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On an unprecedented scale, nations at all income levels and across the political spectrum have initiated privatization programs over the past twenty years. In the course of this privatization movement, microeconomic efficiency arguments have become the standard justification for the divestment of public assets. This book presents an alternate view and argues that short-term macroeconomic considerations are often the true motive behind privatization programs. Why Do Government Divest? The Macroeconomics of Privatization is a comprehensive treatment of the macroeconomic issues of privatization. In addition to reviewing topics in economic growth and efficiency, this book explores the fiscal, monetary, balance-of-payments, and employment aspects of privatization. Several diverse case studies illustrate how the pursuit of such short-term political objectives can reduce the benefits of privatization.

Inhaltsverzeichnis

Frontmatter

1. Introduction

Abstract
Over the past two decades, the world has experienced privatization on a massive scale. Industrial and developing countries alike are putting up entire sectors for sale, including those once considered off limits, such as telecommunications, railroads, and national airlines. The numbers speak for themselves. According to Privatization International, more than 100 countries have divested public assets. In 1997, the value of worldwide privatization reached a record sum of more than U.S.$162 billion, equivalent to 0.5 percent of world economic output. The three preceding years had already seen record levels of privatization of U.S.$90 billion, U.S.$76 billion and U.S.$78 billion respectively.[1] In addition to western Europe, Latin America, and Asia, numerous African countries have lately joined the movement, as have countries that are still under communist rule, such as China and Cuba.[2]
Alfred Schipke

2. Economic Growth and Efficiency

Abstract
The decision to reduce the economic role of the government through privatization should be guided primarily by whether this will lead to an improvement in the economy’s growth potential. The current global enthusiasm for privatization suggests that most governments have concluded that this is indeed the case and that a reduction in government activity will be synonymous with improvements in economic efficiency and growth. Such a view is quite contrary to the one that prevailed only a couple of decades earlier. While today the political and academic discussion centers around the inefficiency of governments in general and public enterprises in particular, in the past the focus was on market failures and the consequent need for governments to participate actively in the marketplace, including in the production of goods and services.
Alfred Schipke

3. The Politics of Privatization

Abstract
As indicated in the previous section, the decision to privatize should be guided by whether privatization is likely to raise national welfare and living standards. Most discussions on privatization suggest that policymakers are indeed primarily motivated by a desire to improve economic efficiency and growth. For example, Mark Baker from Privatization International suggests that:
There can be no doubt … that the once prevalent view of privatization as an exclusively rightwing ideology has shown itself to be shortsighted and ill informed. Practically every administration in the world has now embraced the principles of rationalization and efficiency that the majority of contributors to this book give as the major objective in transferring state owned companies to the private sector (Baker, 1998: 1).
Alfred Schipke

4. Fiscal Considerations of Privatization

Abstract
Despite the common perception—which in part reflects the success of policymakers and politicians in using efficiency arguments to advocate privatization—efficiency gains are only one possible motive for governments to engage in large-scale privatization. The following chapter examines the various circumstances under which fiscal considerations may instead provide incentives for privatization.
Alfred Schipke

5. Macroeconomic Considerations of Privatization

Abstract
While fiscal motives are probably the most important driving force behind large-scale privatization programs in non-former socialist economies, other macroeconomic considerations might also play a role in the decision-making process of policymakers to pursue the divestment of public assets. The following section will analyze monetary, balance-of-payments and employment considerations of privatization.
Alfred Schipke

6. Modeling the Effects of Privatization

Abstract
Given that the study intends to show why governments might rely on privatization in order to accomplish short-term macroeconomic objectives, the following section applies a framework that is frequently used by governments to evaluate short- and medium-term policy options. Despite its limitations126, it can be used to illustrate quantitatively why policymakers might be inclined to use privatization to manage particular macroeconomic challenges and why they might be inclined to exploit privatization for short-term policy objectives. While the previous sections analyzed key macroeconomic aspects of privatization separately, the framework assures that fiscal, monetary, and balance-of-payments aspects of privatization are evaluated simultaneously.[127] In particular, the following model combines the accounting framework of a financial program[128] with the behavioral equations of a small-open economy.[129]
Alfred Schipke

7. Coming Full Circle: The Case of Jamaica

Abstract
Because little time has passed since the start of the almost universal privatization wave, and many countries are still in the midst of their privatization efforts, the evidence of large-scale privatization failures is still scant. Moreover, the possibility of a reversal of the current privatization wave seems remote. While the following case study on Jamaica is certainly unique, it has been selected to demonstrate how the use of privatization as an instrument for short-term objectives can impede reforms necessary for improving the economy’s growth prospects. As a result, the country has come full circle and re-nationalized many of the companies that had been transferred to the private sector only a couple of years ago. Despite the fact that Jamaica started to transfer ownership to the private sector ahead of many other countries in the region, policymakers of successive governments remained suspicious of the private sector. In many respects, Jamaica has been the largest privatization failure so far and provides some insights into the pitfalls of illconceived privatization strategies. It also demonstrates how indicators of the extent of privatization—such as the number of entities formally owned by the government or the number of publicly employed people—can be misleading. It is an especially telling case since the country embarked on its privatization effort early on and was once considered a model case by both the Reagan and the Thatcher administrations.
Alfred Schipke

8. Summary and Conclusion

Abstract
Ever since Britain began its large-scale privatization program in the early 1980s, the world has experienced a change in paradigm that has allowed governments to use privatization as an instrument of public policy. By now, most governments have taken advantage of this new instrument and have divested or are currently in the process of divesting a large portion of their public assets.
Alfred Schipke

Backmatter

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