivated by "politicians' desires to borrow money surreptitiously",[6] due to legal restrictions on and political resistance to alternative sources of revenue, viz, raising taxes or issuing debt.

Other Languages
العربية: خصخصة
azərbaycanca: Özəlləşdirmə
беларуская: Прыватызацыя
български: Приватизация
čeština: Privatizace
Cymraeg: Preifateiddio
eesti: Erastamine
español: Privatización
Esperanto: Privatigo
euskara: Pribatizazio
français: Privatisation
한국어: 민영화
हिन्दी: निजीकरण
Bahasa Indonesia: Privatisasi
íslenska: Einkavæðing
italiano: Privatizzazione
עברית: הפרטה
ಕನ್ನಡ: ಖಾಸಗೀಕರಣ
ქართული: პრივატიზება
Latina: Privatizatio
latviešu: Privatizācija
lietuvių: Privatizacija
македонски: Приватизација
मराठी: खाजगीकरण
Nederlands: Privatisering
日本語: 民営化
polski: Prywatyzacja
português: Privatização
română: Privatizare
русский: Приватизация
Simple English: Privatization
slovenčina: Privatizácia
slovenščina: Denacionalizacija
српски / srpski: Приватизација
srpskohrvatski / српскохрватски: Privatizacija
svenska: Privatisering
Türkçe: Özelleştirme
українська: Приватизація
اردو: نجکاری
Tiếng Việt: Tư nhân hóa
中文: 私有化