State and Market in Development: Synergy or Rivalry?

By Louis Putterman; Dietrich Rueschemeyer | Go to book overview

10
The Logic and Unfulfilled
Promise of Privatization
in Developing Countries

THOMAS J. BIERSTEKER

Privatization has been at the policy forefront in recent efforts to reduce the role of the state and redefine its relationship with the market. It has been closely identified, and in some instances virtually equated, with the processes of economic liberalization and reform. The highly charged initiative that was introduced in Margaret Thatcher’s Britain in 1979 and was later extolled by Ronald Reagan in the United States spread throughout the developing world during the 1980s and most recently into Eastern Europe and the former Soviet Union. By the end of the decade, more than 8.0 countries in the developing world had some form of privatization program in place.1 Because of the rapid change and transformation of economic policy underway throughout Eastern Europe and the former Soviet Union, governments in those countries have introduced the idea into their current debates about the process of economic reform. Every one of the former Soviet republics currently has some form of privatization program in place. Although countries vary significantly in the degree to which they have embarked on (and actually implemented) programs of privatization, “an abrupt shift … became visible in the early 1980s and grew rapidly thereafter.”2

Privatization has been deliberately encouraged in the developing world by international organizations such as the World Bank (and, to a lesser degree, the IMF), as well as by regional development banks and bilateral aid agencies. Indeed, the World Bank routinely undertakes studies of the feasibility of privatization prior to releasing funds for its structural (and sectoral) adjustment loans.3 Privatization was also an important component of economic reform in both the Baker and the Brady plans for the Third World debt problem. Both plans promised substantial resources, either in the form of new funding or major debt relief in the case of the Brady Plan, for countries pursuing comprehensive programs of economic reform, programs that ordinarily include privatization.4

In spite of the fact that privatization has profound implications for the relationship between states and markets, it has often been little more than an

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