Privatization of State Owned Enterprises
...essentially and ideologically against some parts of priviations, or all parts. This is may be due to the possibility of foreign investors. 2) The State leaders are of a different political party than the federal leaders. 3) The State leaders think that the distribution of ecomomic and or political benefits between the center and the state governments is unfair to them. Essential reasons for unsatisfactory performance of SOE’s can be summarized as follows: 1) State ownership is abstract and leaves no visible residual claimant to profits. 2) Managers of the SOE’s are largely shielded from the effects of the stock market hence do not have to worry about corporate control or stockholder accountability. 3) Managers of SOE’s must often try to satisfy multiple objectives determined by politions. 4) Government subsidies protect internal inefficiencies and perpetuate and internal ‘soft budgeting’ approach. 5) Risk-reward structure for SOE employees is often performance-neutral; whether SOE’s are bold, risk-taking, and growth oriented or diffident, risk-averse and loss making the risks and rewards to the employees are not perceptibly different. Privatization may cause a tremendous social upheaval. Most privatizations are accompanied with large layoffs. In Brazil, privatization occurred in the absence of a market system, which may lead to assets being held by a few very wealthy people. This could possibly discredit the process of economic reform. Privatization may possibly also have a ripple effect on local economies. State owned enterprises could be obliged to patronize national or local suppliers. It is to be said that private companies do not have any other goal than to maximize profits. “Privatization propels the establishment of social, organizational and legal infrastructures and institutions that are essential for an effective market ecomony.” The sale of state owned enterprises offered an appealing way to minimize the fiscal pressures. The sale of and SOE presented and instant revenue gain for the government. The future fiscal burden on the public sector was lessened. A increase of the future tax revenues of government would happen after the conversion of a SOE into a profitable private one. Governments have few incentives to guarantee that the enterprises they own will run well. On the other hand, private owners do have an incentive. They will lose money if the corporations are poorly run. It is shown that governments may run business poorly because the might only be interested in improving a company in cases when the performance of the company becomes politically sensitive. The government may putt off improvements due to political sensitivity ( even if the companies are run well). Employees may be selected or promoted because of political reasons rather than their capabilities or business reasons. It is also easier for private companies to raise capital than public ones. The government may only be interested in improving a company in cases when the performance of the company is politically sensitive. Brazil, a country characterized by mounting foreign debt and budget deficits, has emerged as a major revenue earner and macro economic stabilizer as a result to the privatization of SOE’s. The money raised by privatizations gave the country time to adjust to a couple major global crises. Brazil’s public and trade deficits, and the country’s dependency on foreign capital hasn’t seemed to change with the privatization program. Brazilians are still adjusting to the privatization program. For example: the privatization of the Telebras system. This system expanded and improved the decrepit telecommunication...