Edited by Gertrude Tumpel-Gugerell and Peter Mooslechner
20. The case of privatization of network utilities Willem Buiter1 and Maria Vagliasindi2 1. INTRODUCTION The sale of state-owned enterprises to private investors during the past two decades represents a political, social and economic phenomenon of the ﬁrst order. It has been associated with major redistributions of wealth, power and inﬂuence – economic as well as political. It also has had important social consequences, both through the reduction in (and often the complete ending of) the role of the privatized enterprises in the provision of the social safety net and of other public goods and services, and through the large-scale redundancies often associated with the restructuring that preceded or followed privatization. These privatizations were part of a broader reversal of public policy – a withdrawal by the government from direct economic engagement in many industries that had come to be regarded as ‘strategic’. The ﬁnancial consequences of these privatizations have also been signiﬁcant. The ﬁnancial impact of the privatization of network utilities, in terms of market capitalization, trading volumes and investor participation, has been remarkable. In particular, telecom share issues often accounted for 30 per cent of total capitalization and even a greater share of total trading value. As the experience of the Western and Eastern European countries demonstrated, in order to be eﬀective, privatization should be complemented by reforms stimulating competition and by broader regulatory reforms. For instance, public policy should take into account the fact that a privatized monopoly will often attempt to use its money and...
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