7.2.2. Arguments Against Privatisation

A number of arguments have been advanced against the policy of privatisation:

a) Privatisation Not Always Desirable: As explained already, in many cases, public sector enterprises have been set up because the private sector either does not possess the requisite resources or simply is not interested because of long gestation period and low profitability. Many public sector enterprises are set up to achieve social welfare. Privatisation of such public sector enterprises may not be possible because private sector may not be forthcoming to acquire such public sector units.

b) Social Welfare Neglected: Privatisation policy may sometimes neglect the consumers' interest. Private sector enterprises operate mainly with the objective of profit maximisation. For example, private operators usually do not like to provide goods at subsidised prices to the poor consumers to promote social welfare and thus do not uphold the principles of social justice and public welfare.

c) Possibility of Unemployment: One of the genuine fears is that privatisation will lead to unemployment. There is always the fear of retrenchment and consequent unemployment when the public enterprises are taken over by the private sector. The experience of privatisation in many countries is testimony to the fact that this indeed has happened.

d) Growth of Private Monopoly: Another genuine apprehension is that the sale of a public sector undertaking to a private company may only result in the substitution of a public monopoly by a private monopoly. This may lead to monopolistic exploitation by efficient private owners replacing the inefficient public ownership.

e) Possibility of Corrupt Practices: The implementation of the policy of privatisation may open the door to corruption. There is the possibility of undervaluation of assets of the public sector units to favour the private sector. There may be complicity between politicians, bureaucrats, and particular business groups.

f) Lopsided Industrial Development: Privatisation may result in lopsided development of industries in the country. Private enterprises will not be interested in projects which are risky and have long gestation period with lower profitability. It may retard the growth of basic and heavy industries and infrastructure in the country.