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The World Bank Research Observer, vol. 19, no. 1 (2004), pp. 87-118
The World Bank Research Observer, vol. 19, no. 1,
© The International Bank for Reconstruction and Development / THE WORLD BANK 2004; all rights reserved

An Assessment of Privatization

Sunita Kikeri

Sunita Kikeri is advisor in the Investment Climate Department at the World Bank

John Nellis

John Nellis is senior fellow at the Center for Global Development, Washington, D.C.

Correspondence: Her e-mail address is skikeri{at}worldbank.org

Correspondence: His e-mail address is john.nellis{at}verizon.net

Abstract

Mounting empirical evidence of privatization's benefits coincides with increasing dissatisfaction and opposition among citizens and policymakers. This dissatisfaction reflects the growing questioning of the benefits of privatization, the general downturn of global markets in the past few years and the resulting swing of the pendulum back toward increased governmental supervision, the overselling of privatization as a panacea for all economic problems, and the concern that privatization does not produce macroeconomic and distributional gains equivalent to its microeconomic benefits. This article takes stock of the empirical evidence and shows that in competitive sectors privatization has been a resounding success in improving firm performance. In infrastructure sectors, privatization improves welfare, a broader and crucial objective, when it is accompanied by proper policy and regulatory frameworks. The article argues that despite the growing concerns privatization should be neither abandoned nor reversed. Rather, there should be a strengthening of efforts to privatize correctly: by better tailoring privatization to local conditions, deepening efforts to promote competition and regulatory frameworks, enforcing transparency in sales processes, and introducing mechanisms to ensure that the poor have access to affordable essential services.


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