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Privatization: Successes and Failures resources

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INTRODUCTION 3 costs, and to reduce ineffi rms. On the cient government intervention in fi other hand, this higher effi ciency may come at the cost of quality and other socially valuable objectives and may even increase corruption within government. The analysis of the trade- offs between public and private own ership have become more sophisticated. Interestingly, many of the trade- offs pointed to by these theories can now be observed in the actual experience of privatization. Western Eu rope is the world leader in privatization revenues, with roughly a third of privatization proceeds over the period from 1977 to 2002. In chapter 2, Bernardo Bortolotti and Valentina Milella remind us that Western Eu rope also implemented extensive nationalization pro- grams after World War II. Later, when the United Kingdom initiated a large privatization program under Margaret Thatcher, continental Eu rope also experienced large programs of divestiture of state assets. High privatization revenues are associated, not surprisingly, with high per capita GDP and large and liquid stock markets, but they are also associ- ated with a higher public debt and lower growth. The latter fi ndings sug- gest that concerns for fi scal imbalances and deterioration of economic per for mance might have played an important role in triggering privatiza- tion programs. Privatization efforts were greater in countries with a ma- joritarian electoral rule. Interestingly, all else being equal, left- wing governments do not appear to have privatized less than right- wing gov- ernments. Surprisingly, there is scant evidence as to the macroeconomic effects of privatization in Western Europe. The only solid evidence is the negative impact of privatization on public debt, not an unexpected result. Privatization is associated with vigorous fi nancial market development. It is also associated with better per for mance at the level of individual fi rms. However, the empirical evidence is often not convincing because it compares the per for mance of fi rms that were privatized with others that were not. The per for mance effect might refl ect the fact that those enter- prises that were privatized were either the most profi table or had the high- est potential for profi tability. There are as yet too few studies mea sur ing correctly the causal effect of privatization on enterprise per for mance. An especially interesting fi nding reported by Bortolotti and Milella is that a large part of privatization deals (at least 30%) led to the divestiture of only a minority of shares of state- owned fi rms. Governments have kept sizable residual stakes in privatized fi rms and appear reluctant to lose their con- trol over state assets. These interesting fi ndings are quite recent and will undoubtedly be investigated in future research.

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