Privatization and Development: The Empirical Evidence

Abstract

One of the major global legacies of the Reagan and Thatcher administrations is privatization, the divestiture of public enterprises to private owners and, more generally, the placing of a larger share of the economy into the private sector. Everybody is doing it, claims the widely respected Economist.' This legacy is evident not only in economic policy trends of the industrialized countries,2 but also in countries such as the Philippines, Venezuela, and Brazil as well as Turkey, Grenada, and a host of other countries.3 The trend toward privatization has not been without debate, some 4 reflecting ideological overtones, some having a more pragmatic concern that the private sector can deliver goods and services more efficiently and effectively.5 From the standpoint of reducing poverty and promoting economic growth, which are common goals of countries, the 1980s saw a reversal of the previous two decades during which the public sector was seen as playing the dominant role. Olson and Bauer, for example, both argue that development can best be achieved through freeing up the market and letting the impersonal forces of supply and demand do their work.6 Olson, in fact, argues that those same liberal and generous sympathies that generated concern for the welfare and dignity of Third World peoples are now also responsible for promoting ideas that keep Third World countries in abject poverty, i.e., the idea that newly independent countries need a good deal more planning and central control of their economies.7 M. Peter McPherson, Administrator of the United States Agency for International Development during most of the Reagan years, asserts that developing countries that rely on market forces as an engine for their economic systems have, by and large, grown