Privatisation is only a modern name assigned to the concept of laissez-faire advocated by Adam Smith and other classical economists. But in the environment of mixed economy, it has a new significance.
The world economists have adopted it as a tool of new economic prosperity. It is expected that the new liberal era of industrialisation will open a new chapter in the field of productivity, efficiency, cost consciousness, competitiveness and management. The participation of the private sector in the development process is not an option; it is an essential requirement of development.
Earlier private enterprises which got into financial difficulties were taken over by the government in most of the countries. Now the policy has completely changed. Public enterprises which got into financial difficulties are transferred to a private agency.
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Government policy in India as in other countries is undergoing a sea change both on account of shifts on ideological account as well as basic economic considerations.
Moreover, international lending agencies have increasingly brought in the privatisation of public enterprises as a condition for their project lending in several countries.
It is evident from the World Bank report which has supported privatisation of public sector steel industry and World Bank experts have suggested that privatisation is essential to attain productivity and efficiency.
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After four decades of experiments with nationalisation in many countries of the world, a new world-wide experiment has started during the eighties in the form of privatisation.
Many countries are moving away from nationalisation out of sheer economic compulsions, viz., the widespread failure of the public sector enterprises, higher pressure on government budgets, particularly due to the subsiding of the public sector white elephants and various other macro-economic problems.
The public sector has lost its dynamism and according to some, it is now more a drag on development than an engine of growth.
It can be said that if a failing private enterprise should go out of business or close down the organisation, the same principle should be followed in case of public sector. But this is not always the case as the sick PSUs are allowed to operate with budgetary support.
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Contradictory as it may seem, privatisation is perfectly compatible with Marx’s postulate of withering of the State. It really envisages the shifting of ownership of the means of production from the elite to the masses.