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Privatization: Successes and Failures resources

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8 INTRODUCTION privatization. However, creating good regulation is easier said than done. There is a real danger (documented in par tic u lar in the chapters on Africa and Latin America) that privatization will lead to a form of regulatory capture that generates large rents for the new private own ers while creat- ing welfare losses for consumers. This can especially harm the poorest segments of the population that may be hurt strongly by the regressive re- distributive effects often generated by privatization. Calling for better reg- ulation might be illusory because it would require a major institutional overhaul that is not in the cards in the immediate future. Thus, policy mak- ers involved with privatization often face a large dilemma: be cautious with privatization and face the continued ineffi ciencies of SOEs with the pros- pect of further deteriorations, or be bold and risk major po liti cal backlash because of the redistributive effects of privatization, especially if rent seek- ing and regulatory capture are involved. This is a steep trade- off. However, in the larger context of development, focusing on the restructuring of large SOEs, by privatization and complementary policies, might prove to be misguided. Statist policies of development have focused on the cre- ation of large SOEs in the hope that this would lead developing econo- mies to close the gap between themselves and the developed economies. Liberalization policies based on the Washington Consensus have also fo- cused on these large enterprises, hoping that the transfer of own ership to the private sector would foster accelerated growth in the economy. The privatization policies of par tic u lar countries might, however, at best have had second- order effects on growth. Countries that have experienced im- pressive growth in recent years, such as China, India, and Vietnam, have not had an impressive privatization policy. Rather, they have been able to unleash the productive energies of millions of small entrepreneurs, creat- ing a vibrant and thriving sector of small and medium enterprises that serve both the domestic and the export market. One would hope that in- ternational fi nancial organizations pay as much attention to the develop- ment of the small private sector as they have to privatization policies in the past.

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