Marketisation or marketization is a restructuring process that enables state enterprises to operate as market-oriented firms by changing the legal environment in which they operate.
This is achieved through reduction of state subsidies, organizational restructuring of management (corporatization), decentralization and in some cases partial privatization. These steps, it is argued, will lead to the creation of a functioning market system by converting the previous state enterprises to operate under market pressures as state-owned commercial enterprises.
Aspects
Marketized solutions of government and market externalities
Here the government seeks to solve market and government externalities with market-based solutions rather than through direct administrative means. Supporters argue that the market externality of pollution can be addressed through the sale of pollution permits to companies and corporations, thus allowing the market to "see" the information and "realize" the harm done by allowing the market to transmit pollution costs to society. This is presented as an alternative to direct administrative means, whereby the government would use command and control means to direct state enterprises and private firms to comply with the guidelines.
Marketization of government branches
This is often described as "competitive federalism" or "limited government". Proponents argue that markets perform better than government administration. Therefore, marketisation seeks to make government agencies and branches compete with each other when government branches and agencies are absolutely necessary (i.e. remaining agencies and branches not privatized or liberalized away). For example, supporters argue that a voucher system for public education would make public schools compete with one another thus making them more accountable and efficient.
Theory
Critics of globalization, privatization, and liberalization have deemed that it is unworkable without major government regulations to balance the forces involved. They argue that marketization can result in market failure.
Free Market thinkers like Hayek, Friedman and von Mises believe markets can work with far less government regulation. As they see it, the combination of liberalization, privatization, and marketization ensure that globalization fulfills the promises of peace, prosperity, and cooperation that its liberal scholars and philosophers have promised. Without marketization, supporters argue that government created externalities can distort the information available to the market which in turn makes the market not work as well as it could.
Examples
Milton Friedman offers examples of what marketized government solutions can look like. Friedman's proposed education voucher system promotes competition between public schools (and private) thus creating a market-based solution to educational issues. See Private prison. This phenomenon is now permeating into Higher Education in general, with research suggesting that students rather than being perceived as learners are now viewed as customers and therefore a critical component in the business model of many universities
Marketization of the nonprofit and voluntary sector
Overview of nonprofit organizations
Nonprofit organizations came to fruition when people began to recognize that society had needs for services rendered by neither the government nor the private sector. These organizations were created to address these needs. However, due to their overall missions, it is frowned upon for these organizations to make a profit. Therefore, by their very nature, their funding sources remain ambiguous. This results in nonprofits becoming resource dependent and continuing to struggle to find and maintain funding. This struggle has resulted in marketization of NPOs.
Rationale behind the marketization of nonprofits
Commercialization or marketization (the terms are often used interchangeably in the marketization debate among scholars) occurs when an NPO decides to provide goods or services with the intent of turning a profit. Nonprofits' resource dependency often lead them to constantly look for additional, nonconventional for nonprofit, funding. Factors behind a nonprofits decision to marketize are usually compounded by issues such as increased demand for services, inability to tax, and other funding sources' inability to cover operational and service costs for the NPO. In return, the NPO enters into a mixed marketplace and thus begins to compete either with other NPO's or for-profit entities.