The Financial Economics of Privatization

By William L. Megginson | Go to book overview
Save to active project

Why Do Countries

One of the truly timeless debates in Western political and economic discourse revolves around the optimality of state versus private ownership of commercial enterprises. Scholars, including economists, have debated the economic role of government throughout history, but these debates reached a crescendo during the twentieth century. Chapter 1 examined the forces that motivated governments to launch state-owned enterprises—or to nationalize existing private businesses— and adopt state ownership as an economic development model during the middle years of the twentieth century. Chapter 1 also described how, over the past quartercentury, many of these same countries reversed course and launched often massive privatization programs designed to reduce the state’s role in running these enterprises. This chapter analyzes why governments have so enthusiastically embraced privatization.

Governments typically list multiple reasons for launching privatization programs. Chapter 1 details six rationales presented by the Thatcher government for launching Britain’s influential program, while Vickers and Yarrow (1991) present a somewhat different list of what they considered the “real” motivations of the Thatcher government.1 Raising money is, quite naturally, a very attractive objective, and most governments also hope that privatization will help develop national capital markets. However, the most important rationale given for selling SOEs to private investors is almost always dissatisfaction with the actual performance of state enterprises, coupled with the belief that selling these firms to private investors will significantly improve their performance. In fact, this dissatisfaction with SOE performance and belief in private-sector redemption can be considered a prerequisite for launching a privatization program, since democratic societies that earlier chose state ownership as a deliberate policy do not simply change their minds and choose diametrically opposite economic policies without clear evidence these policies have failed.

By the early 1990s, the state-owned enterprises that were the source of such displeasure for policy makers accounted for a significant fraction of economic


Notes for this page

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
Loading One moment ...
Project items
Cite this page

Cited page

Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

Cited page

Bookmark this page
The Financial Economics of Privatization


Text size Smaller Larger
Search within

Search within this book

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

While we understand printed pages are helpful to our users, this limitation is necessary to help protect our publishers' copyrighted material and prevent its unlawful distribution. We are sorry for any inconvenience.
Full screen
/ 523

matching results for page

Cited passage

Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

Cited passage

Welcome to the new Questia Reader

The Questia Reader has been updated to provide you with an even better online reading experience.  It is now 100% Responsive, which means you can read our books and articles on any sized device you wish.  All of your favorite tools like notes, highlights, and citations are still here, but the way you select text has been updated to be easier to use, especially on touchscreen devices.  Here's how:

1. Click or tap the first word you want to select.
2. Click or tap the last word you want to select.

OK, got it!

Thanks for trying Questia!

Please continue trying out our research tools, but please note, full functionality is available only to our active members.

Your work will be lost once you leave this Web page.

For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

Already a member? Log in now.

Are you sure you want to delete this highlight?