Corporatization refers to reorganizing state assets, government agencies or municipal organizations into corporations. Unlike publicly traded companies, the government is typically the company's only shareholder. Privatization is the process of transferring ownership of a business, enterprise, agency, or public property to the private sector.
Corporatization refers to reorganizing state assets, government agencies or municipal organizations into corporations. Unlike publicly traded companies, the government is typically the company's only shareholder. Privatization is the process of transferring ownership of a business, enterprise, agency, or public property to the private sector.
Corporatization refers to reorganizing state assets, government agencies or municipal organizations into corporations. Unlike publicly traded companies, the government is typically the company's only shareholder. Privatization is the process of transferring ownership of a business, enterprise, agency, or public property to the private sector.
I. Corporatization The act of reorganizing the structure of government owned entity into a legal entity with the corporate structure found in publicly traded companies. It refers to the process of transforming state assets, government agencies or municipal organizations into corporations. It refers to restructuring of government and public organizations into joint-stock public listed companies in order to introduce corporate and business management techniques to their administration. However, unlike publicly traded companies, the government is typically the companys only shareholder and that the shares in the company are not traded publicly. Often the results is the creation of state- owned corporations, where the government retains majority ownership of the companies stock, but sometimes corporatization is a precursor to a partial or full privatization, which almost always refers to a process by which formerly public assets or functions are sold or given to corporate entities by listing the shares of the state-owned Corporation on publicly traded stock exchanges. The main goal of corporatization is allowing the government to retain ownership of the company but still enable it to run as efficient as its private counterparts because government departments are sometimes inefficient with the level of bureaucracy involved.
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II. Privatization It is the process of transferring ownership of a business, enterprise, agency, public service, or public property from the public sector (a government) to the private sector, either to a business that operates for a profit or to a nonprofit organization. It may also means, government outsourcing of services or functions to private firms, e.g. revenue collection, law enforcement, and prison management. Privatization has also been used to describe two unrelated transactions. The first is the buying of all outstanding shares of a publicly traded company by a single entity, making the company privately owned. This is often described as private equity. The second is a demutualization of a mutual organization or cooperative to form a joint-stock company. Privatization is a highly political process in which the power of the state, international agencies and national political institutions are deployed to achieve the transfer of public services to the domain of private companies. Privatization enhances competition among service providers, then ensuring that the new means of delivering the services will provide higher quality at a lower cost to the client. Programs are turned over to the private sector because the program seem inappropriate more efficiently. One of the main arguments for the privatization of publicly owned operations is the estimated increase in efficiency that can result from private ownership. The increased efficiency is thought to come from the greater importance private owners tend
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to place on profit maximization as compared to government, which tends to be less concerned about profits. III. Reasons for Privatization
To reduce the burden on government To strengthen competition To improve public finances To fund infrastructure growth Accountability to shareholder More discipline labor force
IV. Aims/Goals of Privatization
Macroeconomic Efficiency One of the main goals of privatization is to create a higher levels of efficiency throughout the economy. It seek to either establish or support what is referred to as a market economy. This type of economy is driven by the notion of free enterprise. Individuals and businesses exchange goods and services voluntarily, largely without any type of government or political intervention. Prices for goods and services are determined by supply and demand, and competition among supplier is encourage.
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Service Development and Efficiency The second aim of privatization is to improve the economic efficiency and development of service. For example, some states allow for the deregulation of utilities by allowing more than one utility company to provide electricity or gas, customers are able to possibly reap the benefits of lower prices through competition. It is thought that privately-owned companies operate more efficiently than government entities. Efficiency is higher in private sector due to stronger connection between the business owners and its executive operators. Budget Improvement When services are provided by the private sector, a public entity such as federal government is no longer financially responsible. Transferring the responsibility allows the public entity to gain income from the sale of the business or service and reduce its financial burden. The additional income gained from transfer of ownership might be used to reduce citizen tax rates, pay down debts or go toward other expenses. Income and Distribution and Political Influence Privatization seeks to return the ownership of the economy to its citizens, rather than placing full responsibility with a centralized government, business owned and operated by private members of society help contribute to their own well-being. In addition, political parties and lead figures use privatization to gain influence in political campaigns and push certain political agendas.
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V. Advantages and Disadvantages of Privatization Advantages Basic advantage in privatization is accurateness and commitment towards the service as they private organization are very much concerned about the profits they make ultimately which depend on the quality of service being provided by them and the public response to it. Privatization generates more revenue compared to government enterprises, thus government can indirectly earn a bit by leasing enterprises to private organizations. Customer support and satisfaction basically is of much interest in private enterprises comparatively. Private enterprise is more responsive to customer complaints and innovation. Disadvantages Increased in Tax evasion private sectors generally tries to avoid payment of taxes. Thus privatization of enterprises will result in decrease of income tax. Concentration of Wealth privatization of large industrial unit and services sectors such as banks and insurance companies will increase concentration of wealth in private hands. It means only reach people will reap the fruits of industrialization and the society will be divided between haves and have-nots. Exploitation by private sectors privatization will result in exploitation by rich people. They may charge more prices for their goods and services. They may also terminate workers to reduce cost of production.
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The biggest threat is reliability. There is nothing that back up the private organization, whereas government can back up its enterprises easily in terms of funds. Some departments need social responsibility which can be done only by government like police department, traffic management. Privatization is expensive and generates a lot of income in fees for special advisers such as banks.
VI. Positive and Negative effects of privatization Positive effects Better services to the consumers Improve efficiency Helps in infrastructure development with the help of taxes received from business firms Helps the government to concentrate on social problem Lack of political interference Negative effects Investment in industries of comport and luxurious products instead of necessary products and problem of optimum use of capacity. Aims at making profit which adversely affects the interest of the community
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VII. Methods of privatization
Share Issue Privatization (SIP) Selling shares on the stock market. Choice of sale method is influenced by a capital market, political and firm specific factors. SIPs are more likely to be used when capital markets are less developed and there is lower income inequality. Asset Sale Privatization Selling an entire organization (or part of it) to a strategic investor, usually by auction or by using the treuhand model. As a result of higher political and currency risk deterring foreign investor, asset sales usually occur more commonly in developing countries. A substantial benefit of share asset - sale privatizations is that bidders compete to offer the highest price, creating income for the state in addition to tax revenues. Voucher Privatization Distributing shares of ownership to all citizen, usually for free or at a very low price. Voucher privatization has mainly occurred in the transition economies of central and Eastern Europe, such as Russia, Poland, Czech Republic and Slovakia. Voucher Privatizations, on the other hand, could be a genuine transfer of asset to the general population, creating a real sense of participation and inclusion. Privatization from below Start - up of new private businesses in formerly socialist countries.
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VIII. Government Reforms in Privatization President Cory Aquino Proclamation No. 50 of President Cory Aquino Proclaiming and launching a program for the expeditious disposition and privatization of certain government corporations and/or the assets thereof, and creating the committee on Privatization and the Asset Privatization Trust President Fidel Ramos President Fidel Ramos aggressively pushed for the deregulation of the nations major industries and the privatization of bad government asset President Joseph Estrada Executive Order No. 323 of President Joseph Estrada Constituting an inter-agency privatization council (PC) and creating a privatization and management office (PMO) under the department of Finance for the continuing privatization of government assets and corporations. President Benigno Aquino President Benigno Aquino uses the same old policies used by his mother former President Cory Aquino. IX. Privatization of Water The privatization of MWSS or Metropolitan Waterworks and Sewerage System occurs on the administration of Fidel Ramos, because of the water crisis during the early 1990s, so to address the crisis the Ramos administration passed the RA 804 or the national water crisis Act of 1995.