State Owned Companies Case Study

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Since the state-owned companies supported by government would slow the development of the private firms in several ways, for instance, crowding out private investment and private firms might face limited the potential for expansion. According to Shleifer (1998), governments globally have started on privatisation programs since the last 20 years in market economies particularly in the very state firms in steel, energy, telecommunication and financial services. For example, the UK government sold many state-owned companies, such as BT and British Gas on the stock market in 1980. Privatisation is the transfer of assets or economic activities from public to private ownership who is likely to have the crucial source for a better incentive in …show more content…

For instance, after the privatisation of BT and British Airways in the UK, they have been improved efficiency and higher profitability thereafter. Shleifer (1998) has also supported that private firms seem to do better than state ownership with a lower costs and quality improvements. Furthermore, there are substantial lower costs and higher productivity in many services in private sectors (Savas, 1982). Therefore, overall consumers would benefit with the competition of private companies, such as lower costs, development of new products and quality, etc. The other reason for privatisation apart from cost reduction and quality innovation is that the inefficiency as a result of the policy from government which seems to benefit to its supporters, or in the other words, corruption (Bennedsen, 1998). Many studies have shown that majority of workers in state-owned companies tend to take bribes, thus generally politicians have use their controls to remain in power and enjoy the perquisites as a mean of channeling benefits. For this reason, privatisation is considered to mitigate the interference from political leaders and may not need to do undue favour of their interests. However, privatisation would be difficult in a corrupt government and might lead to adverse effects to specific regions or groups, this situation might be even worse than not at all if institutions do not have enough controlling. Therefore, designing in regulatory contract is very important

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