Strategic management of privatization: a framework for planning and implementation
| Author | DENNIS A. RONDINELLI,MAX IACONO |
| Date | 01 August 1996 |
| DOI | http://doi.org/10.1002/(SICI)1099-162X(199608)16:3<247::AID-PAD880>3.0.CO;2-O |
| Published date | 01 August 1996 |
PUBLIC ADMINISTRATION
AND
DEVELOPMENT, VOL.
16, 247-263 (1996)
Strategic management
of
privatization:
a
framework for
planning and implementation
DENNIS A. RONDINELLI
Kenan Institute
of
Private Enterprbe, University
of
North Carolina
MAX IACONO
International Labour Office, Geneva
SUMMARY
The continuing interest of governments around the world in privatizing state-owned
enterprises
(SOEs)
is making privatization policy an important instrument for promoting
market-oriented approaches to economic development. Privatization has become an integral
part
of
administrative reform in former centrally planned socialist economies, developing
countries, and post-industrial societies. More than a decade of experience with privatization
provides lessons that can help governments to plan, implement and manage the process more
efficiently, effectively, and responsively. The framework for managing privatization described
here draws from lessons of that experience to define the forms, scope and pace of privatization,
choose organizational structures for management, identify macropolicy and institutional
reforms necessary to facilitate privatization, and develop management procedures for
implementing privatization programmes successfully.
INTRODUCTION
Privatization is becoming an increasingly important instrument that governments
can use to promote economic development, improve the production and distribution
of goods and services, streamline government structure, and reinvigorate industries
controlled or managed by the state. Latin American countries such as Chile and
Argentina transferred large state-controlled telecommunications, railway, power and
energy, airline, mining, and oil and petroleum industries to private ownership
or
management during the
1970s
and
1980s.
Mexico has privatized enterprises in almost
every industry from agribusiness, airlines, mining, metals, pharmaceuticals, real
estate, hotels and automotive parts to fish processing, fertilizers, telecommunications
and banking (Arena,
1994).
In Asian countries, governments began experimenting with ways
of
encouraging
the private sector to participate in providing urban shelter, social services and
Dennis A. Rondinelli
is
Glaxo Distinguished International Professor of Management at the Kenan-Flagler
Business School and Director of the Center for Global Business Research at the Kenan Institute
of
Private
Enterprise, University of North Carolina at Chapel
Hill.
Max Iacono is Senior Research and Programme
Development Officer in the Entrepreneurship and Management Development Branch of the International
Labour Office
in
Geneva.
CCC
0271-2075/96/030247-17
0
1996 by John Wiley
&
Sons, Ltd.
248
D.
Rondinelli and
M.
Iacono
physical infrastructure in the 1980s (Rondinelli and Kasarda, 1991). Governments in
the Republic of Korea, Indonesia, Thailand and the Philippines sold or solicited
private investment in state-owned manufacturing and public service enterprises. In
former socialist countries such as Poland, Hungary, the Czech Republic, and some
of
the republics of the former Soviet Union, the government moved rapidly toward
mass privatization of thousands of state-owned enterprises after the demise of their
communist regimes.
Even in western industrial countries such as the United Kingdom, France,
Germany, the United States, Canada and Japan, privatization has been used
selectively to attain administrative and economic objectives. By the early 1990s, the
private sector was providing a substantial portion of the infrastructure and services
in many North American municipalities. Surveys of cities in the United States with
over
50,000
population showed that the private sector was involved in solid waste
collection in about half of the cities, in health care in about 27 per cent, in
transportation in about
26
per cent, in street maintenance in
24
per cent; and in
wastewater treatment in more than 8 per cent (Roehm
et
al.,
1991).
Governments in many former socialist and developing countries and in most
market economies are implementing privatization successfully.
By
selling shares of
SOEs the government of Malaysia was able to transfer nearly 20 per cent of its
outstanding debt to the private sector by 1987 and it saved more than M$3.9 billion
by privatizing public works projects (Tsuruoka, 1990). By 1992 the German
privatization agency, the Treuhandanstalt, was able to raise more than US$18 billion
from the sale of state-owned enterprises (SOEs) in the former German Democratic
Republic (Republic of Germany, 1992). Governments in Latin America and Asia
divested
of
SOEs
to help reduce public expenditures, pay off foreign debt, and
increase government revenues. Between 1984 and 1992, the Mexican government
generated more than US$22 billion by selling more than 900 companies, and
expected to obtain an additional
US$5
billion from the sale of
37
more companies
(Fraser, 1993). From 1990 to 1993, governments worldwide sold state enterprises for
more than US$175 billion, of which nearly US$97 billion came from public offerings
and about US$78 billion came from private sales (Lord, 1994).
Privatization has proven to be far more complex, however, than many economic
reformers and political leaders anticipated. Rapid progress in divesting of large
numbers of
SOEs
has been limited to a relatively few countries. Governments in
Central and Eastern Europe have succeeded largely in privatizing small enterprises
requiring little capital investment, in liquidating some unprofitable
SOEs,
and in
promoting joint ventures and acquisitions of some profitable state enterprises by
foreign investors (Rondinelli, 1994a). The weaker and more problematic
SOEs
employing large numbers of people have been more difficult to sell or liquidate.
Progress has also been made on increasing the participation of the private sector in
providing goods and services in established market economies but it has been a
slower and more complex process in many emerging market and developing
countries (Rondinelli, 1991).
Despite the
slow
pace
of
privatization in some countries, experience suggests that
private enterprises and non-government organizations around the world are playing
more important roles in providing goods and services that were previously provided
by
SOEs or government agencies (World Bank, 1992). But even where conditions for
privatization are favourable, governments and the private sector face serious
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