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

Privatization: Successes and Failures resources

Extracted Text (may have errors)

xvi FOREWORD privatization; also of concern are the resulting in e qual ity and the un- dermining of confi dence in the market system itself (as well as in demo cratic po liti cal pro cesses). For markets to work well, there must be confi dence in the legitimacy of property. If there is a widespread belief that those with wealth have obtained their wealth illegitimately, then there will be pressures for renationalization, or recapturing in some other way wealth that is viewed as having been stolen from soci- ety. But if investors believe that there is a signifi cant risk of recapture (either through taxes or some other mechanism), incentives for invest- ing will be attenuated, and incentives for asset stripping will be in- creased. But that, in turn, will mean that society will not reap many of the benefi ts that advocates of privatization promise; and as that hap- pens, support for privatization and the market will wane. N E G A T I V E L U M P - S U M T A X E S There is a further problem when privatization occurs in ways that do not maximize government revenues, e.g., in voucher privatizations, in which state wealth is basically given back to citizens. It is equivalent to a negative lump- sum tax. Governments need money to function, and most revenues are raised through distortionary taxation. Had the government continued to own the assets (assuming that it managed them reasonably well), they would have generated income that would have reduced the need for governments to raise distortionary taxes. Privatization results in the necessity of gov- ernment to impose more distortionary taxation in the future, reducing the economy’s effi ciency. S E Q U E N C I N G Earlier I raised the concern that often privatization has occurred before the appropriate regulatory structure has been put into place. Privatization advocates have urged rapid privatization even before good legal frame- works are put into place, arguing that privatization would create a constit- uency in favor of the rule of law.17 This has not turned out to be the case; in fact, there was neither theory nor historical experience in support of this view. On the contrary, once a monopoly has been privatized, it is in the interests of the monopolist to do what he can to maintain that monopoly—and that means using some of his profi ts to “invest” in the

Help

loading