Edited by David Parker and David Saal
Chapter 25: Privatization and Regulation of Public Utilities: Problems and Challenges for Developing Economies
David Parker Introduction In recent years market liberalization and privatization have been championed as a means of spreading the beneﬁts of globalization worldwide (Ramanadham, 1993). Policies favouring market liberalization and privatization have been advanced by economists (for example, Aharoni, 1986; Hanke, 1987; Cook and Kirkpatrick, 1988; Vickers and Yarrow, 1988; Shapiro and Willig, 1990; Boycko et al., 1996) and the main international aid and trade bodies, particularly the World Bank, IMF, OECD, Asian Development Bank and latterly the World Trade Organisation (WTO) (Ikenberry, 1990:100; Ramamurti, 1992; World Bank, 1995). In 2000 global privatization receipts rose to a record US$200bn (Privatization International, January 2001). Nevertheless, in spite of, and sometimes because of, privatization, state regulation of the economy continues to grow. State regulation exists because private markets can ‘fail’. Market failure is likely where (a) markets are dominated by monopolies because of economies of scale or scope in production technology; (b) there are signiﬁcant external costs and beneﬁts, so that not all gains and costs are captured by the direct participants in the economic exchange; (c) markets are incomplete, so that price signals do not produce a socially optimal allocation of resources; for instance, where markets are ‘missing’ or underdeveloped; (d) there are information deﬁciencies in markets, so that markets do not allocate resources eﬃciently; (e) society may decide that free market outcomes are undesirable because of the resulting distribution of income and wealth; and (f) goods are ‘public goods’, that is, non-rival and...
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