Thoughts on the Mexican Privatization Experience

By Aspe, Pedro | The McKinsey Quarterly, Spring 1994 | Go to article overview

Thoughts on the Mexican Privatization Experience


Aspe, Pedro, The McKinsey Quarterly


An excerpt from Economic Transformation the Mexican Way

MEXICO BEGAN TO DIVEST itself of public-sector enterprises in 1983. The Mexican authorities saw privatizing small public-sector entities as a way both to correct -- permanently -- public-sector finances and to improve productivity. This effort has continued with added intensity during President Salinas de Gortari's administration with the completion of larger and substantially more complex privatization operations.

During the last nine years, the government has divested itself from practically all areas of economic activity: sugar mills, hotels, airlines, telecoms, banking, and steel. Of the 1,155 firms under state control in 1982, Mexico has privatized 905 with sales totalling US$14.5 billion, or around 5 percent of GDP. Another 87 are now under way. By the end of 1991, Mexico had transferred 250,000 employees to the private sector.

Before I discuss the specific approaches we took to privatization in Mexico, let me say a brief word about the micro- and macroeconomic factors that shaped what we did.

Microeconomic considerations

Privatization does not focus just on the sale of a public entity. It also means looking at how the enterprise will be sold, how it will operate under private ownership, and which economic principles will govern both its sale and later operation. Questions will arise: Should an enterprise be sold through private placements or public auctions? What kind of sale will best achieve the government's objectives? Should the goal be liquidating, merging, or breaking up the enterprise? Should it be transforming it into a regulated monopoly? Should it be developing franchises to run separate pieces of the original business?

There will also be questions about how competition and regulation will affect things after the sale. When planning a sale, for example, a government must consider the potential consequences and so design the sales scheme that the new private owners can manage the firm effectively -- and that, whenever possible, the firm will operate in a competitive environment. If this latter is not possible, the government should develop regulations to ensure efficient resource allocation.

Shareholder control

The privatization process, as well as the laws that accompany it, should make it possible for a strong, central board of directors actively to monitor the work of management. Dispersed shareholding can lead to less-than-optimal monitoring. Individually, small investors expend lots of energy monitoring performance, but have no leverage over management. Equally important, because multiple shareholders cannot easily share their knowledge, they usually end up duplicating one another's monitoring efforts.

Next, as authorities encourage capital markets to develop, they must also introduce new regulations on takeovers and holding companies. Only if these are both in place will takeovers not introduce financial instability. Most practitioners accept that, within suitable guidelines, takeovers generate incentives for good managerial performance. Unfortunately, in developing economies, the culture and institutions necessary to provide such guidelines scarcely exist. So the authorities should use the privatization process to help local participants learn more about takeovers and corporate finance, as well as to develop a local capital market. Whenever possible, for example, they should use the local stock market to carry out privatization operations.

Another key point: the mechanism of bankruptcy has to work properly. This may seem obvious to countries with extensive market experience. But it is not always obvious to others. Because, in times of crisis, the Mexican government often bailed out large private enterprises, the risk of going bankrupt had little effect on business managers' behavior. Privatization, then, should not simply re-establish the status quo by nationalizing inefficient private firms. …

The rest of this article is only available to active members of Questia

Already a member? Log in now.

Notes for this article

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.
One moment ...
Default project is now your active project.
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Buy instant access to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

Thoughts on the Mexican Privatization Experience
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

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?

Help
Full screen

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Buy instant access to cite pages or passages in MLA, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

    Cited passage

    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.

    Buy instant access to save your work.

    Already a member? Log in now.

    Author Advanced search

    Oops!

    An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.