`Privatization' seems old hat, but the idea just won't go away
Boston — In today's turbulent financial market, ``privatization'' is a word that is beginning to seem as shopworn as sushi, yuppies, and Sean and Madonna. Around the world, the drive to get government out of the private sector suffered a serious setback when the market plunged last fall. Investors were hurt. Share offerings were halted.
``Anybody looking at privatization finds it a lot harder now,'' says Elliot Berg, an international economic development consultant in Alexandria, Va.
Potential shareholders are much more wary of what they are buying, he says. Fat revenues from the sale of government-owned assets are less likely. And the thinly capitalized markets of smaller countries are less able to absorb share offerings by governments.
``Now people know that privatization is not the be-all and end-all,'' Mr. Berg says. ``Oct. 19 brought that home.''
``Black Monday,'' Oct. 19, was when the stock market came unhinged.
``The stock market [plunge] had the effect of freezing things in place,'' notes Tom Miller, a policy analyst with the Competitive Enterprise Institute, a Washington, D.C., advocacy group.
But privatization is not going away, Mr. Miller says. In fact, with a presidential task force on United States government privatization due to report this spring, and with financial markets relatively buoyant again, privatization could see new life in the coming months.
As an international idea, privatization swept through the world during the 1980s. Led by Margaret Thatcher's Britain and Ronald Reagan's America, governments from Chile to Turkey have turned billions of dollars' worth of state-owned enterprises back to the public. They've done it primarily through share offerings.
This worked fine as long as the stock market was rising. The government could make nice money (the better to finance tax cuts) by selling into the booming market. Private citizens could own a rapidly appreciating slice of a solid company. ``Shareholder democracies'' could be promoted.
But when Black Monday hit, shares in recently privatized companies plunged along with all others. Investors (who, of course, are also voters in Western democracies) were hurt. And the potential revenue from share flotations shrank. Governments and investors quickly became more concerned with safety than with risk.
In the wake of the crash, many countries got cold feet about privatization. But that hesitancy now appears to be waning:
In late October, for instance, France put off the sale of Matra, the government-controlled arms and engineering giant, as well as the UAP insurance company. This week, however, after lining up a core of corporate buyers, France said it would finally go ahead with the Matra sale.
In Japan, despite dire warnings that the fragile stock market could be hurt, a big bloc of Nippon Telephone & Telegraph shares were floated in December. Investors snapped them up.
Britain got a disappointing response on its sale of the government stake in British Petroleum. Nevertheless, the sale proceeded.
Whatever the twists and turns in financial markets, says Keith Marsden, a Geneva-based consultant to the World Bank, privatization is here to stay.
``It is a shift based upon substantial disenchantment with excessive government involvement in economies,'' says Mr. Marsden, who has studied the salutary effect of deregulation and privatization on developing nations in Africa and Asia.
``We haven't reached the point where the pendulum is swinging back in the other direction yet,'' he says. ``The process may slow down. Governments may be more reluctant and may find the crashes of October an excuse not to privatize. But the fundamental need of economic privatization remains strong.''
Marsden does think that nations with thin but active stock exchanges (meaning, primarily, Asian countries) could find it more difficult to privatize at this time, since investors who play the market are skittish.
But in developing countries in Africa, he says, privatization most often is taking the form of a government sale to existing enterprises rather than to individuals. In such cases, a conservative business motive is involved, not shareholder speculation. Marsden expects the trend in these countries to continue.
Over the long run, neither privatization nor state-owned businesses will have the upper hand, development consultant Berg maintains.
``Divestiture has been mostly restricted to industrial countries,'' Berg says. ``Now it is clear that, with countries in all stages of development, you aren't necessarily going to see broad privatization. Efficiency is what is important, not a major way of dismantling the state.''
Free-enterprise advocate Miller sees two distinct motives for privatization. The first aims at generating revenue for the government; it must have a stock market boom to work. The second, however, is to create a more efficient provision for public services by getting government out of the business and promoting competition.
In the US, he notes, the second motive is the key to future privatization efforts. It remains a strong idea, he says, even if the stock market has problems.