different contexts of privatisation’s costs and benefits

Different contexts of privatisation’s costs and benefits By Darya Reshetnikova

28.11.2012

MPA:

Comparative

Public Policy

MPA: Comparative Public Policy

2

Structure of presentation

SlidesWhat is the privatisation?...........................................................................................31. Evidence

Benefits………………………………………………………………………………....….4Perceptions……………………………………………………………………………5-6Costs………………………………………………………………………………………...7

2. Contextual differences…………………………………………………………….8-13Conclusion…………………………………………………………………………………….14References……………………………………………………………………………….15-16

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The main goal of presentation is to explain contextual differences of privatisation’s costs and benefits


3

What is the privatisation?

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OECD, 2009

It is an “umbrella term”(Butcher, 1995, p. 108)

o Techniques through which private, rather than public, activity can be increased

o Strategieso Transfer of responsibilitieso Alteration in the nature of

decision makingo Shifting the balance between

public and private spheres

Drakeford, M., 2000, pp. 18-19

As privatisation may be considered any material transaction by which the state’s ultimate ownership of corporate entities is reduced


4

Benefits of privatisationAccumulated Proceeds as Share of 2000 GDP,by Region and Sector, 1988–2005

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World Bank Privatization Database; World Development Indicators

5

Perceptions of privatisation

2001: More than 60% of 1,600 Russians interviewed thought that they had lost more than gained from the privatization of state property; only 5% said the opposite

Birdsall, N. and Nellis, J., 2003

28.11.12MPA: Comparative Public

Policy

1991: Do you support the following actions of the Russian government? ( % of respondents)

VCIOM (All-Russia Public Opinion Research Center), 1991 [In Russian]

However, 10 years later…


6

Perceptions of privatisation

Bourguignon, F. and Sepúlveda, C., 2009

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Negative Views of Privatization in Latin America, 1998 and 2005% of respondents who don’t agree that privatisation has been beneficial for the country


7

Costs of privatisation

Source: World Bank, 2000

Changes in income inequality in selected transition economies

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Negative distributional

effects

On the employment and returns to labor

On the access to utility and

infrastructure services

On the prices of utility and

infrastructure services


8

Context 1: Role of SOEs

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Bourguignon, F. and Sepúlveda C., 2009

The social view

SOEs as institutions created by a

social welfare, maximizing government

The agency view

SOEs seek to maximize social welfare but

focuses on the discrepancy between

the objectives of managers (the agents)

and of owners (the principals)

The political-economy view

SOEs represent a mechanism for pursuing

the individual goals of

politicians


9

Context 2: Type of ownership

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Frydman et al., 1999

Revenue Employment Productivity

-15

-10

-5

0

5

10

15

Impact of Ownership on Performance,Fixed-Effects Coefficients,

Czech Republic, Hungary, and Poland, 1990–93

Firms privatized, owned by outsiders Firms privatized, owned by insiders


10

Context 3: Level of economic development

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Extent of development of:

• Legal framework• Human Capital• Public institutions• Financial institutions• Political situation

Different objectives of privatisation

• e.g. To create better services and lower prices

• e.g. To improve the public sector's financial health


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Context 4: Underlying models

Schumpeterian ModelImportance of Private

ownership, per se

Private rather than public

“Load-shedding”

Financing, delivery and production by private sector

Cost and benefits of private ownership

Model of MarketizationMarket conditions rather than

ownership

Competition

“Empowerment”

Financing by government, Production and delivery by

private sector

Cost and benefits of market conditions

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Drakeford, M., 2000, pp. 21-22


12

Context 5: Dimensions of performanceOwnership,

Competition and Regulation

Efficiency vs. EquityE.g. Soviet Union,

Russia

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Hodge, G.A., 2000 Birdsall, N. and Nellis, J., 2003


13

Context 6: Focus of studies

Technical studies

focus only on shifts post-sale in operational and financial

performance at the level of the firm

Benefits

Improvement of efficiency and financial performance

Perceptional studies

focus on perception that privatization is fundamentally

unfair in both concept and implementation

Costs

Negative effect on the distribution of wealth, income and political

power

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Birdsall, N. and Nellis, J., 2003


14

ConclusionContext matters- it matters a lot how privatization is done Costs and benefits are different in each of explained contexts:

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Role of SOEs

Type of ownership

Level of economic development

Underlying models

Dimension of performance

Focuse of studies

Preconditions

Causality

Traditional public policy values

Stakeholders

Economic system and political movementThe post-privatization environment

Etc.

The following contexts also should be discussed:


15

References0 Alexeev, M. (1999) The effect of privatization on wealth distribution in Russia, Economics of

Transition, Vol. 7 (2) 1999, pp. 449–465.0 Birdsall, N. and Nellis, J. (2003) Winners and losers: assessing the distributional impact of

privatization, World Development, Vol. 31, No 10, pp. 1617-1633.0 Bitzenis, A. (2003) What Was Behind the Delay in the Bulgarian Privatization Process?

Determining Incentives and Barriers of Privatization as a Way of Foreign Entry, Emerging Markets Finance and Trade, vol. 39, no. 5, September–October 2003, pp. 58–82.

0 Boubakri, N. and Cossett, J.C. (1998) Privatization in developing countries: an analysis of the performance of newly privatised firms, Public Policy for the Private Sector, Issue 156, World Bank Group: Finance, the private sector and infrastructure network, pp. 1-4.

0 Bourguignon, F. and Sepúlveda C. (2009) Privatization in Development: Some Lessons from Experience, Policy Research Working Paper 5131, The World Bank, 34 p.

0 Chang, R., Hevia, C. and Loayza N. (2009) Privatization and Nationalization Cycles, Policy Research Working Paper 5029, The World Bank, 57 p.

0 Crivelli, E. (2012) Local Governments’ Fiscal Balance, Privatization, and Banking Sector Reform in Transition Countries, International Monetary Fund WP/12/146, 27 p.

0 Drakeford, M. (2000) Privatisation and Social Policy, Longman, 242 p.0 Estrin, S., Hanousek, J., Kˇocenda, E. and Svejnar, J. (2009) Effects of Privatization and

Ownership in Transition Economies, Policy Research Working Paper 4811, The World Bank, 51 p.

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References0 Frydman, R., Gray, W., Hessel, M. and Rapaczynski, A. (1999) When Does Privatization Work? The

Impact of Private Ownership on Corporate Performance in the Transition Economies, Quarterly Journal of Economics, 114 (4): 1153–91.

0 Gaidar, E. and Chubais, A. (2011) The fork of the modern history of Russia, Moscow: OGI, 168 p. [in Russian]

0 Hodge, G.A. (2000) Privatization: an international review of performance, Westview Press, 312 p.0 Kikeri, S. and Perault, M. (2010) Privatization Trends, Viewpoint, Public policy for the private

sector, The World Bank, note number 322, 4 p.0 OECD (2000) Privatisation, Competition and Regulation, OECD Centre for Cooperation with Non-

members, printed in France, 214 p.0 OECD (2009) Privatization in the 21st Century: Recent Experiences of OECD Countries, Report on

Good Practices, Paris, January 2009, 75 p.0 OECD (2010) Privatization in the 21st Century, Summary of recent experiences, 36 p.0 Sheshinski, E. and López-Calva, L.F. (2003) Privatization and Its Benefits: Theory and Evidence,

CESifo Economic Studies, Vol. 49, 3/2003, pp. 429–459.0 Shpilko S.P. et al (1991) Population assessment of socio-economic situation in the country

(according to the polls in 1991), Scientific report, Moscow: VCIOM (All-Russia Public Opinion Research Center), p. 8. [In Russian]

0 Turcotte, S. and Faucher, P. (1999) How Markets and Business Power Influenced Privatization in Latin America, Draft, 33 p.

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different contexts of privatisation’s costs and benefits

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