The Effects of Privatization on Firms and on Social Welfare: The Chilean Case

Abstract

Chile led the Latin American pack in launching its far-reaching privatization program, but the question of whether the process has made firms more profitable remains. Also unclear is whether society as a whole is better off because of privatization. This paper looks at the performance of several industries to gauge the effects of privatization on Chilean firms and social welfare. The authors’ research, which is both broad and deep, yields some surprising findings. For example, contrary to commonly-held perceptions of bloated state-run bureaucracies, the authors find that the employment ranks of regulated entities actually swelled after their ownership switched to private hands. The paper evaluates a wide range of aspects of the privatization process, from highway tolls to private pension fund returns to school vouchers, and concludes with some concrete recommendations for future improvements.