Privatisation (Edexcel IGCSE Economics)

Privatisation is the transfer of assets from the public sector (state) to the private sector

• An asset becomes the property of a firm

• Its pricing and availability are determined by the free market

• E.g, British Airways, formerly owned and controlled by the UK government, was privatised in 1987and has operated in the competitive market since this time

The ethics of privatisation, particularly in essential services like water utilities, are a subject of debate

• On one hand, private firms are often more efficient and can use profits to invest large sums in water distribution infrastructure, improving service quality

• However, under private ownership there may be rising water bills due to the profit motive

  • This has a disproportionately high impact on low-income households

There is also a need to regulate private water firms to ensure equitable access to water services

• Without regulation, water companies may neglect non-profitable parts of the network

  Effects of Privatisation on Stakeholders

Nationalisation is is the transfer of assets from the private sector into public ownership, most often used for public goods and merit goods

Some public sector organisations were once owned by private individuals and have been nationalised to ensure their survival

• E.g In 2008, the UK government nationalised Northern Rock, a bank which was on the verge of collapse as a result of the global financial crisis

• Protection of the banking system was considered necessary to prevent significant economic difficulties