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Corporate Governance and Privatization


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.

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