Privatization is the process of transferring productive operations and assets from the public sector to the private sector. Broadly defined in this fashion, privatization is much more than selling an enterprise to the highest bidder, as it includes contracting out, leasing, private sector financing of infrastructure projects, liquidation, mass privatization, etc. My testimony will argue that there is no single best approach to privatization; the appropriate privatization path depends on the goals that the government is seeking to attain, the individual circumstances facing the enterprise and the economic and political context of the country. It should be noted that privatization is fundamentally a political process as well as a commercial and economic process. Privatization changes the distribution of power within a society, as it diminishes control of the economy by the state and government- appointed managers.
Workers often feel threatened by the potential changes inherent in privatization, although employees frequently benefit from the process. As a result, public support is a major consideration in any privatization program and many of the choices made in designing and implementing transactions reflect the need for such support. Two consequences flow from this factor. 1) choices of approaches are sometimes altered due to political considerations, meaning that equity must be promoted in the privatization strategy, and 2) program implementation must be objective and fair to avoid adverse publicity. What are the goals of privatization? Many goals are often pursued through privatization programs.
These goals often fall along two principal dimensions: 1) broad social or macro economic goals, and 2) enterprise specific or macro economic goals. Macro economic goals are numerous. Fundamentally, privatization is advocated as a means to reduce the governments role in the economy, partly as a philosophical matter (as in the UK) but principally because governments have performed badly in that role. Many countries can attribute substantial portions of their external debt to liabilities of state-owned enterprises and significant portions of government budgets are devoted to paying subsidies or otherwise assisting loss-making State-owned enterprises. Government’s objectives in these situations are often simply to extricate themselves from these financial commitments, and focus scarce.