What are the advantages and disadvantages of Privatised and Nationalized industries?
September 4th, 2009 | by admin |So what are the good and the bad sides to nationalizing industires or to privatising industries, and what industries do you think should always be in private or in state hands?
Thankee.
Without writing a book on the subject!… Here’s an overview:
Hope it helps! 
)
Nationalised companies are likely to be more willing to take a loss in their specific product line, so long as their shareholders (ie. the entire economy) can gain additional benefits from other areas of economic activity that their product produces.
Privatised Companies do not have the liberty to assume that their shareholders also have shares in every other part of the economy, so they must concentrate on capturing the maximum economic incentive from the products/services that they do control.
In this way, Private Companies usually ensure that the (one or several) resource(s) that they own, are used in the most sparing, and most profitable way possible. This is good for that particular resource.
Nationalised companies may ‘oversupply’ their product to gain additional benefits down the line. This is potentially "bad" for that resource, but good for the consumers of it.
A good example is Oil. OPEC countries try to hold back the use of Oil, until it is being sold at the most profitable point that the market will sustain. The US keeps pressure on oil producers (or failing that, invades them!) to take less profit than they otherwise could to "keep America rolling", (where "America" is an approximate euphemism for "developed economies"). China, on the other hand, simply subsidises it’s oil imports, enabling consumers to gain cheaper access to the benefits of personal mobility, energy and agricultural productivity; which is in turn having a 10 fold increase on development and the general well being of Chinese. It does, however, mean that the Chinese people use more oil than they would otherwise.
And so as you can see; a nationalised company in this position has a lot more ‘tricky’ decisions to make. They not only face diminishing demand, but also diminishing relative supply, and plenty of political pressure, which is prone to corruption and inefficiency, and depleting scarce resources that have short term public benefit.
On the other hand, while being more "efficient" in an economic sense, Private companies have to deal with internal greed, public anger, and the threat of being nationalised. And they may hold back a resource that could provide enormous innovation and improved standards of living because they can’t ‘personally’ get "fair" access to the benefits of dropping their price.
So it’s horses for courses here… some industries are suited to national ownership (like defence) – - – where an oversupply is not an issue, but an under supply may be cheaper, but would cost in the long run if you got invaded.
And the same with preventative health measures – there is no problem with ‘oversupplying’ these, as there is an upper limit to the preventative health care an individual can consume. Perhaps this should be entirely nationalised/state provided?!
But the other side of healthcare is completely different: There is no limit to the spending that can be done to you if you choose to lead an "unhealthy" or dangerous life; over and above sufficient provision for flat out "bad luck".
Education is the same as preventative health care – where the over provision of it is physically regulated by the quantity of time that a limited-life-span mortal is willing to allocate to it – - – And thus a good candidate for national ownership.
On the other hand – the provision of alcohol or tobacco, as it has no real public benefit – and its quantity is fair game to withhold. Which is exactly why you see so many additional "impact taxes" placed on products, which is the opposite end of a national corporation – where consumption outstrips benefit!
Hope that helps.
Cheers,
Rob.
3 Responses to “What are the advantages and disadvantages of Privatised and Nationalized industries?”
By gone phishing on Sep 4, 2009 | Reply
good, the government no longer fund them
bad , the prices on everything goes up and the industry is ran into the ground
References :
By Robert B on Sep 4, 2009 | Reply
Without writing a book on the subject!… Here’s an overview:
Hope it helps!
)
Nationalised companies are likely to be more willing to take a loss in their specific product line, so long as their shareholders (ie. the entire economy) can gain additional benefits from other areas of economic activity that their product produces.
Privatised Companies do not have the liberty to assume that their shareholders also have shares in every other part of the economy, so they must concentrate on capturing the maximum economic incentive from the products/services that they do control.
In this way, Private Companies usually ensure that the (one or several) resource(s) that they own, are used in the most sparing, and most profitable way possible. This is good for that particular resource.
Nationalised companies may ‘oversupply’ their product to gain additional benefits down the line. This is potentially "bad" for that resource, but good for the consumers of it.
A good example is Oil. OPEC countries try to hold back the use of Oil, until it is being sold at the most profitable point that the market will sustain. The US keeps pressure on oil producers (or failing that, invades them!) to take less profit than they otherwise could to "keep America rolling", (where "America" is an approximate euphemism for "developed economies"). China, on the other hand, simply subsidises it’s oil imports, enabling consumers to gain cheaper access to the benefits of personal mobility, energy and agricultural productivity; which is in turn having a 10 fold increase on development and the general well being of Chinese. It does, however, mean that the Chinese people use more oil than they would otherwise.
And so as you can see; a nationalised company in this position has a lot more ‘tricky’ decisions to make. They not only face diminishing demand, but also diminishing relative supply, and plenty of political pressure, which is prone to corruption and inefficiency, and depleting scarce resources that have short term public benefit.
On the other hand, while being more "efficient" in an economic sense, Private companies have to deal with internal greed, public anger, and the threat of being nationalised. And they may hold back a resource that could provide enormous innovation and improved standards of living because they can’t ‘personally’ get "fair" access to the benefits of dropping their price.
So it’s horses for courses here… some industries are suited to national ownership (like defence) – - – where an oversupply is not an issue, but an under supply may be cheaper, but would cost in the long run if you got invaded.
And the same with preventative health measures – there is no problem with ‘oversupplying’ these, as there is an upper limit to the preventative health care an individual can consume. Perhaps this should be entirely nationalised/state provided?!
But the other side of healthcare is completely different: There is no limit to the spending that can be done to you if you choose to lead an "unhealthy" or dangerous life; over and above sufficient provision for flat out "bad luck".
Education is the same as preventative health care – where the over provision of it is physically regulated by the quantity of time that a limited-life-span mortal is willing to allocate to it – - – And thus a good candidate for national ownership.
On the other hand – the provision of alcohol or tobacco, as it has no real public benefit – and its quantity is fair game to withhold. Which is exactly why you see so many additional "impact taxes" placed on products, which is the opposite end of a national corporation – where consumption outstrips benefit!
Hope that helps.
Cheers,
Rob.
References :
By thestach1 on Sep 4, 2009 | Reply
What can a government agency do better than private enterprise? Nothing!!! Look at government run schools aka public education. It is inefficient and assumes that the state knows what is better for your children than you do. Let’s not forget the fact that they (the schools) have incentive to fail and provide poor education. By proving their ineffictiveness they get a bigger budget. Contrast that to private enterprise where if you have a poor product (whether it be education, healthcare, shoes, etc), people can vote (with their wallets) and decide how and where to allocate their scarce resources (paycheck). Profit is a signal, like red/green light. If you make a profit then that signals to you to produce more and more. However, if you make a loss then either you innovate or you go belly up. But whenever the government gets involved it distorts the "signal" because they are not held to the light of the market (or reality). Think if you had to pay for school (even though you already do through compulsion ie taxes) like a karate class. If you did not get the quality of education you demanded you could take your membership (money) elsewhere. Can you do that with high school? Not a chance. In fact, if you don’t go your parents can go to jail. It’s coercion under the flag of "bureacrats in Washington know what’s best for all of us." It’s totally ridiculous. They are in no position to give us or the marketplace advice on "how to run the economy"(which itself is ridiculous because the economy cant be ran). Government needs to know its Constitutional role which is armed forces and the court system period! Anything more than this is UNCONSTITUTIONAL!!!!!!!!
References :