Marketization or Marketisation 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.
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.
This is often described as "competitive federalism" or "limited government". Proponents argue that markets perform better than government administration. Therefore, marketization 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.
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.