The role of governance in privatisation reforms: A European analysis
| Published date | 01 November 2018 |
| Author | Noemí Peña‐Miguel,Beatriz Cuadrado‐Ballesteros |
| Date | 01 November 2018 |
| DOI | http://doi.org/10.1111/sjpe.12192 |
THE ROLE OF GOVERNANCE IN
PRIVATISATION REFORMS: A
EUROPEAN ANALYSIS
Noem
ıPe
~
na-Miguel* and Beatriz Cuadrado-Ballesteros**
ABSTRACT
This study analyses the role of regulatory and institutional context, denoted as
governance, on privatisation reforms. Governance is represented by the World-
wide Governance Indicators and privatisation data are provided by the Privatiza-
tion Barometer project. We found empirical evidence on a sample of 22
European countries over the period 2002–2013, through estimating several
econometric equations that control endogeneity. Our findings suggest that pri-
vatisation is shaped by the quality of regulation and institutions. More specifi-
cally, privatisation reforms in modern Europe tend to be more relevant when
governance quality is reduced, while results suggest the contrary effect in the
case of transitional economies.
II
NTRODUCTION
Privatisation is a major trend all over the world and has redefined policy for-
mulation in service delivery since the 1970s. Although privatisation involves
different methods and techniques, we consider here the ‘material privatisation’
approach (Obinger et al., 2016), i.e. the sale of shares in State-owned enter-
prises (SOEs) to private investors, resulting in property and decision-making
capability transference from the public to the private sector.
Privatisation reforms were initiated by the Conservative government in the
United Kingdom (UK) in 1979. According to Parker and Saal (2003), the
main reason why the government championed privatisation in the United
Kingdom was the belief in the greater efficiency of the private sector.
Although such a reform was not included initially in the electoral programme,
it achieved an unexpected success in balancing public finances (Parker, 2016).
The subsequent privatisation waves during the 1980s and 1990s across Europe
were traditionally explained as a way of emulating the United Kingdom’s pri-
vatisation experience, but some scholars have advocated other reasons,
*University of the Basque Country (UPV/EHU)
**University of Salamanca
Scottish Journal of Political Economy, DOI: 10.1111/sjpe.12192, Vol. 65, No. 5, November 2018
©2018 Scottish Economic Society.
479
especially as a response to meeting the Maastricht criteria,
1
liberalisation of
markets, and expansion of the stock markets (Parker, 1999; Clifton et al.,
2006).
However, previous findings do not totally support the superiority of private
ownership over nationalisation in terms of performance and efficiency (Parker,
1992; Martin and Parker, 1995; Saal and Parker, 2001; Cavaliere and Scabro-
setti, 2006), neither in terms of fiscal and budget issues (Pinheiro and Schnei-
der, 1995; Katsoulakos and Likoyanni, 2002). In addition, in many cases,
privatisation does not result in market liberalisation (Bjorvatn and Søreide,
2005).
This paper seeks to explain the mixed success of privatisation by adopting
a political economy approach. As privatisation decisions are taken by politi-
cians, such reforms depend on the incentives of the political leadership and
public managers, supported by a functioning regulatory environment (B€
orner,
2004). Accordingly, this study provides an empirical test of the effect of the
regulatory and institutional context, denoted as governance (Kaufmann et al.,
2010), on decisions regarding privatisation. The data relate to 22 European
countries during the period 2002–2013.
Institutional and regulatory factors are included among the major determi-
nants of privatisation, along with economic reasons, actor preferences and
international influences (Obinger et al., 2016). Most previous studies approach
the institutional and regulatory contexts according to specific aspects, such as
corruption, the legal origin, the legal rules to protect shareholders from expro-
priation, the bankruptcy laws, the efficiency of the judicial system and legal
enforcement, or the rule of law, among others (e.g. Bortolotti et al., 2001,
2003; Bortolotti and Siniscalco, 2004; Boubakri et al., 2009). Furthermore, a
vast part of literature is focused on developing and emerging economies (e.g.
Pistor et al., 2000; Ramamurti, 2000; Banerjee and Munger, 2004; Nellis,
2005; Roberts and Saeed, 2012).
This paper contributes to the literature in two ways; firstly, by using a
broader concept than those indicators used previously to represent the regula-
tory and institutional environment, namely governance. It represents the tradi-
tions and institutions by which authority in a country is exercised and
additionally it takes into account economic, political and social factors (Kauf-
mann et al., 2010).
Secondly, to the best of our knowledge, this study is the first attempt in
analysing whether governance affects privatisations in the European context.
Only Adams and Mengistu (2008) suggested governance infrastructure is one
of the key determinants of privatisation, but they are focused on Sub-Saharan
Africa over the years 1991–2002. Our research deals with a sample of Euro-
pean countries, and also serves as an update to the period of analysis (2002–
2013).
1
Although the European Commission ruled that privatisation receipts cannot be taken
into account when calculating deficits, such receipts can be used to reduce public debt, which
is another criteria of the Maastricht Treaty; a decrease in public debt reduces interest pay-
ments, and therefore, the budget deficit is indirectly lower (Parker, 1999).
480 NOEM
IPE~
NA-MIGUEL AND BEATRIZ CUADRADO-BALLESTEROS
Scottish Journal of Political Economy
©2018 Scottish Economic Society
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