Privatisation and nationalisation Cambridge IGCSE Economics revision
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In plain words
A government can sell a business it owns, such as an airline or a water company, to private owners. That is privatisation. Going the other way, taking a private business into state ownership, is nationalisation.
The argument is about who runs things better: owners chasing profit, or a government aiming to serve the public.
5 things to know
- Privatisation is the sale or transfer of state-owned businesses or assets to the private sector.
- Nationalisation is the transfer of a private business or industry into state ownership.
- For privatisation: the profit motive and competition push firms to cut costs and improve quality, the government raises money from the sale, and it no longer has to cover any losses.
- Against privatisation: a private monopoly may raise prices, jobs may be cut to reduce costs, and unprofitable services, such as rural bus routes, may be closed.
- For nationalisation: essential services can be run for everyone's benefit and jobs can be protected. Against it: without the profit motive, costs may rise and taxpayers must cover losses.
Tips and tricks
- Judge the effect on each group separately: consumers (price, quality, choice), workers (jobs, pay), the business (efficiency, profit) and the government (sale revenue now, but no profits later).
- Privatisation only brings lower prices if there is competition afterwards. Selling a monopoly just creates a private monopoly.
It lands in your notebook with its questions as flashcards.
Privatisation and nationalisation: 5 questions and answers
These are the quiz’s questions. Do the quiz first, then come back here for the ones that got you.
Privatisation is
Ownership moves from the public sector to the private sector.
Which is an argument for privatisation?
Private owners have a reason to cut costs.
A government takes a private railway company into state ownership. This is
The firm moves from the private sector to the public sector.
Which is a possible disadvantage of privatising a water company that has no competitors?
A private monopoly can charge more because customers cannot go elsewhere.
How does privatisation affect a government's finances in the year of the sale?
The sale brings in money once, though any future profits are given up.
Quiz
5 questions
Tap an answer and you’ll see straight away whether it’s right, and why.
Worksheet
3 questions, 8 marks. Write your answers on paper, then check them.
Privatisation and nationalisation
Cambridge IGCSE Economics 0455 · 8 marks · papermunch.org
Name ______________________________ Date ______________
Define privatisation.[2]
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The sale or transfer of state-owned businesses or assets to the private sector.
Explain one way privatisation may benefit consumers.[3]
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Private owners aim for profit and may face competition, so they have a reason to cut costs and improve quality, which can mean lower prices and better service.
Explain one way privatisation may harm workers.[3]
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To raise profit, the new owners may cut costs by reducing the number of workers or holding down pay, so some workers lose their jobs.
Answers: Privatisation and nationalisation
- 1. The sale or transfer of state-owned businesses or assets to the private sector.
- 2. Private owners aim for profit and may face competition, so they have a reason to cut costs and improve quality, which can mean lower prices and better service.
- 3. To raise profit, the new owners may cut costs by reducing the number of workers or holding down pay, so some workers lose their jobs.