Introduction to Privatization

Privatization is the process of transferring ownership of assets, industries, businesses, etc., that are under government ownership to the ownership of the private sector. 

In other words, privatization is the transfer of ownership of industries, businesses, or government organizations that are under government ownership to the private sector, either partially or fully, or involving the private sector in the management of such organizations. 

Its main objective is to reduce the role of the government and to make the private sector strong and involve it in productive businesses.

Industries established by the government are called public enterprises. In Nepal, before 2007 BS (1950 AD), only two public enterprises were established: Nepal Bank Limited and Raghupati Jute Mills. After the implementation of the First Five-Year Plan in 2013 BS (1956 AD), the establishment and development of public enterprises gained momentum. 

By the end of the Seventh Five-Year Plan (2042-2047 BS, 1985-1990 AD), 65 public enterprises had been established.

Some of the major public enterprises included Bhrikuti Paper Mills, Bansbari Leather and Shoe Factory, Nepal Telecommunications Corporation, Nepal Oil Corporation, Birgunj Sugar Factory, Lumbini Sugar Factory, Nepal Transport Corporation, etc. However, after the political change of 2046 BS (1990 AD), the then government formulated a policy to privatize public enterprises. As of now, 30 public enterprises have been privatized in Nepal.

Positive Aspects of Privatization: 

Privatization is an important economic policy. It plays a significant role in the expansion and development of the economy by making optimal and maximum use of the available resources and means in the country.

The main positive aspects or benefits or importance of privatization can be mentioned as follows:

1. Increase in Competition: Public enterprises receive government subsidies and operate under a monopoly. Therefore, they lack competitive capacity. However, after privatization, such industries or businesses have to compete with other industries or businesses. This forces them to increase production capacity by adopting modern technology and effective management. Consequently, competitive capacity increases, leading to the production of better and cheaper goods.
2. Reduction in Government Intervention: Public enterprises are under the control of the government. Therefore, there is unnecessary government intervention in their operation. Due to government intervention, their work efficiency is negatively affected. Thus, privatization is very important to eliminate unnecessary government intervention.
3. Increase in Revenue: After the sale of loss-making industries under government ownership to the private sector, the government levies various types of taxes on the income and profits earned by them. This increases government income or revenue.
4. Creation of Employment Opportunities: After privatization, as government intervention ends, industries and businesses are operated efficiently. Simultaneously, with the expansion of these industries, the number of other related industries also increases. This creates new employment opportunities.
5. Increase in Consumer Satisfaction: Public enterprises often neglect consumer demand, preferences, taste, choice, etc. However, private industries and businesses produce goods and services according to consumer demand, preferences, taste, choice, etc., which increases consumer satisfaction.

Negative Aspects of Privatization:

The negative aspects or disadvantages of privatization are as follows:

1. Neglect of Public Welfare: The main objective of the private sector is to maximize profit. Therefore, it only produces goods and services that generate high profits. It does not pay attention to the production of essential goods and services for the public, such as education, health, public transport, drinking water, electricity, etc., which have lower profit margins.
2. Unemployment: The private sector always aims to minimize costs and maximize profits. For this, it uses modern technology, which can displace workers and create unemployment.
3. Labor Exploitation: The private sector often pays low salaries or wages to workers and makes them work for longer hours. Thus, there is extensive exploitation of labor in privatization.
4. Increase in Economic Inequality: When industries or national assets under government ownership are privatized, only a few wealthy individuals can afford to buy them. They become owners, while people from poor communities become workers. The income of the owner class increases, making them even wealthier than before, while the working class remains poor, leading to an increase in economic inequality in the country.
5. Neglect of Backward Areas: Since the main objective of the private sector is to maximize profit, it does not want to do business in backward areas where there is less infrastructure and market potential. This hinders the development of backward areas.
6. Misuse of Resources: Instead of producing essential goods, the private sector prioritizes the production of fashionable, luxurious, and convenient goods and services with the aim of maximizing profit. This neglects the needs and interests of the majority of the population and the nation. Therefore, in privatization, resources are misused by producing unnecessary goods and services rather than essential ones.