THE DIFFUSION OF PRIVATIZATION IN EUROPE: POLITICAL AFFINITY OR ECONOMIC COMPETITION?
| Date | 01 September 2014 |
| Author | CARINA SCHMITT |
| Published date | 01 September 2014 |
| DOI | http://doi.org/10.1111/padm.12068 |
doi: 10.1111/padm.12068
THE DIFFUSION OF PRIVATIZATION IN EUROPE:
POLITICAL AFFINITY OR ECONOMIC COMPETITION?
CARINA SCHMITT
Privatization has spread around the globe. While a number of studies find empirical evidence
for the diffusion of privatization, it remains unclear what the relevant linkages between states
are. This article analyses whether it is economic competition or political affinity that influences
the diffusion of privatizing public utilities. The sample includes telecommunications, postal, and
railway providers as the main network-based utilities operating at the national level in 15 European
countries from 1980 until 2007. The results of the spatial regressions clearly show that governments
follow each other for economic reasons. Trading partners strategically interact when privatizing
their national public-utility providers to form strategic cross-border company alliances and to avoid
competitive disadvantages in the global market. This applies particularly to economies that are
highly integrated in the international market. Surprisingly, political and ideological similarities do
not seem to matter for the diffusion of privatization.
INTRODUCTION
Privatization has spread around the globe, particularly from the 1990s onwards (Bortolotti
et al. 2003). With the emergence of neoliberal ideas, public enterprises were no longer
regarded by governments as effective instruments for responding to market failure and, as
a result, have been widely privatized (Bortolotti and Siniscalco 2004). Today, privatization
is considered ‘an established policy’ in the OECD world (Meseguer 2009, p. 111). Network-
based utilities have also been affected by market-oriented policies. With the privatization
and market orientation of the former public monopolies, the inward looking public-utility
providers often have been transformed into multinational corporations operating across
borders.
When explaining the timing and the extent of privatization, the existing research
literature has focused extensively on domestic and external determinants. Right-wing
governing parties, a high level of public debt, and an institutional arrangement with a low
number of veto points are assumed to accelerate the privatization process. Furthermore,
international factors such as globalization and Europeanization, as well as technological
progress, are seen as fostering the retreat of the state (Boix 1997; Bortolotti and Siniscalco
2004; Schneider and H¨
age 2008). Recently, however, more and more scholars have
argued that governments choose privatization strategies because of their dependence on
the policy choices of others. Research on privatization focusing on interdependencies
concluded that privatization has ‘diffused rather than [been] reproduced independently
as a discrete event in each country and sector’ (Levi-Faur 2005, p. 28). Governments
emulate the strategies adopted by similar countries (Fink 2011; Schmitt 2011), succumb to
international coercive pressure of their reference group (Henisz et al. 2005), or learn from
regional experiences (Meseguer 2004, 2009).
Despite a number of studies that have found empirical evidence for the diffusion of
privatization, it remains unclear what drives the diffusion of privatizing public utilities.
Is it economic competition or rather political affinity that matters for the diffusion of
Carina Schmitt is at the Center for Social Policy Research, University of Bremen, Germany.
Public Administration Vol. 92, No. 3, 2014 (615–635)
©2014 John Wiley & Sons Ltd.
616 CARINA SCHMITT
privatization? Do countries influence each other because of their economic and compet-
itive strategic behaviour or because of their political and ideological similarities? What
do the relevant linkages between states look like? Furthermore, the extent to which
national characteristics shape the importance of policy diffusion is under-researched
(Neumayer and Pl¨
umper 2012). Do governments respond to the diffusion of privatization
depending on their ideological position or depending on the openness of their countries’
economies?
This article addresses these questions by analysing the diffusion of privatization in
the telecommunications, postal, and railway sectors, the main network-based utilities
operating at the national level in 15 European countries. The (former) monopolistic
companies in these sectors were typically among the largest national public enterprises.
The period of observation starts in 1980, i.e. before major privatization programmes were
launched, and ends in 2007. For the spatial regression estimations, information from both
national governments and individual companies was gathered. A completely new dataset
is provided that contains information that has not been available to the public.
The article contributes to the literature in the following ways. First, it considers whether
the importance of diffusion is conditioned by the ideological position of the government
or by the openness of the economy. For example, it might be assumed that left-wing
governments are more reluctant to adopt market-oriented policies than their right-wing
counterparts. Second, the existing quantitative literature mainly focuses on the transfer
of ownership (i.e. material privatization). However, in the case of network-based utilities
two forms of privatization have to be considered: formal privatization involving the
transformation of the public entity into a joint-stock company without changing the
ownership structure, as well as material privatization involving the sale of shares to private
buyers. This article explicitly takes both forms into account.
Third, due to the lack of existing data, a new database is presented including information
gathered directly from enterprises and national ministries. The results clearly support
the finding that governments follow each other for economic reasons. Trading partners
strategically interact when privatizing their national public-utility providers in order to
form strategic cross-border company alliances and to avoid competitive disadvantages in
the global market. This applies particularly to economies that are highly integrated in the
international market and therefore vulnerable to international influences. Surprisingly,
political and ideological similarities do not seem to matter for the diffusion of privatization.
This article is structured as follows. The following section examines the concept of
privatization and the privatization process in European countries in recent decades. In
the next section the hypotheses are discussed and afterwards the methodology and data
are described. Subsequently, the empirical results are presented.
THE PRIVATIZATION OF PUBLIC UTILITIES IN EUROPE
In network-based utilities, two forms of privatization have to be distinguished: formal
and material privatization. With regard to formal privatization, two sub-types of formal
privatization exist despite national differences. The first type refers to the transformation
of a departmental agency as a part of a ministry (e.g. the Direction G´
en´
erale des
T´
el´
ecommunications in France) into a public corporation (e.g. France T´
el´
ecom) that is
subject to special or public law. While a departmental agency does not have its own legal
personality and is subordinated to a ministry, a public corporation is an autonomous public
body with its own legal status and a partial commercial structure. Public corporations
Public Administration Vol. 92, No. 3, 2014 (615–635)
©2014 John Wiley & Sons Ltd.
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