Privatization

Privatization is defined as the transfer of ownership from the public sector to the private sector. Privatization can also refer to the repurchasing of some or all of a company’s outstanding stock by employees or a private investor.  The reverse process is called nationalization which is the process of transferring assets to public ownership.  A benefit of stock privatization is that companies compete to place the highest bid on your stock.

Three main types of privatization:

  • Share Issue- When stocks are sold on the stock market.
  • Asset Sale- When an investor buys parts of or all of a company through means such as an auction.
  • Voucher- Shares of stock are distributed to all citizens for free or very cheaply.

The main purpose of privatization is that many believe private markets are better than the government in distributing goods and services to the public. Proponents believe that free-market competition will lead to lower prices, better quality, more diversity, and less corruption without government interference.

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