Towards a stages theory approach to privatization
| Author | Maurice Odle |
| Date | 01 February 1993 |
| Published date | 01 February 1993 |
| DOI | http://doi.org/10.1002/pad.4230130103 |
PUBLIC ADMINISTRATION AND DEVELOPMENT, VOL. 13,17-35 (1993)
Towards a stages theory approach to privatization
MAURICE ODLE
United
Nations
SUMMARY
In analysing the path of optimal sequencing of privatizations by public administrations, it
is too simplistic to characterize the process as one in which in the early phase small state-owned
enterprises are disposed of and, in the later stage, the larger enterprises. Such
a
dichotomy
fails to capture fully the market failure elements, technological dimensions, sociological impera-
tives and political constraints that help to determine the choice and timing of enterprises
to be privatized. Rather, the privatization experience of the developing and developed coun-
tries, including the former centrally planned economies, can be eclectically analysed as traditio-
nal, transitional and transformation stages in an almost inexorable movement towards
a
pure
capitalist economy. In the traditional stage, countries have tended to privatize those enterprises
for which the private sector has an obvious comparative advantage. In the transitional stage,
the privatization programme includes certain important enterprises, which, despite a consider-
able amount of government subsidy
or
tariff protection, have performed ‘inefficiently’. In
the stage of transformation from a still basically mixed economy to
a
near pure capitalist
economy, there is privatization of the strategic enterprises. Although the stages approach
varies between countries, the above-mentioned sequencing allows for more effective cumulative
internalization of the learning experience.
INTRODUCTION
Within the last
10
years or
so,
there has been an explosion of privatizations, represent-
ing a revolutionary embracing of a paradigm, which placed more emphasis on the
market and individualist endeavour and less reliance on the government as
a
pro-
ductive agent. In search
of
this panacea, well over
1,500
privatizations,’ amounting
to approximately
$200
billion worth2
of
assets, have taken place in over
75
countries
(Goodman and Loveman, 1991) in the less developed countries (LDC), Central and
Eastern Europe (CEM) and the developed market economies (DME). This spate
of privatizations has been equally matched by a surge
of
writing on the phenomenon
and process of conversion
of
state-owned enterprises (SOE) into private sector enti-
ties. There has been a plethora of
books
and articles on the subject written by the
World Bank and other international consultants, the academic community, partici-
pants
of
various conferences and journalists of well-known newspapers and maga-
The author is Head of the Advisory and Training Services Branch, TCMDIDESD, United Nations,
New York 10017, USA. The views expressed in this paper should not necessarily be taken as reflecting
those of the United Nations Department of Social and Economic Development.
’
This figure does not include liquidations nor the many thousands ofvery small retail and service establish-
ments of
the
‘mom and
pop’
variety that have been auctioned
off
in Eastern Europe.
The number of countries actually approaches 90 now that the Soviet Union has dissolved into separate
members
of
the Commonwealth of Independent States.
027
1-2075/93/010017-19$14.50
0
1993
by John Wiley
&
Sons, Ltd.
18
M.
Odle
zines. The writings have typically described and analysed the scope of the privatization
process, related political and social constraints, methods and modalities of disposal,
the public revenue impact, the expected improvements in management and enterprise
performance and, in the case of the
CEE
countries, the extent to which privatization
furthers the marketing process.
In doing
so,
the writings have sometimes made reference to the issue of phases
in the privatization process. This reference to phases has tended to take two basic
forms. One is to divide a country’s privatization experience into discrete chronological
periods relating to occurrences
of
bouts or clusters of privatizations. Thus, for exam-
ple, Chile’s privatization has been described as occurring in four phases: 19741975;
1975-1983; 1985-1986; and 1986 to the present day.
A
second and related form
is to state that in the early phases of privatization mainly small enterprises were
disposed of, whereas in the later stages large enterprises were sold by the government.
This is the approach taken in describing the experience of Mexico, for example,
and the division of that country’s experience into the 1983-1985 and post-1988 per-
iods. In connection with the
CEE
countries, also, analysts have referred
to
the fact
that most of the sales that occurred at the beginning of the privatization process
were of very small retail and other service establishments and only later were larger
enterprises included.
However, in cases where authors have made reference to phases, it has usually
been
a
passing comment and not at all central to the basic theme of their essay.
The purpose of this paper, therefore,
is
to make a contribution towards developing
a
systematic approach to the issue
of
industrial sequencing during the privatization
process. Whereas comments by individual authors were on particular country exper-
iences, this paper attempts an integrated approach incorporating experiences across
countries and regions, stages of economic development and capitalist conversion,
industry size and complexity, and the appropriate degree of foreign investor involve-
ment.
OPTIMAL SEQUENCING
OF
INDUSTRIES TO BE PRIVATIZED
In
discussing the sequencing and timing of privatization of various industry groups,
I
propose utilizing a new stages typology to characterize the process: ‘traditional’,
‘transitional’ and ‘transformation’.
Traditional stage
The traditional stage relates to the privatizing of those enterprises which, before
the 1960s,
1
would have expected to invariably find only in the private sector. These
are ‘enterprises with a clear and long involvement with private sector encouragement’.
For such enterprises, the private sector traditionally had a comparative advantage
and the state only became involved because private sector entrepreneurship was
not forthcoming (owing to a shortage of capital) or an existing private sector enter-
prise was about to
go
out
of existence and a rescue act would save
a
number of
jobs. Such enterprises were usually in the manufacturing and services sector and
were small scale in nature. The addition
of
a large number
of
relatively small enter-
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