Academic journal article Journal of International Affairs

Privatization, the State and International Institutions

Academic journal article Journal of International Affairs

Privatization, the State and International Institutions

Article excerpt


Recent changes in the global economy have not come about in the manner envisaged a generation ago. Production and distribution are being organized in accordance with decentralized, private-sector patterns coordinated by the market, rather than in a centralized manner by interventionist governments. Though this would indicate a reduced role for governments, the privatization process demonstrates that governments are still significant actors. In a narrow sense, privatization implies merely a shift in economic activity from the public to the private sector with changes in the composition of ownership. More broadly, however, it creates new processes and priorities for governments. Through their policymaking and regulatory roles, governments can enhance the private sector's ability to respond to the demands of a globally integrated economy. Moreover, with growing economic interaction between nations, there is an increasing need for international intermediaries.

International organizations and institutions, such as the International Monetary Fund (IMF), the World Bank, the World Trade Organization (WTO) and the United Nations Conference on Trade and Development (UNCTAD), long seen as relevant to only one of the blocs of the divided world, are becoming the backbone of a single, universally accepted world economic system in which partnerships replace confrontation. In this brief essay, I examine how the trend toward global economic liberalization has raised new questions about the changing responsibilities of governments, and the expanding role and new directions of international organizations. The privatization process illustrates that, despite a reduced presence in the marketplace, governments have much to contribute toward efficient economic management. In addition, international organizations can further enhance governments' abilities to encourage growth through the establishment of global coordination and norms for state behavior.

The Role of Governments

There is no question that governments have the potential to strengthen an economy's capacity to respond to a more market-oriented, integrated world. To meet international demand, governments can stimulate, facilitate and support the development of competitive enterprises, as well as enhance the linkages between investment, production, trade and technology. They are able to do so in three ways: as a confidence builder, a catalytic agent and a mediating agent.

As a confidence builder, governments can encourage households to save or consume, entrepreneurs to set up businesses and investors to move forward in productive activities. Governments also have the ability to create the necessary macroeconomic and market conditions to mobilize savings that can be transformed into long-term lending for enterprise development. Governments may reduce commercial, financial and investment risks associated with sharp tax increases, interest rate adjustments or currency movements that undermine confidence in a national currency as a store of value. Additionally, governments are able to stimulate the development of necessary physical infrastructure and human resources, as well as to establish a favorable legal and commercial framework for developing efficient financial markets, technological capabilities and competitive enterprises.

As a catalytic agent, governments are able to stimulate entrepreneurship and enterprise development among private-sector firms. Governments must provide appropriate incentives for business start-ups and the retention of earnings for technological research and development. Policy-based, specialized lending programs encourage the development of small and medium enterprises (SMEs) and the cultivation of their linkages with larger or export-oriented enterprises. One of government's most important catalytic tools is its sponsorship of regulatory reforms. Economic and legal reforms can generate enterprise competition in both input and output markets by leveling the playing field to encourage business start-ups, thereby stimulating wealth creation. …

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