Question

Is privatization by itself enough to guarantee economic growth ? Why ? Explain using an axample.

Answer 1

Privatization is process through which hitherto reserved sectors are thrown open for the private sector. Now private firms can enter the sectors which were previously reserved for the government only. Privatization got a fillip in the later half of the 1980s. Government-funded firms were not performing up to marks. UK government's fast-tracked privatization in 1980. same trend was followed across the world. Government India pursued privatization policies in the latter half of the 1980s.

It was argued by economists that the private sector would promote and sustain competition that would raise the level of productivity. Eventually, consumers would be benefited in the form of reduced prices of goods and services. Privatization indeed produced massive and predominant beneficial impacts. it also led to class conflicts or inequalities in society. Further, in some sector, monopoly also developed where consumers were exploited by the firms. Privatization led to the rise of MNCs and small firms were destroyed on large scale. Thus, it further drived up inequalities in wealth.

The financial crisis of 2008 and other crises such as the Asian financial crisis, have empirically proved that the growth rate driven by the privatization is subject to frequent fluctuations. Thus, purely private-led growth could be socially undesirable and politically lamented. Further, purely private sector develops areas or sectors where benefits are explicit. Thus, the government must play the role of facilitator and regulators to make economic growth more inclusive and desirable. Further, consumers can be extremely exploited if the health and education sectors are left to private sectors. Sector with positive externalities must be funded and regulated by the government.