Privatization of State Owned enterprises to Combat Corruption

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Privatization of State Owned enterprises to Combat Corruption
By (Name)
Course
Instructor’s Name
Institutional Affiliation
The City and State
The Date

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Introduction
Purpose of the report proposal
The report proposal aims at drawing a necessary framework that is useful in formulating
and analyzing how privatization of enterprises that are owned by the state can be useful in
combating corruption.
Background
Privatization of state owned companies refers to the transfer of ownership of the
identified companies to private investors or sectors (Hoppe & Schmitz 2010). It can also be
referred to as purchasing of outstanding shares of publicly traded companies by the private
investors. Corruption can be termed as the form of criminal activity or dishonesty undertaken
by any organization or individuals entrusted with authority or position of power so as to gain
illicit benefits. Corruption within Australia is very uncommon as compared to other existing
countries within the globe. "Transparency International's 2016 corruption Perception index"
ranked the Australia state as thirteenth out of one hundred and eighty countries (Kaufmann et
al 2007). The country with the least corruption rate is New Zealand (Kaufmann et al 2007). The
public sector's corruption in the country is considered to be increasing and is also related to the
rate of corruption within other developed countries (Olken 2011). Corruption within Australia
does not only occur in public institutions but it’s also exists at a very low extent in private
sectors. Some of the sectors were corruption is estimated within Australia are; political parties,
trade unions, and media houses. In the month of January 2018, the Australia institute published
a discussion paper suggesting how trust in the Australian government is historically low due to

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corruption, this was considered as one of the possible reasons why the Gross Domestic Product
of the country reduced as low by a reduction rate of 4% (Kaufmann et al 2007).
Different countermeasures within the state are undertaken to curb damages caused by
corruption. Most of these countermeasures undertaken lie within the judicial system. An
individual convicted of corruption and proved guilty serves a 10 years' imprisonment or/and a
maximum fine of AUD 1.1 million. For a business or an entity that involves in corruption is
penalized with a fine. This fine has a maximum value of AUD 17 MILLION which is thrice the
value of obtained undue benefit. Besides these countermeasures there is also a need of
privatization of public enterprises within Australia since it is easy to monitor the private sector
and also it’s easier to issue out penalties (Kaufmann et al 2007). Privatization of these public
entities will help the government reduce on the budget deficits and also cut debts. It will also
lead to technical efficiency or rather effectiveness in the provision of services (Chowdhury
2006).
Research Question
While analyzing the impact of privatization of Public sectors to combat corruption within
the sector, the following research question will be so useful in carrying out the study and
research.
Is privatization the solution for combating corruption within state owned enterprises?
Hypotheses.

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The following two hypotheses are considered while carrying out the research on the
privatization of public or state owned companies.
Hypothesis 1:
The first hypothesis states that “Privatization of State Owned Enterprises leads to a
reduction of corruption and economic growth”.
Using this hypothesis in the research two variables are considered while proving it. One
of the variable is the ownership is the extent of ownership which considered to be the
independent variable. Using this variable, research will identify ownership in private and public
sectors affects different factors within these enterprises for example business growth, efficiency
of employees, commitment, as well as fraud and embezzlement in the business (Kaufmann et al
2007). The other variable to be considered is foreign direct Investment and is considered as the
dependent variable. Foreign direct Investment (FDI) is referred to as investments done by a
company or an individual within a given country into trade interests situated in another nation.
In summary, it is kind of investment where an entity in one country owns a business venture
within another country(Kaufmann et al 2007). Therefore through the research using the given
hypothesis, the relationship between "Extent of ownership (independent variable)" and
"Foreign Direct Investment (dependent)" will be analyzed(David 2014).
Hypothesis 2:
The second hypothesis states that "Privatization of State Owned Enterprises improves
firm's efficiency".

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While analyzing and proving the validity of the above hypothesis, two variables are two
be used. The one of the variable considered is the "extent of ownership" which is considered to
be the independent variable. The extent of ownership as described in the first hypothesis will
focus at how both private and public sectors own their business as well as how their ownership
affect the different attributes within the enterprises(Kaufmann et al 2007). The impacts of
ownership in both sector on; business growth, resource utilization, employee commitment, and
revenue will be analyzed. The other variable that would be considered while proving the
validity of the hypothesis is “profitability of the firm or business enterprise”, this is considered
to be the dependent variable (Kaufmann et al 2007). The profitability of the firm will be
dependent on the “extent of ownership of the enterprise” and there correlation will be
determined with in the research paper. Profitability of the firm looks at how the firm utilizes its
available resources so as to come up with adequate profits. The costs of production will be
lower as compared to the revenue obtained by the firms. Cost of production looks at cost of
labour, cost of resources and time used in production (Florio 2004).
Literature review
The purpose of the research question is to help in facilitation of progress in the
prevention of corruption particularly in governmental or state owned enterprises within
Australia and other countries. The paper proposes privatization of publically owned enterprises
as the only solution for curbing the corruption. Corruption within state owned enterprises is
very deadly; it can lead to inefficiency, low profitability, and low progress of these enterprise.
Corruption within Australia among State owned companied is uncommon though in some

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neighboring ASEAN countries it is available (Police Integrity Commission (PIC NSW) 2011).
Australia has always been fighting corruption and therefore it has a very strong domestic,
regional, and global action of preventing and exposing it. In the fighting of corruption it includes
the "G20 Anti-corruption working group", "United Nations Convention against Corruption
working Groups", and "APEC Anti-Corruption and Transparency Working Group". There are
strict fights against corruption in the country in that most of the individuals within the state
believe that acquisition of luxury gifts from politicians it's corruption in bribery form (Kemp
2007). Given the fact that there is less corruption in Australia among state owned enterprises,
there is a need to effectively solve it. Besides Australia, there are also other neighboring
countries which are affected by corruption in the public sector where privatization is the
solution. Privatization also has other advantages such as efficiency where there are incentives
of introducing better and new technology and also increase productivity of labor, production is
based on profit motives thus increasing productivity, and also there is development in the
production knowledge where private firms only employ workers and managers with better skills
(Kaufmann et al 2007).
The last one and half decades have greatly witnessed an important shift to
entrepreneurial capitalism from state socialism. The very most visible and important aspect of
path has always been the exuberance with which government of political persuasions are
selling state owned enterprises(SOEs) to private sector and investors with hopes of improving
the generally unsatisfying economic performance of the firms. Privatization has a number of
effects both positive and negative. It may increase effectiveness of the publically owned
companies or may merely lead to their collapse. Research notes that there are numerous state