Privatization: A Summary Assessment

29 Pages Posted: 30 Apr 2007

See all articles by John Nellis

John Nellis

Center for Global Development

Date Written: March 2006

Abstract

In the last 25 years many thousands of formerly state-owned and operated firms have been privatized in developing and transition countries, generating over $400 billion (US) in sales proceeds. In addition, thousands of firms have been transferred by privatization processes in which no money was raised (though a surprising number of state-owned firms remain in these regions). The vast majority of economic studies praise privatization's positive impact at the level of the firm, as well as its positive macroeconomic and welfare contributions. Moreover, contrary to popular conception, privatization has not contributed to maldistribution of income or increased poverty - at least in the best-studied Latin American cases. In sum, the technical picture is generally positive. Nonetheless, public opinion in the less developed world is generally suspicious of, and often hostile to, privatization. A good part of the problem is that privatization has proven harder to launch, and is more likely to produce errant results, in low-income, institutionally weak states, particularly in the most important infrastructure sectors. Privatization is hard to sell politically; it has become a lightning rod and handy scapegoat for all discontent related to liberalization and globalization. What is needed are reform mechanisms that give incentives and comfort to reputable private investors, that create and sustain the policy and regulatory institutions that make governments competent and honest partners with the private operators, while at the same time protecting consumers, particularly the most disadvantaged, from abuse.

Keywords: privatization, weak institutions, poverty, liberalization, globalization, incentives

JEL Classification: E21, E20, D60, F4, O1

Suggested Citation

Nellis, John, Privatization: A Summary Assessment (March 2006). Center for Global Development Working Paper No. 87. Available at SSRN: https://ssrn.com/abstract=983188 or http://dx.doi.org/10.2139/ssrn.983188

John Nellis (Contact Author)

Center for Global Development ( email )

2055 L St. NW
5th floor
Washington, DC 20036
United States
202-416-0724 (Phone)

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