What Makes Poor Countries Poor?

What Makes Poor Countries Poor?

Institutional Determinants of Development

Michael J. Trebilcock and Mariana Mota Prado

This important book focuses on the idea that institutions matter for development, asking what lessons we have learned from past reform efforts, and what role lawyers can play in this field.

Chapter 6: State-owned Enterprises, Privatization and Development

Michael J. Trebilcock and Mariana Mota Prado

Subjects: development studies, law and development, economics and finance, institutional economics, law and economics, law - academic, law and development, law and economics


1 INTRODUCTION In the 1980s and 1990s a wave of privatizations swept the world. Stateowned enterprises (SOEs) in many countries were sold to private investors in sectors as varied as steel, mining, banking, telecommunications, electricity and water. From 1977 to 1999 there were 2459 privatization deals in 121 countries.2 Privatization, together with a number of other reforms that constituted the so-called ‘Washington Consensus’,3 was part of an internationally accepted strategy for fostering economic growth. Before these privatizations, governments (especially those in developing countries) assumed many of the economic functions pursued by the private sector in other countries, as exemplified by the prominent role played by SOEs in delivering infrastructure services in some developed and most developing countries. Privatization reforms were driven by the assumption that these functions could be more efficiently performed by the private sector. However, in many cases, privatization fell short of delivering the expected results. These outcomes, combined with the pitfalls of other ‘Washington Consensus’ policies, have forced reformers and academics to revisit many of their original assumptions and adopt a more cautious perspective on privatization. In some cases, privatization may be a solution, but in others it is not. And even in those cases where it may be a solution to the inefficiencies of the public sector, it is not the only one. Many alter1 Portions of this chapter are adapted and updated from two previous publications by one of the authors: D. Andrew, C. Smith and Michael J. Trebilcock, ‘Stateowned enterprises in less developed...

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