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Privatization
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Privatization is a worldwide phenomenon. In recent years all levels of government, seeking to reduce costs, have begun turning to the private sector to provide some of the services that are ordinarily provided by government. The spread of the privatization movement is grounded in the fundamental belief that market competition in the private sector is a more efficient way to provide these services and allows for greater citizen choice. In practice... concerns about service quality, social equity, and employment conditions raise skepticism of privatization. In New York State, labor concerns are also a major issue. Although empirical studies do not provide clear evidence on the costs and benefits of privatization, public perception and pressure for improved government efficiency will keep privatization on the government agenda.
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Privatization proposals in key public service sectors such as water and electricity are in many cases strongly opposed by opposition political parties and civil society groups. Usually campaigns involve demonstrations and political means; sometimes they may become violent (e.g. Cochabamba Riots of 2000 in Bolivia; Arequipa, Peru, June 2002). Opposition is often strongly supported by trade unions. Opposition is usually strongest to water privatization - as well as Cochabamba (2000), recent examples include Ghana and Uruguay (2004). In the latter case a civil-society-initiated referendum banning water privatization was passed in October 2004.
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Privatization can ... have a ripple effect on local economies. State-owned enterprises can be obliged to patronize national or local suppliers. Privatized companies don't have that restriction, hence shift purchasing elsewhere. Bolivia underwent a rigorous privatization program in the mid 1990s, with disastrous impact on the local economy.
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Privatization often has an impact far beyond a firm's immediate employees and their families. Some public enterprises were originally established with broader development goals in mind: to build infrastructure, stimulate production in the absence of a strong private sector, spearhead industrial diversification or extend essential economic and social services to previously neglected sections of the population. In the initial rush to privatize, those goals were sometimes forgotten.
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Privatization, especially as implemented in the United States by local governing bodies, generally takes one of four forms. The first and probably the most prevalent is "contracting out," which can be described as public sector choice and public sector financing, with private sector production of the selected service. Under contracting out, the citizenry makes elected officials aware of a collective need such as trash pickup. The government then generally chooses via competitive bidding a private contractor to provide the service. The government is ... responsible for financing these respective services—generally through its taxing powers. Hence, the government finances the service while the private sector provides it. The government determines the service level and pays the amount specified in the contract, but leaves production decisions to the private contractor.
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Privatization in Latin America represents the first systemic economic analysis of the efficiency and distributive effect of privatization in Latin America. Examining the privatization experience of six Latin American countries—Brazil, Argentina, Chile, Bolivia, Peru, and Colombia—Privatization in Latin America evaluates the empirical evidence on privatization and assesses the validity of the criticisms raised. It shows that privatization can lead to increased profitability and productivity, firm restructuring, fiscal benefits, output growth, and even quality improvements. Privatization in Latin America is destined to become a must-have reference for researchers interested in privatization or the economic aspects of social policy reforms.
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Privatization