Definition of Privatization

What does the term "privatization" mean? What is meant by the word "privatization"?

"Privatization", as it applies to the government, is the process of changing something from government ownership to private ownership. In other words, transferring ownership of a business, agency, property, etc from the public sector to the private sector.

Let's quickly look at an example of privatization:

The government of XYZ is looking to raise some money to help lower its deficit for the current fiscal year, and it is also looking to cut expenses in the form of government jobs.

Definition of Privatization - Financial DictionaryTo accomplish both of these tasks at once, the government of XYZ is proposing to sell their publicly owned electricity company to a privately held mega-company for $21 billion. The mega-company will be responsible for running and staffing the company.

By completing this transaction, the government will raise over $20 billion to help lower its deficit, and it will also be able to take thousands of government workers off of its payrolls (the mega-company will now be responsible for paying the salaries of the workers at the electricity company).

Opposition to the deal is harsh when the deal terms are first announced. Why? Well, many people feel that the mega-company will immediately raise prices, as they are a for-profit venture that is looking to maximize the return on their investment. Opponents of privatization will often argue that prices usually increase when a government owned business or service is privatized.

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