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International Handbook on Industrial Policy

Edited by Patrizio Bianchi and Sandrine Labory

This timely and much-needed Handbook reconsiders an old topic from a fresh perspective, raising a number of new, interesting and worthwhile issues in the wake of ten years of globalization. This comprehensive analysis illustrates that old-style industrial policies whereby the government directly intervened in markets, and was often the producer itself, are no longer relevant. Structural changes occurring in economies – summarized in the term ‘globalization’ – are triggering the definition and implementation of new industrial policies. The contributors, leading experts in their field, unite to evaluate this shift of over a decade ago.
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Chapter 9: Liberalization and Regulation of Public Utility Sectors: Theories and Practice

Tom Björkroth, Sonja Grönblom and Johan Willner


Tom Björkroth, Sonja Grönblom and Johan Willner 1 Introduction Traditionally, public utilities were seen as associated with a number of potential market failures that justified public intervention. For example, telecommunications, electricity, railways, gas and water supply typically include elements of a natural monopoly. In the USA, intervention usually meant regulated private monopolies, whereas such industries in Europe were nationalized monopolies until the 1980s. The European approach has now shifted towards competition (with and without privatizing the incumbent) and sometimes privatization with regulation if competition is not possible. State-owned companies and public utilities have been privatized for a variety of reasons, including sales revenues and popular capitalism, or as part of a perceived modernization. But the dominant official motive has in general been the belief that public ownership is less cost-efficient (Kay and Thompson, 1986; Vickers and Yarrow, 1988). But some surveys of public and private ownership, such as Borcherding et al. (1982) and Megginson and Netter (2001) conclude in favour of private ownership, while others, such as Millward (1982), Boyd (1986) and Willner (2001, 2003) do not. Also, a number of studies find no improvement in performance after privatization (on Britain and Finland, see for example Martin and Parker, 1997; Florio, 2004; Willner, 2006a). Privatization has in addition mostly affected monopolistic or oligopolistic industries, so the social costs of, for example, imperfect competition may dominate even if costs are reduced (Willner, 1996, 2003). It is therefore often argued that performance improvements after privatization are...

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