Privatisation is where a previously public owned firm is sold privately usually to generate a large capital sum or to reduce the burden on the public sector. Privatisation refers to the changing of ownership from a state-owned to a privately owned entity. It is usually done three ways which usually are the sale of assets, contracting out and deregulation. Therefore by privatising the MHPA, it means that the ownership of the enterprise would change to a privately owned firm from a state owned firm and therefore this would bring about a large amount of potential changes in the way that the firm is run and operates.

Using the data as well as my own economic knowledge, I am against the privatisation of the MHPA. One of the reasons why I take this viewpoint is due to the fact that there are large negative externalities when concerning the MHPA as it involves in a sector which pollutes heavily. If the MHPA was a private firm, it would therefore take the standpoint of being profit-maximising producing at MPC=MPB=MSB which would therefore when taking into account the externalities be considered as overproduction. Due to this overproduction there would obviously be an increase in the resulting pollution and this would be considered as inefficiency, which is shown by the dead-weight loss (ABC) in graph 1. However, if the firm was nationalised and therefore not profit maximising, it would be producing at Q1 which would result in no or less overproduction which would also result in increased efficiency as the social cost of the pollution is more likely to be taken account by a nationalised firm as the profit maximising firm might overlook this social cost to increase its own private benefit.

However, there are potential ways in which the firm could be privatised and these negative externalities could be reduced. This is by regulation such as the government giving out pollution permits or taxing firms depending on their pollution levels. This would hopefully result in increased tax revenue for the government through increased tax revenue as well as any potential payments for permits or not meeting quotas etc. It also allows the government to be relieved of the burden of having to run and maintain such a large business while also generating a large capital sum through any sale which would therefore help reduce the budget deficit and allow money to be spent elsewhere (opportunity cost).

Privatisation is also inspired by the belief that the private firms use resources more efficiently than the state sector does. The primary reason for this is the profit motive and, as a result, private firms will strive to reduce waste and x-inefficiency (refer to diagram 2). However, private firms do produce some waste. This is especially likely for this situation as MHPA could be considered as a natural monopoly if privatised due to the high capital cost involved with the sector due to the potential of divorce of ownership and control as the owners want to reduce costs to the minimum but the managers want to increase revenue which has strong links to their salaries which therefore means they are not as bothered when considering trying to reduce their costs.

In my opinion, privatisation could have potential benefits for the government however I think that these benefits would come with too many externalities to be considered worth while. As the MHPA is a strategically important firm which provides a large amount of jobs for the public it is important that corners are not cut through privatisation. Safety is also a concern with privatisation especially when private firms are striving for technical efficiency, this is because they would cut costs which would usually have an adverse effect on quality.