Previous Page Next Page 
(c)  2025 Columbia University Press. All Rights reserved.

Privatization: Successes and Failures resources

Extracted Text (may have errors)

FOREWORD xi It would be easy to suggest that, after all, it was these abuses that moti- vated the privatization agenda; but that would be incorrect. Privatization has been pushed even when state- run enterprises have been highly effi - cient. The IMF pushed Korea to privatize its state- run steel company, which was markedly more effi cient than many of the privately run steel companies in the United States. U.S. Republicans pushed for privatiza- tion of the social security (pension) program, even though its transaction costs were far lower than those in any private sector fi 4 In Eu rope, rm. there was a push for privatization of France’s state- run electricity com- pany, even though there was little prospect that a privately run fi rm would lower costs or increase quality (reliability). One of the reasons for the drive for privatization is simple- minded ideology—and one of the objectives of the Initiative for Policy Dialogue (IPD) at Columbia University is to expose these ideological biases, un- grounded in theory or empirical evidence. But another of the motivations for the drive for privatization is special interests (greed): even an ineffi - cient privatization process can generate large wealth for a few. Financial markets in the United States looked with hopeful anticipation at the com- missions that they would earn from managing the trillions of dollars in the social security system. While pensioners may lose from increased transactions costs, Wall Street would gain. E C O N O M I C T H E O R Y Simpleminded economic theory suggested that private own ership should be better than state- run enterprises. After all, private own ership provided incentives that were missing under state own ership. Many years ago, No- bel Prize winner Herbert Simon explained what was wrong with this rea- soning:5 few large modern fi ers;6 there is, in modern rms are run by own parlance, a principal- agent problem. But there is little difference between this principal- agent problem and that facing the government, trying to motivate those entrusted to manage SOEs.7 Actually, the fl aws in the simplistic reasoning go deeper. The simplistic reasoning is predicated on three hypotheses: (1) profi t maximizing (stock market value maximizing) behavior on the part of the fi rm leads to Pareto effi rm to maximize market value; ciency; (2) all shareholders will want the fi and (3) competitive markets ensure that fi t- maximizing rms act in a profi way; if a fi ts, it will be taken over. Someone will rm does not maximize profi buy the fi rm’s strategy, and will thereby reap a capital rm and change the fi

Help

loading