Privatization and Reform of Public Enterprises: An Overview of Policy Trade-offs, Experiences, and Outcomes
GERD SCHWARTZ AND PAULO SILVA LOPES
The collapse of the socialist systems of Eastern Europe and the Soviet Union provided unprecedented opportunities for reinventing market-based economies almost from scratch. In all countries, key issues that were addressed in this context included economic liberalization and structured reform, particularly the reform of public enterprises. So far, the results have been mixed: some countries have made remarkable progress, but others have remained engulfed in controversy over the exact road to a market economy. Although some countries harbored significant doubts about the economic benefits of liberalization and structural reform and have barely begun to implement reforms, others have managed to sustain political support for liberalization and privatization, kept reform objectives simple, and vigorously implemented reform policies. While the economic environment has tended to worsen in the former group of countries, significant economic benefits have begun to materialize in the latter group.
Arguments in favor of privatization began to be taken seriously during the 1970s, a time when economic liberalism made a strong comeback and when the seemingly chronic ills that plagued public enterprises around the world had become all too evident ( Stern, 1989). As a result, economic models based on public monopolies were dismissed, and by the end of the decade, a sweeping privatization program was under way in the United Kingdom, and a new administration in the United States was pushing a broad deregulatory agenda. Soon, privatization programs followed worldwide, first in Europe and Latin America, then in Africa and Asia, and more recently in Eastern Europe and in the countries of the former Soviet Union.