Initially, for the first few years, the companies will do good. As the years pass the things will start becoming worse whether it may be government or private company all are the same. They have their disadvantages in their way.
What are government companies?
The companies which are formed and run by the government are called government companies. These companies are formed by using taxpayer’s money. In these companies 51>=% of the stake will be held by the government.
What are private companies?
The companies which are formed and run by an individual are called private companies. These companies are formed by using individual money or non-government organization’s money. In these companies 51>=% of the stake will be held by one or more private sector.
Can the government privatize the government companies?
Usually, this depends upon the rules of the country. Most countries allow the privatization of government companies. We call it LPG. It stands for liberalization, privatization, and globalization. Liberalization means removing the restrictions of the companies, privatization means allowing the private sectors to invest in the government companies, and globalization means trade done by these companies with other countries.
What are the advantages of government companies?
a. Government company is formed easily as no written law passed by a legislative body is required to be enacted.
b. The affairs of the company can be managed easily as they have separate legal entities.
c. They are free to alter the objectives of the company.
d. The reports of the company can be debated in the parliament.
e. Service can be afforded by poor and middle-class families.
Why does the government want to allow private investors to invest in government companies?
When the company is under the control of the government, it starts misusing the power by hiring employees from their family, community, or friends. When all the employees are from their side they can’t force them to put in extra effort, they can’t scold them when mistakes are committed, they can’t deduct their salary when he or she takes extra holidays. And also due to the arrogance of power, the government will tell them to do whatever they want, we will pay the salary anyhow the government is under our control no one can do anything.
Usually, the companies which are under the government will not be having strict rules for the employees and because of this, the employees will take things for granted. They become careless towards their work, they stop worrying about their performance and also the employees and management will start getting corrupted. All these factors will affect the company and the overall output will decrease. When this keeps repeating every year, it reaches a stage where it starts undergoing loss. Now to overcome the loss the government will invest the taxpayer’s money. Somehow they manage to run the company every year but the attitude of the employees will never change. If this continues then every year the taxpayer’s money will be wasted. What is the use of investing the public’s money every year when the company is under loss? Or will it be able to overcome the loss by investing the public’s money? When the management and employees are having a careless attitude no matter what the government does it’s impossible to overcome the loss. Instead of wasting so much money, it’s better to shut down the company.
Suppose if the government tries to bring strict rules, will the employees listen to them? No, they start screaming.
There is one more solution when the government feels like things are going out of the hands they will allow the private sectors to invest. When the stakes of private sectors cross 51% then they will have control over the company. The efficiency of the company will increase by bringing some strict rules and in a year or two, the company will start getting profits.
What are the advantages of privatization?
a. Promotes open market.
b. Competition increases.
c. Creates more long-term jobs.
d. Quality of the service increases.
e. Quantity of the output will also increase.
f. As the quality and quantity increase it attracts more customers.
g. As the quality, quantity, and customers increase the profits will also increase. Customers can be within the country or from other countries.
h. Expansion of the company when the profits are more.
i. Corruption within the company will decrease.
j. Saves taxpayers money.
k. When the profit increases, the government gets more tax from that company.
l. Helps in building a better economy.
m. As the economy increases the growth of the country will increase.
n. The political interference and selfish functioning will decrease.
What are the disadvantages of privatization?
a. Rates will increase and it becomes difficult for the poor to afford the service.
b. The private companies are money-minded and they start taking things for granted by hiking the price of service on regular basis.
c. Monopoly over the customers.
How to control the private companies?
Strict policies like optimal price structure policy, income and wages policy, import and export policy, environmental policy, foreign exchange policy have to be brought by the government over private companies.
Suppose if the government company is privatized. The government should put a condition by bringing a strong business policy before handing it to the private sector. This business policy should include avoiding the fragmentation of the company. For eg., when a government electricity board is given to a private sector, that private sector shouldn’t be allowed to break the electrical network into infrastructure and electricity operating companies because different electrical companies increase the complexity of the price.
How the government companies help in controlling the rates of private companies?
When we consider transportation systems the price of the government transportation system will be less compared to the private transportation system. When the private transportation system tries to hike the price people will stop using their service and will start using the public transportation system. Always the private sectors will be having a fear inside them that they might lose their customers.
A nation needs both government and private companies. Private companies are the ones that help in the growth of the nation. They constitute the larger sector of the economy. Most of the developed countries have more private companies.
