Mary M. Shirley

Public versus Private Ownership : The Current State of the Debate

At the heart of the debate about public versus private ownership lie three questions: 1) Does competition matter more than ownership? 2) Are state enterprises more subject to welfare-reducing interventions by government than private firms are? 3) Do state enterprises suffer more from governance problems than private firms do? Even if the answers to these questions favor private ownership, the question must still be asked: Do distortions in the process of privatization mean that privatized firms perform worse than state enterprises? The authors review found greater ambiguity about the merits of privatization and private ownership in the theoretical literature than in the empirical literature. In most cases, empirical research strongly favors private ownership in competitive markets over a state-owned counterfactual (although construction of the counterfactual is itself a problem). Theorys ambiguity about ownership in monopoly markets seems better justified. Since the choice confronting governments is between state ownership and privatization rather than between privatization and optimality, theory has left a gap that empirical work has tried to fill. Further research is needed.

Bureaucrats in business: The roles of privatization versus corporatization in state-owned enterprise reform

Abstract This article provides evidence from a sample of 12 developing countries that countries which improved state-owned enterprise performance the most followed a comprehensive strategy of reforms, including a combination of privatization and corporatization. Further evidence that corporatization works better in combination with ownership and other reforms is provided through an analysis of government contracts with public managers, private managers and private owners. Contracts with private managers and owners did better than contracts with public managers in part because the property rights of the former gave them a larger stake in the outcomes. The article analyzes the political economy of state enterprise reform and finds that privatization and corporation have similar political costs and tend to succeed or fail together. Where reform was politically desirable, politically feasible, and credible, countries privatized and corporatized successfully. When countries were not politically ready to reform, alternative ownership strategies were not successful in improving performance.

New Tools for Studying Network Industry Reforms in Developing Countries: The Telecommunications and Electricity Regulation Database

Infrastructure industries-including telecommunications, electricity, water, and gas-underwent massive structural changes in the 1990s. During that decade, hundreds of privatization transactions valued at billions of dollars were completed in these sectors in developing and transition economies. While privatization has received the most attention, reforms also included market liberalization, structural changes like unbundling, and the introduction of new laws and regulations. To date, regulations have received far less attention than their potential economic effects warrant, largely due to lack of data. In order to address this problem, the authors set out to compile a comprehensive and consistent dataset through an extensive survey of telecommunications and electricity regulators in developing countries. The authors describe the surveys and the resulting database. The database of telecommunications regulations includes 178 variables on regulatory governance and content in 45 countries. The database of electricity regulations includes 374 variables in 20 countries.

Ownership Structure and the Temptation to Loot : Evidence from Privatized Firms in the Czech Republic

Using a new data set on privatized firms in the Czech Republic, the authors examine how the design of privatization affects outcomes. Earlier studies of privatization in the Czech Republic focused largely on how the broad distribution of shares through vouchers may have motivated the new owners to strip assets from the privatized firms. The authors find evidence for static asset stripping, but also for what Akerlof and Romer (1993) call looting - borrowing heavily with no intent to repay and using the loans for private purposes. This looting occurred because the larger privatized companies had privileged access to credit from state-controlled banks, which had little incentive to enforce debt contracts. The policy implications are significant: financial incentives and regulation are as important as ownership structure in the design of privatization.

Privatization in Latin America: Lessons for transitional Europe

Abstract Latin American economies are predominately private with functioning financial systems, substantial purchasing power and widespread understanding of how markets work. Nevertheless, transitional and Latin American privatizers share similar problems: poor performing state firms, varied commitment to privatization, technical difficulties and adverse macroeconomic conditions. Five lessons from Latin America are particularly relevant for transitional economies: (a) privatization can help foster competition; (b) governments can build competent institutions for privatization despite weak capacity; (c) labor can benefit without majority control; (d) transparency and share distributions help win public support; and (e) selling profitable, efficient firms can benefit the economy.

Telecommunication Reform in Ghana

In 1996 Ghana privatized its incumbent telecommunications firm by selling 30 percent of Ghana Telecom to Telekom Malaysia, licensing a second network operator, and allowing multiple mobile firms to enter the market. The reforms yielded mixed results. Landline telephone penetration increased dramatically while the number of mobile subscribers surpassed even this higher level of fixed line subscribers. On the other hand, the network did not reach the levels the government hoped, the second network operator never really got off the ground, and the regulator remained weak and relatively ineffective. The sustainability of competition is unclear. The government ended Telekom Malaysias management of Ghana Telecom and has invited Norways Telenor as a strategic partner. What this means in practice remains unclear, and the process for selecting Telenor lacked any transparency. Meanwhile, some of the mobile firms are in precarious financial positions. Competition is still relatively strong, but its sustainability will depend on the governments future commitment to ensuring it.

POLICY ARENA: The Economics and Politics of Government Ownership

Based in part on a new data set, this article finds that, despite an increase in privatization, state-owned enterprises (SOEs) shares in GDP and employment had not declined in developing countries, and SOE deficits and inefficiencies were a drag on growth. In a sample of 12 reforming countries, those which improved SOE performance the most followed a comprehensive strategy of divestiture, competition, hard budgets, financial sector reform and changes in the institutional relationship between SOEs and governments. These successful reformers met three necessary political conditions: reform was politically desirable, politically feasible and credible. The article presents a decision tree suggesting how to meet the three political conditions and privatize and reform SOEs.