Privatization is the process of transferring government assets or services to private sector. It could also refer to the transition process of a company to a privately-owned one that stops trading publicly at the stock exchange from a publicly traded company. Investors cannot purchase a stake in any publicly traded company that becomes a private company. This could be through three ways, which include selling state-owned assets to private owners or lifting statutory competition restrictions between publicly, and privately owned enterprises, or contracting to outsiders the services that the government formerly provided. The main objective of a company or enterprise privatization is to increase the efficiency of the government. Its implementation may have either a positive or a negative effect on the government. This increase in efficiency results from the great emphasis that private owners place on wealth and profit maximization unlike the government which concerns itself more with service delivery.
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The opposite process to privatization is nationalization. Nationalization is the policy that governments resort to when they want to keep revenues away from major industries. The most common cases are the industries that foreign interests are likely to control. There are four main forms of privatization. The first form is the share issue privatization, or SIP. This is where the company sells its shares through the stock market. The second form is the asset sale privatization. This is where a strategic investor buys part of or an entire organization by the use of the Treuhand model but most often through an auction. The third form is the voucher privatization. This is where the company distributes its ownership shares to all citizens at a low price or usually for free. The last form of privatization is the privatization from below. This involves starting up of new and private businesses in countries that were formerly socialistic (Farazmand, 2001).
A prison that is for-profit, or a private prison, a detention center, or a jail, is the place where physical confinement of individuals occurs, or an intention by a third party whom a government agency contracts. These companies of private prisons enter into a contract with the governments which commit prisoners in their facilities and pay them a monthly rate or a per diem for each one of the prisoners they confine in the facility. Nowadays, prison privatization refers not only to the takeover of the already existing public prison facilities by the private operators, but also to the construction and operation of additional new prisons by the prison companies that are for-profit. Many states turned to this mode of confining prisoners due to the issues arising from overcrowding in prisons, the high costs of running and operating a prison, and the capital expense committed to the building of new prisons. Those advocating for private correctional services argue that private prisons are in a position to achieve savings over public prisons by eliminating benefits for employees, eliminating overtime, reducing the red tape and purchasing in bulk.
People who opposed to privatization of prison services argue in the line that there is no true, accurate and clear-cut comparison between private and a public prison’s services and costs. Thus, this is a complex and difficult process, which does not provide an argument compelling enough for the privatization of prison services. Prison industrial complex is the tremendous commercial growth of private companies owning and operating prisons. It also refers to the businesses that supply services and goods to prisons. These companies have a lobbying base that is strong, because they present themselves as creators of jobs and bring effective solutions to crime, unemployment and social problem issues. However, private businesses owning, operating, or serving prisons are just like any other business entity. The first priority of these businesses is not to rehabilitate the prisoners or to reduce the level of crime. These interests are public and therefore require public accountability (Price, 2006).
Prisons nowadays are big businesses. They have been in the growth stage of their lifecycle, especially in the case of rural areas that have little commerce and small populations. The government has to invest heavily in the management of criminal justice facilities and its activities. The estimates from unduplicated expenditure by the federal government of the United States, the state, the county, and the city approach to a whopping $ 300 billion every year. This is because prisoners need highly trained staffs in large numbers. Furthermore, the population in prisons tends to be more troubled and sick than the rest of the community in general. Therefore, they must have food, clothing, housing and strict supervision. The prisons present surveillance equipment, prisoners transportation services, construction and locks with a viable market. As a result, there is an increasing trend of privatizing the ownership and management of prisons responding to high costs of housing a burgeoning prison. These for-profit entities take least expensive security facilities, i.e. the minimum, so that they can reduce their programs and save on costs. Key issues raised in privatization of prison facilities are the control, accountability, and reduced public access.
This is the relationship between the government and the private sectors, famously known as the Public-Private Partnerships (PPPs). This is a business relationship whereby the government collaborates with the private sector to promote business activities in the country and to increase the efficiency in service delivery by the government. This however results to a list of benefits and limitations. The potential benefits that might accrue from a public-private partnership are the transfer of risks associated with the project to the private partner, because once the government contracts a company to perform some of its duties, the contracted company carries full forbearance of risks. The PPPs provide a greater price for the project since they gear towards profit maximization and have certainty of schedules, because private firms set up and adhere to timeframes. The private sector brings in more construction techniques and innovative designs owing to their competitive edge. PPPs frees up public funds so for them to go to the other purposes as the private partners bring in their funds too.
The funds for these projects come from the private investors who have less bureaucracies compared to their government counterparts, thus there is quicker access to financing of the projects. Private sectors uphold a high maintenance level for them to continue having a good name in the market. Finally, the public-private partnerships freely project debts from the books of the government (Urio, 2011). On the other hand, these PPP projects also experience a given set of limitations. One of this is the increased financing costs. This is because they do not subsidize the costs of their provisions unlike the government, which introduces subsidies to make the services or goods arising from the projects affordable to all citizens. This also limits the flexibility of the government while running the project. Few bidders for the project when presented to the market might also prove cumbersome to the government. Finally, there is greater possibility of the occurrence of unforeseen challenges.
The arguments for the privatization of the prisons facilities, especially in the United States, are that state prisons require too much money to run and operate, thus the cost runs out of control. This is especially unreasonable in the payment for guards in California. Privatization of prisons and their management is one of the best ways of combating the costs due to the increased prison population. These private prisons also operate in a more efficient manner than if they were still under the government jurisdiction. Privatization also frees the government off some burden when running the facilities (Feldstein, 2008).
Despite the numerous benefits suggested for the privatization of prisons, there are still others against this privatization move. One of this is government criminality since some well connected officials to the try party stand to make profits from the shares of prisons business. Privatization of prisons removes all the incentives necessary to provide rehabilitative services. It is also destructive, because profits should not be the motive to create prisons but rather rehabilitation of the criminal elements. Thus, it is against the implementation of punishing these prisoners and rehabilitating the offenders. A privatized business is a non-entity; therefore, it has rights equal to those of a person, and a person can make mistakes or run immorally, or legally (Whincop, 2003).
In conclusion, any business which considers going public or a parastatal business which considers going private must be fully aware of the merits and demerits associated with such a decision. They also must consider the major risks transferred during such transactions. For example, the financial risks include the changes in incurring costs and the changes in actual and estimated inflation. There are construction and design risks involved, such as unknown utility lines and interface between construction and design. Maintenance and operation risks involved might include the requirements and standards imposed on the future. Finally, factoring of revenue risks, such as the facility having less usage as predicted or the public being less willing to pay user fees as projected, is necessary. In this case of privatization of prisons, it could be the public rejecting private correctional facilities as they release back to the society only half- rehabilitated prisoners.