(a) What is privatization? [4 marks] (b) Give four reasons for government participation in economic activities in your country [16 marks]

Answer Details

(a) Privatisation. Privatisation is the transfer of the ownership, control and management of a public (government-owned) enterprise, wholly or in part, from the government to private individuals or the private sector, usually by selling its shares to the public.

(b) Four reasons for government participation in economic activities:

• To provide essential and social services. Government provides services such as water, electricity, roads, education and health that private firms may neglect because they are not very profitable but are vital to the public.
• To provide public and merit goods. Goods like defence, street lighting and public security will not be supplied adequately by private firms, so the government must provide them.
• To prevent private monopoly and exploitation. By running key utilities itself, the government stops private monopolists from charging excessive prices for essential services.
• To undertake ventures that need huge capital. Some projects (refineries, steel plants, railways) require capital and long payback periods beyond the reach of private investors, so the government steps in.

(Other acceptable reasons: to create employment, to earn revenue, for national security and strategic control, and to promote balanced regional development.)

Examination takeaway: note the contrast between the two parts, privatisation reduces the government's role, while part (b) asks why the government takes on economic roles in the first place; answer each on its own terms.