Privatization and Public Enterprise Reform: A Suggestive Action Plan

Governments have long used State Owned Enterprises (SOEs) as instruments to achieve their social and economic developmental goals. Until about the 1970s, in most countries it appeared as though SOEs were having some success in this task. In the 1980s, however, there were increasing signs of weaknesses in the SOE sector. Protection from competition, bankruptcy and takeover allowed them to become inefficient. With the world recession of the mid 1980s, they became net drawers on government budgets, rather than net providers. It appeared that the SOEs were undertaking many activities which the private sector could probably do better, since property rights would ensure greater productivity and bankruptcy laws would weed out the unproductive enterprises. The theory of market failure was overtaken by the theory of non-market or bureaucratic failure (Stiglitz, 1989). The international community agreed and urged, particularly after the success of early privatization in the United Kingdom that governments shed their public enterprise burden, deregulate sectors formerly monopolized by the public sectors, and provide an enabling environment for the private sector to develop. Privatization thereafter has been widely promoted in the sphere of industries, services and agencies (Kay and Thompson, 1986; Kikery, Nellis and Shirley, 1992; Ramamurti, 1999; Yarrow, 1999; Vickers and Yarrow, 1988).