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The debate over privatization’s impact and utility continues to rage. In this working paper, John Nellis takes stock of 15 years of privatization in developing and post-communist countries, summarizing what is and is not known about the process. He shows why privatization has been employed and the amount that has occurred. Nellis finds that a surprisingly large amount of assets remain in state hands in less developed countries. He reports a generally positive impact on firms' financial and operational performance, the efficiency of resources employed, and returns to shareholders.
The broader fiscal, macroeconomic and welfare impacts of privatization are, more often than not, also positive. Outcomes tend to be less positive in infrastructure sectors and low-income, institutionally-weak states. In addition, Nellis considers the “disconnect” between the generally positive technical/economist assessments and the public’s hostility to privatization.
The paper concludes with a discussion of the overall impact of privatization efforts and the outlook for the road ahead. “A major question is whether this time around the governments and international financial institutions can learn the lessons of the past and jointly devise—and sell to the public—reform mechanisms that give incentives and comfort to reputable private investors, that create and sustain the policy and regulatory institutions that make governments competent and honest partners with the private operators, while at the same time protecting consumers, particularly the most disadvantaged, from abuse.”