Infrastructure “Privatization”: When Ideology Meets Evidence

The paper documents the differences between the rhetoric and the evidence on the infrastructure privatization experience that started in the mid-1990s. It shows the heterogeneity across regions and across sub-sectors of the relative importance of the private actors in infrastructure financing. It then reviews the long term evidence on the efficiency and equity effects of the policy. It shows that reformers have underestimated the trade-offs between efficiency and equity, as well as their fiscal effects. Moreover, it finds that in many cases, the initial improvements credited to privatization eroded with time in sectors in which competition was limited so that the performance differences with state-owned enterprises disappeared. Finally, it suggests that, in most countries, policies focusing on market structure, competition, regulation and institutional and governance strengthening have been much more important determinants of performance than privatization per se. It concludes by arguing that more realism and less ideology will go a long way in allowing the various forms of privatization to contribute to the global infrastructure agenda in the interest of all stakeholders.