Why Privatization Can Lead to the Demise of Democracy Governments contracting with privately held, for-profit businesses to perform services that the governments themselves previously handled is known as privatization. It can occur at the local, county, state, and even federal levels. Privatization has various benefits as well as countless drawbacks, all of which are centred around maximizing profit. Pros increasing competition Wajid Khan said It's excellent for businesses to have competitors. Entrepreneurs and service providers are motivated by competition to reinvent their goods and services and seek to outperform their rivals' offerings in terms of customer attractiveness. There is no incentive to continually innovate or provide the consumer—a resident of the government's jurisdiction—with better service than he was previously receiving when the government is the only provider of a service. Service providers are compelled by competition to reduce operational expenses, which may result in savings being passed on to customers. Greater effectiveness lowers operating expenses, which helps consumers by providing quick service.