Privatization: What's the Impact?

Tweet

Privatization is now so widespread that it is hard to find countries not using the approach; North Korea, Cuba and perhaps Myanmar make up the shrunken universe of the resistant. Counting the transition, post-communist states, well over 100,000 medium and large enterprises around the world have been privatized in one form or another. Divestiture has touched every sector, from companies producing tradable goods, through infrastructure firms, and more recently units providing social services, such as health and education After a couple of decades of privatization, what is known about its impactand, more importantly, what has been learned about how to design privatization reforms both to extract the greatest possible economic benefit, and to ensure a fair distribution of the gains? The privatization movement has spawned a tremendous amount of empirical work on whether or in what waysprivatization is really a good idea. (For a taste of the literature, take a look at the papers listed on this page or search the "impact of privatization" resources on the knowledge resources page.) Research has focused both on the impact of privatization at the firm level (does privatization make firms perform more efficiently?), and on macro-economic impacts (does privatization result in net welfare gains for the economy?). Across a wide range of industries and countries, there's increasing support for a "yes" answer in both cases: privatized firms do tend to perform better, and privatization does tend to yield net gains for society. Where we haven't seen so much analysis so far is on the distributional impacts of privatization. But the initial lessons look pretty clear. How privatization is done matters very much indeed for the flow of benefits to the poor. Privatization conducted through fair, transparent processes reduces the risk that the benefits will be appropriated by a small elite. And privatization accompanied by rigorous opening up to competition, and effective and independent regulation, is more likely to bring benefits to the poorboth generally through broad benefits to the economy, and directly through access to better, less expensive servicesthan privatization of ineffectually regulated monopolies. Based on your experience, does this kind of phased approach make sense? If not, are there better alternatives?