Privatization, unbundling, and liberalization of network industries:a discussion of the dominant policy paradigm in the EU

In this paper we examine the emergence over the last two decades in the EU of a dominant policy paradigm on the reform of network industries. We consider the broad recommendations by the OECD and the European Commission, and the Directives adopted by the European Union on the reform of some public services, such as electricity, gas, and telecom. These recommendations, in their strongest form, advocate the divestiture of public ownership (openly by the OECD, but not by the EC), unbundling (by both organizations, but with differences across sectors), liberalization (again by both organization, but with variations in the role of market regulation). We contrast the predictions and prescriptions of the paradigm, with a theoretical discussion of the welfare impact of the reforms. This discussion, based on a review of some standard microeconomic assumptions on the role of ownership, economies of scale and scope, governance, and market forms, shows that the dominant policy paradigm oversimplifies a very complex story. We suggest that the actual success of the reform is conditional to a large number of economic and institutional factors, and that it is far from obvious that the adoption of the same policy pattern in any and all the EU countries is always welfare improving. Empirical analysis does not support the paradigm.