Privatization Of State-owned Enterprises Research Articles

Privatization and Democracy

What is the effect of regime type on privatization of state-owned enterprises? The authors investigate the relationship between regime type and privatization through a panel data set for 76 developing countries from 1987 to 1994. The results show that, contrary to most studies that claim that authoritarian regimes are better able to ignore societal interests opposed to economic measures that impose austerity, democracies privatize more than authoritarian regimes. Moreover, challenging conventional interpretations that claim that economic difficulties contribute to state sell-offs, the authors find that privatization is most likely in wealthier developing democracies whose budgets operate with current account surpluses. Hence authoritarian regimes provide neither the right nor the correct model for countries wishing to pursue unpopular economic policies.

Priorities and Sequencing in Privatization: Theory and Evidence from the Czech Republic

While privatization of state-owned enterprises has been one of the most important aspects of the economic transition from a centrally planned to a market system, no transition economy has privatized all its firms simultaneously. This raises the question of whether governments privatize firms strategically. In this paper we examine theoretically and empirically the determinants of the sequencing of privatization. To obtain testable predictions about factors that may affect sequencing, we develop new theoretical models and adapt existing ones. In doing so we characterize potentially competing government objectives as i) maximizing efficiency through resource allocation; ii) maximizing public goodwill from the free transfers of shares to the public; iii) minimizing political costs; iv) maximizing efficiency through information gains and v) maximizing privatization revenues. Next, we use firm-level data from the Czech Republic to test the competing theoretical predictions about the sequencing of privatization. We find strong evidence that more profitable firms were privatized first. This suggests that the government sequenced privatization in a way that is consistent with our theories of maximizing revenue and maximizing public goodwill. Our findings are consistent with Glaeser and Scheinkman's (1996) recommendations for increasing efficiency through informational gains. They are inconsistent with the government pursuing the objective of increasing Pareto efficiency through improved resource allocation. They are also inconsistent with the hypothesis that the government minimized political costs. Our results also suggest that many empirical studies of the effects of privatization on firm performance suffer from selection bias since privatized firms are likely to have characteristics that make them more profitable than firms that remain in state ownership.

Privatisation of State-Owned Enterprises in Spain: Redefining the Political Economy

Spain was at the forefront of a worldwide wave of privatisation in the 1990s. The process was driven by a mixture of pragmatism, belief in its economic benefits and a desire to be at the heart of Europe. It was lubricated by buoyant stock markets. In the process of transferring state assets to the private sector, successive Spanish governments were careful to protect Spanish interests and to create a handful of major companies in which Spanish interests retained control. Nevertheless, privatisation provided an avenue for further foreign penetration of the economy. Transfer of ownership was also accompanied by the formation of market structures that threatened competition and therefore the potential benefits of privatisation. As a result the government was forced to develop new regulatory mechanisms. In addition to shifts in power and control in the economy, transfer of ownership led to the restructuring of labour, product and capital markets. In summary, privatisation redefined the political economy.

Privatization and the Market for Corporate Control

The most important development in international corporate governance in the past 20 years has been the privatization of state-owned enterprises. There is evidence that privatization has resulted in improved firm performance but the source of this improvement is difficult to isolate. We argue that one of the most important results of privatization for corporate governance is the potential entry of those firms into the market for corporate control as targets and bidders, which can result in improved firm performance for numerous reasons. We document the magnitude and the wealth effects of the mergers of privatized firms, attempting to find every privatized firm that was either a target or a bidder in a merger. We find 52 privatized firms that subsequently become targets of takeovers and 90 privatized firms that became bidders in 341 mergers. In general, we find that privatized firms operate very much as non-privatized firms have in the market for corporate control. Target firms experience a 12 percent increase in equity value at the announcement of a merger. Bidding firms experience a positive but insignificant change in equity value at merger announcement. The results indicate that mergers result in net wealth creation for privatized firms and are indicative that one effect of privatization is wealth-creating mergers.

Market Transition and the Transformation of the Health Care System in Urban China

During the pre-reform era, a free health care system evolved in urban China. Uniquely, the finance and administration of this system were based on the workplace rather than on the state. During the dramatic transition from a planned to a market economy which has taken place since 1979, this free health care system fell into a financial crisis in the 1990s and thus has become an institutional impediment to the marketization and privatization of state-owned enterprises, prompting the Chinese state to launch successive rounds of health reforms to transform it into a new health care insurance system. The new system is a contribution-based one administered by local governments. The contributions from both employers and employees are managed in two accounts, the social coordinating account and the individual account, which cover different payments for health care. As launching such a health care reform is against almost all vested interests in urban society, the full autonomy and high capacity of the Chinese state are required for its implementation.

Economic orthodoxy and the East Asian crisis

It is increasingly apparent that the Asian economic crisis has also led to a serious ideological crisis in the West. Before the collapse there was broad agreement among Western orthodox economists that developing countries should pursue a set of economic policies, often referred to as the 'Washington consensus', which included financial sector liberalisation, privatisation of state-owned enterprises, fiscal discipline and trade, exchange rate and foreign investment deregulation. Since the collapse, however, this consensus has broken down. This paper examines the emergence of the new so-called post-Washington consensus, with its emphasis on governance and social capital. The lexicon of the new policy paradigm underlying this new consensus includes civil society, safety nets, and, especially, governance, to be added to the conventional Washington terminology of open markets, deregulation, liberalisation and structural adjustment. Our central thesis is that this new post-Washington consensus is an attempt to place more emphasis on the political and institutional foundations for programmes of structural reform. However, it is also a kind of politics of antipolitics that attempts to insulate economic institutions from the process of political bargaining.

APPRAISING THE NEW INSTITUTIONAL ARRANGEMENTS FOR PRIVATIZATION OF KOREAN STATE-OWNED ENTERPRISES

Privatization is a long-term and complex process involving changes in attitudes, values, perceptions, and mentality. The president of the Republic of Korea and line ministries are pursuing an ambitious course of privatization. Based on common research questions concerning privatization policy, this paper has two objectives: first, to review the past performance of South Korea's privatization policy, and second, to evaluate the new institutional arrangements for the privatization of state-owned enterprises designed by the current government.

Privatization, regulation and income distribution in Brazil

Deep inequality in the distribution of income and wealth has been surprisingly persistent throughout Brazil’s five centuries of history. Whether the state’s presence in the economy was pronounced or minimal, its rulers, military or civilian, its economy relatively open or closed to foreign trade and investment, the degree of inequality has hardly changed. Many arguments have been made for this persistence, among them the political power of elites, the low levels of investment in education, and economic dependency. The economic turmoil of the 1980s included the debt crisis early in the decade, price increases verging on hyperinflation, a series of failed stabilization plans, and the fiscal exhaustion of the state. The stage was thus set in the 1990s for a profound rethinking about the way in which Brazil should run its economic affairs. This was reinforced by events outside Brazil, among them the much publicized privatization programs of the U.K and Chile and the disintegration of the socialist economic systems of the U.S.S.R. and Eastern Europe. One of the consequences of this sea change in thinking was much more support for market-oriented policies. Prominent among these policies was the privatization of state-owned enterprises. Our purpose in this paper is to examine the potential impacts of this policy change on economic equity. Concern with equity was rarely the focus of the reforms of the past decade, which were largely driven by fiscal exhaustion and were justified as a way of improving economic efficiency. As important as efficiency and fiscal balance may be, however, we must also ask how privatization might affect the depth and persistence of economic inequality in Brazil. The potential links between privatization and equity are complex and ambiguous, but

Politics, Public Opinion, and Privatization: A Test of Competing Theories in Great Britain

Reforms known collectively as the “new public management” (NPM) are sweeping governments worldwide. For a movement espousing customer-based service orientations, there is a curious paucity of research on citizens' attitudes toward these reforms. We know little about how citizens feel about them, how they arrive at their conclusions, and how durable their attitudes are likely to be. Using citizen attitudes culled from the 1987--1992 British General Election Panel Survey, we apply multiple regression analysis to begin exploring these issues in one critical area of NPM reform: privatization of state-owned enterprises. We find that the overall predictive power of the five theoretical perspectives culled from public opinion research and operationalized in our model is quite respectable, but that evaluations are too complex for any single explanation of public opinion formation to capture. We also find that British attitudes toward privatization were most associated with cue-taking from leaders and parties, ideological moorings associated with individualism, and income. From these findings we offer a set of hypotheses suitable for testing in future research—most especially, a “disparate impact” hypothesis—that have important implications for practice and theory-building regarding public opinion and market-based administrative reforms worldwide.

Assessing privatization investment opportunities in Thailand

Executive Summary Multinational corporations (MNCs) can find lucrative opportunities to invest in emerging-market countries by participating in the privatization of state-owned enterprises. The ability of MNCs to form joint ventures or acquire state enterprises in most countries, however, depends on the characteristics of the government's privatiza-tion policies and plans, the pace of their implementation, and the mechanisms allowed for foreign investment. In order to assess the feasibility of privatization policies in emerging-market countries, and especially those undergoing dynamic reforms of their economies, MNCs need a framework for analyzing privatization efforts. The appli-cation of such a framework is illustrated using the experience with privatization and economic reform in Thailand. © 2000 John Wiley & Sons, Inc.

Economic Transition in the Czech Republic

The transitional economies of Central Europe have given way to a rapid emergence of the private sector. This article examines the attempts to privatize the Czech Republic’s health care system from both a social and economic perspective. Provided is a general discussion of the mass privatization of state-owned enterprises in the Czech Republic, an analysis of the previous health system, and an explanation of the transformation process to a privatized health care system. Finally, a discussion of outcomes and an assessment of these outcomes follow.

Privatization of state-owned enterprises in mexico

The privatization of state-owned enterprises in Mexico, signifies a reversal of its long tradition of state-led economic development. Motivated by the financial crisis of the early 80's, Mexico has reduced the size and significance of its public sector through the process of privatization. The paper outlines the progress of the program since 1982 and discusses the impact of privatization and the lessons learned from the case studies of Mexicana Airlines, Aeromexico and Telmex. The concluding section evaluates the accomplishments and discusses the limitations of the Mexican privatization strategies.

The Privatization of State-Owned Enterprise in China and Vietnam

The Privatization of State-Owned Enterprise in China and Vietnam

A venture capital model for transitioning economies: The case of Poland

The venture capital investment process is examined in a transitioning economy. The move from a planned economy to a free-market system confronts venture capitalists and entrepreneurs with an environment not typically encountered in developed countries. This may include high inflation, immature capital markets, a nascent legal system, and a dearth of managerial talent. Using interviews and follow-up questionnaires with a sample of Polish venture capital firms in 1995, the research yields two important results. The first is a VC decision-making model for transitioning economies that diverges from previous research in two areas. First, the privatization of state-owned enterprises is an important part of deal origination and many venture capitalists actively solicit deals from targeted industries. Second, firm-specific screens are rarely part of the process owing to the lack of depth in most industry and geographic segments. The second result is a modified set of investment criteria that reflect some of the unique difficulties venture capitalists face when evaluating deals in transitioning economies. Several differences between their criteria and those used by venture capitalists in developed countries are identified. The implications of these results for venture capital firms are discussed briefly.

A better red: The transition from communism to coca-cola in Romania

The transition from central planning to market-oriented economies in Eastern and Central Europe provides a fascinating laboratory for research in economic theory and business practice. With the collapse of communism, the inefficiencies of centralized planning have been laid bare. The classic debates between Mises and Lange on the viability of planning, although long resolved in the minds of free-market advocates, have been settled. Poznanski (1992), in an aptly titled book, Constructing Capitalism, makes the following observation: “The experience of state socialist economies also validates the hypothesis that efficient production is not only impossible without market competition but also without private property as a principle form of resource ownership and use control.” Austrian economists and others recognize that privatization of state-owned enterprises and the establishment of a system of property rights are the most important issues in the transition process. Svejnar (1991), for example, states that the absence of property rights is “the Achilles heel of the transition.” Although economists such as Jeffrey Sachs and others, who have served as advisors to various governments in the transition, recognize that privatization is important, they, however, also add other issues such as fiscal reform (i.e., taxes), monetary stability, and so on. Rothbard (1992) has provided some insight into an Austrian perspective dealing with these issues. Problems dealing with privatization, monetary reforms, and so forth are macro issues. Our research has focused more on what we call the micro issues; that is, managerial and entrepreneurial problems in the transition. Among the many challenges confronting economies in transition is the promotion of entrepreneurs hip and successful business practices. Entrepreneurship involves the ability to predict how consumer demand will change and to find cost-efficient ways of supplying new products that govern business success. Exercising this ability and developing the talent necessary for successful market ventures was foreign to Romanians under the old regime. Responding to consumer demand was impossible in the planned economies. To some extent, the mind-set that existed during the communist era remained intact after the collapse of the dictatorship and the liberalization of the economy. Arzeni (1996) contends

Privatisation and Transition in Albania

This article considers the privatisation policy and its role in the transition to a market economy in Albania. The disintegration of the old regime took place over a much longer time than in other Central and East European countries, resulting in chaos and a political vacuum in which no systematic or effective policy could be formulated. The new government, committed to fundamental reforms necessary for a market economy, did not take power until after the second general election in March 1992. One outcome of this long pre-transition period was that the privatisation programme had to evolve gradually in the course of transformation, without ever having been planned in a comprehensive and integrated manner. Privatisation proceeded on five different fronts: small privatisation, privatisation of agriculture, housing, small and medium-sized enterprises and mass privatisation. The article discusses the progress of each aspect and provides up-to-date information and data on their progress. The privatisation of agriculture and housing were the most crucial aspects of the overall policy, with significant impacts on economic growth and the progress of the transformation programme. The privatised agricultural sector grew very rapidly and made a major contribution to pulling the whole economy out of the 'transformational recession'. Privatised housing created a significant wealth effect amongst the urban population, providing many of them with collateral or start-up capital. The privatisation of state-owned enterprises, however, was carried out with much more difficulty and controversy. Although auctions were to be the main method of transfer, ensuring a significant income for the treasury, in practice many enterprises were privatised through other methods, bringing in less income and giving rise to allegations of political favouritism. Another aspect of privatisation was the weak corporate governance mechanism which replaced state ownership. Many small and medium-sized enterprises (probably about half) were sold or transferred to their employees, without any outsider interest. The performance of this sector has to be monitored closely in order to assess the impact of massive insider privatisation, reminiscent of Russia's privatisation programme. Mass privatisation too, by distributing enterprise shares amongst the general public, resulted in the increased power of insiders. The shares of nearly 100 enterprises were transferred to the private sector over the first year of the implementation of this programme. Although the privatisation programme progressed very rapidly, no serious attention was paid to problems of corporate governance. Without concentrated ownership or the involvement of financial intermediaries to oversee and monitor the managers, it is unlikely that the expected efficiency gains will be realised. The political crisis resulting from the collapse of informal financial schemes brought the whole reform process, including the privatisation programme, to a halt in early 1997. It is expected that, with a new government in power, there will be a new push for reforms and an increased pace of privatisation. It is hoped that the renewed efforts will also deal with the shortcomings of the previous schemes-particularly the corporate governance issues.

Privatisation and Restructuring in Economies in Transition: Theory and Evidence Revisited

TIIE QUESTION REGARDING TIJE VARIOUS METIIODS of privatisation has attracted widespread discussion in the economic literature concerning the transition process of the former socialist countries to market-style economic systems. Since the privatisation of state-owned enterprises and, moreover, the development of an (autonomous) private sector can be regarded as fundamental stages on the whole stony road to a less state-regulated economic system, there exists a wide range of proposals on how to privatise state companies and assets. These proposals and forms can basically be divided into direct and indirect methods of privatisation of state-owned enterprises. The direct methods include forms such as public auctions, tenders, public invitations, capital privatisation and employee or management buy-outs (in Poland, so-called 'liquidation'). Indirect methods include different distribution schemes elaborated to privatise a large bundle of state-owned enterprises in one mass privatisation programme. Much more interesting, however, is an analysis of the restructuring and efficiency-enhancing progress following the ownership change. In light of the uniqueness of the microeconomic transformation process in Central and Eastern European countries in transition, the lack of a well-elaborated theoretical basis covering the ownership change and necessary restructuring steps was considered to be one of the major constraints for prescriptive economic policy advice. Despite quite a large number of complaints from authors about the theoretical vacuum in which the process of economic transformation takes place, this is, in fact, not the case. A general theory of transformation has not yet been elaborated; however, this is not surprising considering the short time period of the process. Nevertheless one can find and use a rather well-developed range of economic theoretical tools to explain and deal with transitional problems. As aids in solving normative problems of the economic system, one can 'exploit' the findings of the German Ordnungspolitik and Anglo-Saxon Neo-Institutionalism. Macroeconomic issues resulting from a heavily distorted economic structure and relative prices can be dealt with through different models of stabilisation. Problems on the microeconomic level, such as restructuring and privatisation of state-owned enterprises, can be solved by using the existing and developing literature on the 'integration of ownership' (Carlin & Mayer, 1992,

Reform or Privatization of State‐Owned Enterprises?

Reform or Privatization of State‐Owned Enterprises?

An efficient privatization mechanism

We consider the privatization of State-Owned Enterprises (SOEs) of which markets can be opened to competition once privatization takes place and competitors can compete successfully against them in a few years. The currently used “Revenue Maximization (RM)” scheme maximizes the government revenue from privatization but does not provide incentives for the privatized SOE to charge a price lower than the monopoly price until competition arises. We propose the “Welfare Maximization (WM)” scheme, which induces the privatized SOE to charge a competitive price without resorting to regulation. Also, WM provides greater incentives for post-privatization cost reduction.

Privatization of state-owned enterprises in Poland

The transition from centrally planned to market economies in Eastern Europe has become a field of debate in economic literature since the late 1980s. Privatization plays a very important role because it is also a sensitive political problem. Privatization is a key element of the several reform packages that are being applied in Poland. This paper examines the different ways that small- and medium-sized enterprises were privatized from 1990 to 1995 using statistical data of the Ministry of Privatization [1995]. Analyzed enterprises are presented by the following group of projects. Capital privatization, direct foreign investment, joint stock companies awaiting privatization, and other methods of privatization are connected with the special program designed for firms with bad financial standing.