Privatization: Lessons from Market Economies

In the past decade governments all over the world have begun privatizing state enterprises—indeed, it is becoming quite hard to find a country without a pro-gram of privatization under way or at least on the policy agenda. This striking reversal of the push to expand state ownership in the 1960s and 1970s results from generally poor performance of state enterprises and a disappointing record of past reform efforts that fell short of ownership change. This article examines the objectives of privatization and the strategies for achieving them, documenting recent trends and reviewing the experience with privatizing state-owned commercial, manufacturing, and service enterprises in both competitive and noncompetitive markets. The authors analyze the various tactics that can be or have been employed, in relation to scope, pace, sequencing, and methods of implementation. The evidence shows that privatization produc-es benefits of efficiency and innovation—if done right. The lessons of experience discussed in the article offer guidance on how to realize the promise of privatiza-tion while minimizing the risks and costs. Privatization is on the rise. Since the big expansion in state ownership inthe 1960s and 1970s, the number of state-owned enterprises (SOEs)worldwide has been shrinking at an accelerating pace: more than 15,000 SOEs, at a conservative estimate, have been privatized, most of them since 1990.1 Years of disappointing SOE performance and a history of halfhearted and ineffectual attempts at reform have impelled many governments, includin