Public And Private Ownership Essay Example
Public And Private Ownership Essay Example

Public And Private Ownership Essay Example

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  • Pages: 4 (1018 words)
  • Published: January 17, 2017
  • Type: Case Study
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Public ownership refers to a common or collective ownership of property by either the government or a community. In other words, the property in question is not registered to any particular individual. Private ownership on the other hand refers to individual ownership of property. The issue of public or private ownership comes into view when considering the general consequences of the type of ownership adopted. There are sectors that are historically left for public ownership and some for private ownership.

Sectors like transport, health, education and defense are in most cases under the ownership of the state while housing, food production and trade are always under private ownership. However, one may be bound to ask the point of demarcation between these two types of ownership. With regard to business, there exists a distinct difference between private and public ownership depending on c

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ontrol and market listing.

According to Arnold W. A. Boot, Radhakishnan Gopalan and Ajan V. Thakor, public ownership involves publicly traded shares and public corporate governance with diffused ownership and control while private ownership operates without market listing and involves private contracting with concentrated ownership and control. In view of this, public and private ownership differ along the dimensions of control allocation and investor liquidity. Liquidity considerations to some extent determine the type of ownership. However, the question that most governments have been grappling with is the choice of ownership that best suits the needs and desire of the general population.

This question and its subsequent answers have dominated world politics and economy for centuries. Some people have argued that public ownership is more preferable to private ownership while others

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have pointed out to the ills of public ownership. Some properties, however, can only be owned publicly through the state. Proponents of private ownership hold that it should generally be preferred to public ownership when the incentives to innovate and to contain costs are strong. This is the case in essence for capitalism over socialism.

However, there have been questions over the effect of the type of ownership on service delivery. For instance, has the privatization of United Kingdom's railways affected its service delivery as compared to the railway sector in France which is owned by the government. It is true that publicly owned firms are much more relaxed in their service delivery as compared to privately owned entities. This could be as a result of their non-profit nature resulting into laxity among the employees. However, with regard to the cost, publicly owned sectors considers the welfare of the society as compared to private sectors.

There also exists a difference in corporate governance between private and public ownership. The level of managerial autonomy in private ownership is high as compared to that of public ownership. One of the main benefits of private ownership lies in the fact that it enables the manager to achieve the precise trade off he/she desires through private contracting. Public firm's governance structure is in contrast exogenously imposed by regulators and investors. As much as public capital markets provide liquidity, they however stipulate corporate governance that imposes generic exogenous controls.

In contrast, private ownership provides the desired trade off through precisely calibrated contracting even though it creates illiquid ownership. As mentioned earlier, there exists a difference in performance

between private and public ownership. Private enterprises result in superior cost and price performance than public enterprises. Research findings point to the view that privately owned firms are more efficient and more profitable than public firms. While public enterprise may have some shortfalls, it is not inferior to the regulation alternatives.

Some arguments have been placed to the effect that public owners are in the best position to secure information necessary to monitor enterprise behavior for consistency with social objective. Besides, public enterprise may be superior to private enterprise in a situation where the output has important non-specifiable attributes. It is always the case that when dealing with contracts, private providers must set out the price and quality of the service to be rendered. If the quality is difficult to specify in all possible aspects then such quality will be under supplied.

Public enterprises by contrast possess weaker incentives hence higher prices but the quality is not always compromised. According to Barry Confield, the general public has lost so much through privatization. Privatization of public services has led to worse services to the public. This contradicts the findings of research by Meginson and Jeffrey thus questioning the objectivity of such positions. According Confield, returning the railway to public ownership could produce immediate cash savings of over 500 million pounds a year 'through reduced bureaucracy and leakages to private providers of finance'.

Here, it is the private ownership that is being regarded as inefficient when it comes to service provision and cost management. A major argument against private ownership is that it may lead to unnecessary monopoly especially when it comes to service

delivery. However, public ownership could also lead to corruption among senior government officials since the electorate who own these assets may not hold them accountable in most cases. Either way, one means of ownership or another cannot be escaped due to the very nature of human demands.

For instance, it would be very dangerous to privatize defense or education. These must be owned publicly since they require huge budgets and it is necessary that the public are not manipulated by few wealthy individuals. Public ownership protects consumer interests where the competition is low. Private owners quite often are concerned with their property than with the welfare of the society. This is evident in the economic system of countries such as Britain where the need to make profits overrides everything else.

However, these economies cannot revert to public ownership since it is viewed with suspicion. Empirical research however favors private ownership over state ownership in competitive markets. The whole issue nevertheless is marked with so much ambiguity that it is very difficult to say with certainty the kind of ownership to adopt especially in a free market.. The choice confronting governments being private or public ownership, there is need for more research.

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