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Privatization: Successes and Failures resources

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INTRODUCTION 7 these countries. India, after its in de pen dence, developed a sizable public sector and adopted some form of central planning. But after the collapse of central planning in the former socialist economies, India’s reforms ef- forts also gained strength. However, privatization achievements remained modest. Until very recently, most privatization was partial and consisted of the divestiture of minority shares in public enterprises. Nevertheless, Gupta gives extensive evidence that partial privatization has had positive effects. The fl oating of shares on the stock market has allowed for im- provement in the monitoring of management. Privatization has also had a positive effect on the development of stock markets. Yet, limited capaci- ties of fi nancial markets as well as limited administrative capabilities and po liti cal obstacles have constrained the speed of privatization. An impor- tant reason for the reluctance of politicians to privatize is that SOEs are used for po liti cal patronage. Privatization therefore tends to be slower in provinces where there is sharp po liti cal competition. Finally, the subject of privatization has been very controversial. Chap- ter 7 summarizes the perspective of one of privatization’s most vocal crit- ics, Jomo K. S. He puts the current debate in historical context and cites the literature providing evidence of how the effects of privatization on ef- fi ciency may not have been as positive as its advocates claim, even aside from the adverse equity implications. He also shows that, due to these re- vealed defi ciencies, the debate over privatization has evolved over time. Overall, some common themes emerge from the various contributions to this volume. First of all, partial privatization tends to be more wide- spread than one might think. Governments in Western Eu rope, India, and elsewhere are reluctant to relinquish control (partly or fully) over SOEs. This is not surprising but is still an important fact that has emerged from the privatization experience of the last de cades. Whether partial privatiza- tion has benefi cial effects or not depends on many factors, and one should be wary of making sweeping generalizations. Partial privatization may en- hance the monitoring of enterprises, but it may also keep alive ineffi cient forms of government intervention. The effi ciency effects of privatization are generally mixed but rarely negative. This is true even though many empirical studies tend to overestimate the effi ciency effects due to sample selection bias that has plagued many econometric estimations of privati- zation. While privatization appears uncontroversial in competitive sectors (even though its effects may be small in relation to the incentive effects of competition), it becomes increasingly complex in more monopolistic sec- tors where good regulation is a necessary and crucial complement to

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