Abstract
Privatization of state owned enterprises (SOEs) has been a key plank of the neo-liberal counter-revolution against economic development since the 1980s. Privatization’s promoters promised improved efficiency and improved fiscal balances, both supposedly contributing to higher economic growth. Privatization was also supposed to ensure improved consumer welfare through increased competition and lower prices. Empirical support for these claims is scant and often contradictory. Thus, in many cases, privatization has been worse as a solution to the ills it purported to overcome. The problems of SOEs are not necessarily due to public ownership per se. In any case, there are alternative governance, management and organization means to improve SOE performance without privatization.
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Notes
Complete privatization of public assets to private investors in the US was limited prior to 1992 due to federal regulations that required state and local governments to fully reimburse the federal government for grant monies received for infrastructure assets upon the sale of those assets. See Commission on Government Forecasting and Accountability, State of Illinois (2006).
A term associated with Hungarian economist, Janos Kornai. The ‘softening’ of the budget constraint appears when the strict relationship between the expenditure and earnings of an economic unit (firm, household, etc.) has been relaxed, because excess expenditure will be paid by some other institution, typically by a paternalistic state (Kornai 1986).
For example, the Sydney Airport Corporation did not pay any tax for at least 10 years after its privatization despite earning nearly AUD8 billion while enjoying tax benefits worth almost AUD400 million. See http://www.smh.com.au/business/airports-pot-of-gold-20130822-2segw.html.
Admitting that privatization has damaged the economy, such concerns led a leading advocate of privatization, Rod Sims, Chairman of the Australian Competition and Consumer Commission, to the verge of becoming an anti-privatization critic. Referring to the outcomes of the sale of ports and electricity infrastructure as well as the opening of vocational education to private companies, he noted, ‘I’ve been a very strong advocate of privatization for probably 30 years; …I’m now almost at the point of opposing privatization because it’s been done to boost proceeds, it’s been done to boost asset sales and I think it’s severely damaging our economy.’ http://www.smh.com.au/business/privatisation-has-damaged-the-economy-says-accc-chief-20160726-gqe2c2.html.
For example, 1999 IMF research found that privatization ‘can lead to job losses, wage cuts and higher prices for consumers’ (Gupta et al. 1999). 1997 World Bank research on the experiences of Argentina, Bangladesh, Chile, Ghana, Malaysia, Mexico, Sri Lanka and Turkey in 1997 found large-scale employment losses when big SOEs were privatized (Kikeri 1997).
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Jomo, K.S., Chowdhury, A. Privatization Rarely in Public or National Interest. Development 61, 84–88 (2018). https://doi.org/10.1057/s41301-018-0187-0
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DOI: https://doi.org/10.1057/s41301-018-0187-0