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Privatization in Latin America: The rapid rise, recent fall, and continuing puzzle of a contentious economic policy

1/1/04
John Nellis and Sarah Lucas
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In Latin America, privatization started earlier and spread farther and more rapidly than in almost any other part of the world. More firms, and larger ones, were sold and more proceeds were raised than in almost any other part of the world. Despite positive microeconomic results, privatization is highly and increasingly unpopular in the region. The core social criticism is that privatization contributes to growing poverty and inequality levels in Latin America—and anecdotal evidence supports the claim. But recent and rigorous studies paint another picture, concluding that privatization has contributed only slightly to rising unemployment and inequality and that it either reduces poverty or has no effect on it. These studies have yet to change the mind of opponents; while privatization may be winning the economic battle, it is losing the political war: The benefits are spread widely, small for each affected consumer or taxpayer, and occur (or accrue) in the medium term. In contrast, the costs are large for those concerned, who tend to be visible, vocal, urban, and organized—a potent political combination.We argue that the right policies and strengthened institutions can go a long way toward balancing efficiency gains with concerns about equity. This policy brief is a preview to the analysis and recommendations on privatization in the second edition of Washington Contentious: Economic Policies for Social Equity in Latin America, to be published in 2004 by the Center for Global Development and Inter-American Dialogue.

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