The Political Economy of Privatization
Privatization is defined as the transfer of assets and service functions from the public to the private sector. 1 In the early 1990s, a prominent magazine described privatization as the 'sale of the Century . . . a policy that in 1980 seemed adventurous to some and unworkable to everybody else . . . is [now] economic orthodoxy worldwide' ( The Economist 1993: 13). It has been the most controversial policy issue dominating the political agenda of many countries around the globe for over a decade, and by the mid-1990s it was progressively gaining momentum ( Edwards 1995; Holden and Rajapatirana 1995; Sader 1995). Between 1990 and 1996, Latin America and the Caribbean became the developing world's leader in privatization, accounting for 53 per cent of total proceeds ($82.4 billion see Table 1.1). During such a period annual revenues averaged, in terms of Gross Domestic Product (GDP), for the region as a whole, 1 per cent ( Interamerican Development Bank ( IDB), 1996: 170).
The academic debate regarding privatization has traditionally focused on economic arguments. However, no matter how sophisticated economic analyses may be, they have been unable to explain why for most of the 1970s and 1980s privatization, while making perfect economic sense in many countries, failed to occur. Obviously, the problem lies else where. According to the investment report of one of the world's most respected financial institutions, the real issue is that the decision to privatize is a political one. In discussing the Latin American experience, the report states: 'In all cases, the world of politics and, more importantly, the ability to deal with it, has played a crucial role.' 2 This explanation is not an isolated case. Practitioners argue much of the same. Carlos Montoya, the architect of the Peruvian state divestiture program, admitted that privatization was essentially a political issue, which requires a clear political plan and a strong presidential leadership. 3 A Brazilian economist, who worked on the programs under the Sarney and Collor administrations, echoed such a statement by admitting that the decision to privatize rests ultimately upon political calculations as politicians are the ultimate arbiter of the decision-making process. 4 The World Bank itself, in a recent cross-national study surveying the success and failure of privatization in Eastern Europe, Asia, Africa, and Latin America, acknowledged that, 'clearly factors