The Challenges of Privatization

AbstractThis book provides a systematic account of the privatization process at the global scale, presenting an overarching description of the phenomenon, and panel data empirical analyses testing some of the predictions of the recent economic theory of privatization. At the macroeconomic level, privatization processes of the 1980s and 1990s are shown to be a cyclical phenomenon shaped by economic, political, and institutional determinants. At the microeconomic level, privatization has been partial and incomplete, with only minority rights transferred to the private sector. However, genuine privatization, involving the full transfer of control to the private sector, is difficult to achieve as several conditions must be met. First, markets should be competitive or suitably regulated. Second, private investors should be adequately protected by the law in order to avoid expropriation. Third, political institutions should be designed to limit the veto power of constituencies ousting full divestiture. Last but not least, governments should be credibly committed not to interfere post-privatization in the operating activity of the companies. As a consequence, private ownership is likely to coexist with public control, at least in the near future.