What is privatization


1. Term: The term privatization is used today as a generic term for a number of different forms of transferring tasks formerly reserved for the public sector to the private sector (not necessarily the market) and denotes, among other things:

a) Relocation of certain previously state activities to the private sector of the economy in order to allow the (more efficient) market to allocate resources (regulation, deregulation);

b) Use of private legal forms for the fulfillment of public tasks, in order to remove certain fields of activity from the direct influence of the budget, public service law and politics;

c) Application of private-sector financing models to develop private capital for the performance of public tasks;

d) Sale of public property. Often the aforementioned levels of privatization cannot be clearly separated from one another.

2. Species: According to the general opinion, a distinction is made between the following forms of privatization:

a) Formal or organizational privatization: Choice of a specific organization for the performance of public tasks; the administration does not do away with a specific task, but simply chooses forms of private law (GmbH, AG, private company, public company) to exercise it.

b)Asset privatization: Asset privatization is the term used to describe the sale of companies (holdings), land, etc.
c) Financing privatization:Financing privatization means the participation of the private sector in the financing of public tasks (e.g. construction of investment objects by private individuals and subsequent leasing by the administration, but also private liability capital in (semi) public companies).
d) Material privatization: In the case of material privatization (privatization in the narrower sense), there is a real shift of tasks to the private sector. The public administration no longer performs the task and no longer guarantees it. There is a reduction in the number of tasks and a relief for the state.

e) Functional privatization: Functional privatization is understood to be the inclusion of private individuals in the context of warranty management. See contracting out; Outsourcing.

3. Reasons:

a) Fiscal aspect: The privatization is carried out for reasons of consolidation of the public budget. It should be noted that the sale or IPO only leads to a one-off payment, but does not constitute a permanent flow of payments.
b) Economic policy: The supply politicians demand more market and less state. The market is efficient, competition ensures that resources are optimally allocated.

opposite: Nationalization, socialization.