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3 - The decision to privatize: economists and the construction of ideas and policies

Published online by Cambridge University Press:  04 August 2010

Bruce Kogut
Bernstein Chair Professor, Business School Columbia University
J. Muir Macpherson
Assistant Professor of Strategy, McDonough School of Business Georgetown University
Beth A. Simmons
Harvard University, Massachusetts
Frank Dobbin
Harvard University, Massachusetts
Geoffrey Garrett
University of Southern California
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Privatization is the distribution of state-owned assets to private owners. This distribution can happen by permitting spontaneous privatization, as frequently witnessed in Central and Eastern Europe; by giving or selling vouchers to the population to be redeemed for shares; or by sales through stock markets, private placements, or managerial buyouts. Privatization witnessed a global explosion in the 1980s and 1990s. Brune (2006) estimates that privatization revenues amounted to $1.3 trillion between 1985 and 2001, not including the mass privatization programs of the transition economies. Bortolotti, Fantini, and Siniscalco (2001) report that the global share of value added by state-owned enterprises fell from 9 percent to 6 percent in the 1978–1991 period. Privatization has been, in summary, of historic economic importance, reflecting a changed view of the state and its role in national economies.

Why do countries decide to implement privatization programs at a given time? The orientation of political parties in power (Bortolotti, Fantini, and Siniscalco 2001), the legal orientation of an economy (La Porta et al. 1998), the speed of privatization (Lopez-de-Silanes et al. 1997), and concerns over budgetary control and international financial institutions (Brune, Garrett, and Kogut 2004) have been found to be consequential for the volume and value of privatization. This line of inquiry points to a more fundamental question: why should these factors matter now? Countries were in debt and had right-wing governments in previous decades without privatizing. These factors have fluctuated repeatedly over time.

Publisher: Cambridge University Press
Print publication year: 2008

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