Privatization has won the day in transition countries … or has it? Where have privatization efforts—particularly those in Central and Eastern Europe and the former Soviet Union—succeeded, where have they failed, and how can these countries best pursue further privatization?
PRIVATIZATION appears to have swept the field and won the day. More than a hundred countries, on every continent, have privatized an estimated 75,000 state-owned companies. Assessment after assessment has concluded that privatization leads to improved performance of divested companies and that privately owned firms outperform state-owned enterprises. This has been conclusively proved in industrial and middle-income countries, and there is increasing evidence that privatization yields positive results in lower-income and transition countries as well.
In the transition countries, the evidence of good results comes mainly from Central and Eastern Europe and the Baltic states. Evidence—early and fragmentary, but impossible to ignore—from farther east—Armenia, Georgia, Kazakhstan, the Kyrgyz Republic, Moldova, Mongolia, Russia, and Ukraine—shows less promising results:
• Private ownership often does not lead to restructuring (that is, making changes to position a firm to survive and thrive in competitive markets).
• Some partially state-owned firms perform better than privatized companies.
• In some countries, there are few differences in performance between (wholly) state-owned and privately owned firms.
• In other countries, there are clear performance improvements only in those very few firms sold to foreign investors.
What is the explanation for these poorer results, and what should the affected transition governments, and those who assist them, do to improve these results?
Itzhak Goldberg, 1999, “The Vicious Circle of Insider Control: A Proposal for Reprivatization of Russian Enterprises through Investor-Local Government Cooperation” (unpublished, World Bank, March).