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Evaluate, using examples, the arguments in favour OR against the privatisation of commercial state enterprises in Ireland. - Leaving Cert Business - Question C - 2008
Question C
Evaluate, using examples, the arguments in favour OR against the privatisation of commercial state enterprises in Ireland.
Worked Solution & Example Answer:Evaluate, using examples, the arguments in favour OR against the privatisation of commercial state enterprises in Ireland. - Leaving Cert Business - Question C - 2008
Step 1
Arguments in favour of privatisation
Answer
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Government Revenue: Selling a state enterprise can provide the government with a large sum of money. For example, the privatisation of Aer Lingus generated significant revenue for the Irish government, which could then be allocated to public services.
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Reduced Expenditure: By selling off loss-making enterprises, the government no longer subsidises them annually. This reduction in financial burdens allows the government to redirect funds to other critical services.
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Efficiency: State-owned enterprises often operate inefficiently due to reliance on government funding. In contrast, private enterprises are driven by profit motives, which incentivizes them to operate more efficiently and reduce costs.
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Access to Finance: Privatised firms are generally able to access capital markets more effectively, allowing them to take out loans and raise funds through shares. This access to finance can stimulate growth and expansion.
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Industrial Relations: Employees in state enterprises may be more inclined to engage in union activities, leading to higher costs associated with wage claims. In privatised firms, employee relations may be managed more efficiently, potentially reducing operational costs.
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Competition: Removing state monopolies can lead to increased competition in the market, which may lead to better prices and services for consumers.
Step 2
Arguments against privatisation
Answer
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Loss of State Assets: The privatisation of commercial enterprises can lead to the loss of strategic state assets that are essential for national interests, such as transportation networks or utilities.
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Increased Unemployment: The transition from state ownership to private operation can lead to job losses, especially if privatized companies seek to cut costs or restructure their operations to improve efficiency.
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Social Commitments: State-owned enterprises often provide essential services to underserved areas that may not be profitable for private firms. Their loss could leave vulnerable groups without essential services such as telecommunications or electricity.
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Loss of Control/Costs to the State: Once enterprises are privatised, the government loses direct control over them. This can lead to increased costs or reduced objectives aligned with public interest, as private companies prioritize profits.
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Profit Motive/Increased Prices: The primary aim of private firms is to maximize profits, which can result in increased prices for consumers if competition does not adequately constrain them.