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Main Goals of Privatization

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1. Macroeconomic Efficiency

o One of the main goals of privatization is to create higher levels of efficiency throughout the economy. It seeks 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 suppliers is encouraged. The United States is an example of a market economy.

Service Development and Efficiency

o A second aim of privatization is to improve the economic efficiency and development of the service in question. 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 the private sector due to a stronger connection between the business owners and its executive operators.

Budget Improvement

o When services are provided by the private sector, a public entity such as a federal government is no longer financially responsible. Transferring the responsibility allows a public entity to gain income from the sale of the business or service in question 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 Distribution and Political Influence

o Privatization seeks to return the ownership of the economy to its citizens. Rather than placing full responsibility with a centralized government, businesses owned and operated by private members of society help contribute to their own well-being. Entrepreneurship is thought to be encouraged and able to flourish under privatization. In addition, political parties and lead figures use privatization to gain influence in political campaigns and push certain political agendas. An example would be the U.S. Republican Party's push to privatize Social Security benefits, particularly during the 2004 re-election of former President George W. Bush. Criticism of the U.S. government's handling of the program and worries over the availability of adequate funds for future generations prompted a debate over whether privately owned investment firms might not be better suited to administer the program's benefits.

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