Merits of Privatization

Privatization involves the selling the state owned assets into the private sector. Privatization is often achieved with the help of listing new private organizations on the stock market (Aussenegg 2015). In the 1980sn and 1990s, the United Kingdom had privatized different state owned industries such as BT, British Airways and different electricity and gas companies as well (Zameer et al. 2015).

There have been different merits and demerits of the privatization on the entire economy of UK that are as follows:

Merits

Privatization helped in improving the efficiency of the organizations that have created profit incentive and cut cost in order to be more effective in nature. Furthermore, private firms in the United Kingdom are interested in making profit and it is more likely that they will cut different costs as to be more efficient in nature (Hastings, Hortaçsu and Syverson 2017).

• Since the privatization, there are different organizations such as British Airways and BT have shown different degrees of efficiency that is improved in order to generate high profitability (Bortolotti, Fotak and Megginson 2015)
• The selling of the state owned assets to the private sector helped in raising significant sums for the government of UK in the 1980s. On the other hand, it is one off benefit that means there can be loss on the future kind of dividends from profits of public organizations (Alonso and Andrews 2016)

Demerits

• Due to privatization, many of the private firms in the United Kingdom are profitable in nature and this implies that the government misses out on the dividends instead of being wealthy shareholders (Zhu and Lipsmeyer 2015)
• In the United Kingdom, privatization of rail has led into breaking the networks of rail into different kind of infrastructure and operating train companies. This has led to different areas wherein it was unclear who had taken the actual responsibility (Queisser 2017).
• There has been different short term pressures wherein in order to please the different shareholders, the companies may seek to increase the short term profits and this will avoid investments in the projects that is long term in nature (Ali 2014)

For example- The United Kingdom is suffering from lack of investment in different energy sources that are new in nature. Furthermore, the privatized companies are making usage of existing kind of plants rather than investing into the new ones.

From the different merits and demerits of the privatization on the economy of United Kingdom, it can be analyzed that privatization depends on the quality of the different regulations. In telecom industries, privatization helps in increasing the efficiency with the help of incentive of profit. However, it has been seen that private kind of monopoly may harm the interest of the consumers, but when the market is highly competitive in nature huge scope of savings and efficiency is indicated.

For Example- The banking sector in the United Kingdom has gained huge profitability after privatization. The impact of privatization on the banking sector has been tremendously well as there has been huge increase in the quality of the assets. As the base of deposit has been widened in the subsequent years, this helped in making the rate of risk to be negative in nature. The different liquidity ratios have been improved and the number of different deposits and value of them has increased as well.

The different banks in United Kingdom such as Barclays Bank and ABC International Bank PLC in the United Kingdom, there have been increase in the efficiency in the customer care service. Similarly, privatization helped in increasing healthy competition among the different banks as well. However, there have been different disadvantages that included misuse of loans and lack of cooperation among the different employees in the banks. There has been huge increase in protection of the black money as well in banks.

Demerits of Privatization

For Example-Initiation of the privatization will have both negative as well as positive impact on the insurance sector of United Kingdom. The following sections will discuss about the impact of privatization on the insurance sector of the United Kingdom.

• One of the key positive impacts of the privatization will be the increase in the competition in the insurance sector (Omran 2015). This is due to the reason that initiation of privatization will attract more private players and thus it will increase the competition in the industry. However, the key gainer from the increase in the competition will be the customers. The more will be the competition in the industry, the more will be the price war and enhancement in the standard. Thus, customers will have more options in the market.
• With the increase in the competition in the industry, the market penetration will also get increased. This is due to the reason that, more business organizations will look out for new market areas, which will lead to the further penetration in the market (Delpierre, Guirkinger and Platteau 2017). Thus, it will help to cover more customer segments under the insurance.
• Apart from the positive impacts, there will be various negative impacts also. One of the key negative impacts will be the less concentration of the public welfare. This is due to the fact that, the key motive of the public organizations and private organizations is different. There are different public organizations works for the community development, while private organizations works for profit maximizations. Thus, privatization will lead to the exploitation of the customers for the sake of more profit.
• Privatization may also cause increase in the cost due to the formation of the cartel by the private players. However, with the increase in the competition, the average price will get reduced, but formation of the cartel will lead to the increase in the market price of the insurance. Thus, it will be threat for the entire insurance sector.

There are various arguments being emerged in the recent times regarding the issue of privatization of the NHS. Different opinions are being given by different authors for and against the concept of the privatization of the NHS. According to Scott-Samuel, Bambra, Collins, Hunter, McCartney and Smith (2014), liberal approach to the health sector in the United Kingdom was started during the regime of Margaret Thatcher. According to the authors, initiation of the privatization of the health sector including the insurance industry leads to the inequalities. The authors that, with the initiation of the privatization of the insurance sector, bottom of the pyramid are being affected are stating it.

According to Powell and Miller (2014), one of the key disadvantages of privatizing NHS will be the continuity of care for the patients. This is due to the reason that, according to the authors, private players will not provide unprofitable service like NHS do currently. Thus, this may lead to the change of the health providers. It will prove challenges for the patients in the end. Therefore, according to the authors, NHS should not be privatized.

According to Sturgeon (2014), it is being perceived that with the help of the privatization; players that are more private will enter in the market that will reduce the average price. However, the author has given examples of the United States where private players are running the insurance service. He stated that, instead of getting cheaper services, the average price is increasing in the United States. Thus, in the case of the privatization of the NHS, it will also increase the cost for the patients.

However, apart from the negative view of the privatization of the NHS, there are various positive opinions being given by different authors. According to Krachler and Greer (2015), approach of NHS is not applicable in the current business scenario and there are various shortfalls being identified such as providence of the subsidy to the well off patients. Thus, according to the authors, with the initiation of the privatization, professional approach will be inducted in NHS and it will in turn offers more effective services to the patients.

According to Smith and Peedell (2014), Privatization will have positive benefits for the NHS. This is due to the reason that, with the help of the privatization, government will have more money with them for other important matters. Thus, the tax payer’s money will get saved for better use. The authors have also stated that, with the entry of the more private players in the market, the cost incurred by the government in NHS will get reduced and saved.

Impact of Privatization on Banking Sector

According to the statement, being given by Burton (2014), privatization of the NHS will have favorable impact on the service quality. This is due to the reason that, according to the author, induction of the private players in the market will help to have better work efficiency. The author has stated that NHS is infamous for long waiting list and poor service quality. Thus, having the private players in the industry will enhance the service quality and increased efficiency. Hence, privatization of the NHS will have favorable impact on the patients.

Thus, from the above arguments, it can be concluded that, privatization of the NHS will have both positive and negative impact on the associated stakeholders. However, it is to be noted that, patients will gain more from the privatization of the NHS. They will receive more effective customer service. The government will also get benefited from the privatization by saving the loss of unwanted money. On the other hand, various shortcomings of the privatization of NHS are being discussed in the earlier sections. Thus, it is important that, the demerits should be effectively determined and steps be taken to overcome those. One of the key weaknesses being identified is the exploitation of the patients from the lower part of the pyramid. Thus, privatization should be initiated keeping the consideration of the lower class patients along with maintaining their rights.

At the start, I did not support the entire privatization concept that has been done with different sectors that include banks, health and insurance sectors. Previously, I felt that privatization has different disadvantages that included misuse of loans and lack of cooperation between different banks, other insurance sectors in the entire market. Privatization has impacted the entire UK along with other economies in such a manner that this helped in protecting the black money that it has affected the life style of the normal human beings in the entire society. Privatization has brought favoritism concept in different organizations that have affected other organizations and this has included that there has been different organizations that were lacking the profit motive in their respective organization. Similarly, privatization has neglected the different small industries along with agriculture sector that has affected the entire agricultural sector.

However, after the entire research that has been conducted, I feel that privatization is a positive approach that has helped me in understanding; everything has a positive along with negative side that has to be dealt with. I feel that privatization has positive factors as well that included that it helped the company in increasing and enhancing the quality of the assets in the company. The adequacy of the capital has been improved largely that helped me in changing the view on the privatization.

Impact of Privatization on Insurance Sector

Privatization helped in increasing the different liquidity areas in the company wherein it has improved the level of efficiency. The political interference has been lowered in nature by motivating the employees in the organization as well. Furthermore, there has been healthy competition among the different companies that included insurance, health and banking sectors. I have learnt that privatization helped in creating positive impact on the company that included improvement in the customer service in the different organizations.

Lastly, privatization of different companies helped in increasing and raising revenues by the government in the entire market. The policies related to privatization in different companies helped in increasing the competitiveness in the organization and perform efficiently in nature. Other main advantage that has been seen is that privatization in private companies heave profit incentive that will be efficient in nature.

References

Ali, A.A., 2014. Privatization and Financial Performance in Developing Countries: Reality and Myth. International Journal of Business and Management, 9(4), p.115.

Alonso, J.M. and Andrews, R., 2016. How privatization affects public service quality: An empirical analysis of prisons in England and Wales, 1998–2012. International Public Management Journal, 19(2), pp.235-263.

Aussenegg, W., 2015. Privatization versus private sector initial public offerings in Poland.

Bortolotti, B., Fotak, V. and Megginson, W.L.B., 2015. The rise of sovereign wealth funds: definition, organization, and governance. In Public Private Partnerships for Infrastructure and Business Development (pp. 295-318). Palgrave Macmillan US.

Burton, J., 2014. Partnership or privatisation? An NHS Trust’s experience of sponsorship. Gastrointestinal Nursing, 12(2).

Delpierre, M., Guirkinger, C. and Platteau, J.P., 2017. Risk as impediment to privatization? The role of collective fields in extended agricultural households.

Hastings, J., Hortaçsu, A. and Syverson, C., 2017. Sales Force and Competition in Financial Product Markets: The Case of Mexico’s Social Security Privatization. Econometrica, 85(6), pp.1723-1761.

Krachler, N. and Greer, I., 2015. When does marketisation lead to privatisation? Profit-making in English health services after the 2012 Health and Social Care Act. Social Science & Medicine, 124, pp.215-223.

Omran, M., 2015. Performance consequences of privatizing Egyptian state-owned enterprises: The effect of post-privatization ownership structure on firm performance.

Powell, M. and Miller, R., 2014. Framing Privatisation in the English National Health Service. Journal of Social Policy, 43(3), pp.575-594.

Queisser, M., 2017. Privatization: more individual choice in social protection. Building Social Security: Volume 6, The Challenge of Privatization.

Scott-Samuel, A., Bambra, C., Collins, C., Hunter, D.J., McCartney, G. and Smith, K., 2014. The impact of Thatcherism on health and well-being in Britain. International Journal of Health Services, 44(1), pp.53-71.

Smith, R. and Peedell, C., 2014. Is the private sector a good thing for the NHS?. BMJ: British Medical Journal (Online), 349.

Sturgeon, D., 2014. The business of the NHS: The rise and rise of consumer culture and commodification in the provision of healthcare services. Critical Social Policy, 34(3), pp.405-416.

Zameer, H., Tara, A., Kausar, U. and Mohsin, A., 2015. Impact of service quality, corporate image and customer satisfaction towards customers’ perceived value in the banking sector in Pakistan. International journal of bank marketing, 33(4), pp.442-456.

Zhu, L. and Lipsmeyer, C.S., 2015. Policy feedback and economic risk: the influence of privatization on social policy preferences. Journal of European Public Policy, 22(10), pp.1489-1511.