Promoting privatization in developing countries
By Jomo Kwame Sundaram
After discrediting stateowned
enterprises, privatization
advocates successfully
pushed a broad reform agenda
under the rubric of privatization
from the 1980s, with
the support of the Washingtonbased
international financial
institutions.
KUALA LUMPUR, Malaysia,
March 12, 2019 (IPS) — Privatization
has been central
to the ‘neo-liberal’ counterrevolution
from the 1970s
against government economic
interventions associated with
Roosevelt and Keynes as well
as post-colonial state-led economic
development.
Many developing countries
were forced to accept privatization
policies as a condition
for credit or loan support from
the World Bank and other
international financial institutions,
especially after the fiscal
and debt crises of the early
1980s. Other countries voluntarily
embraced privatization,
often on the pretext of fiscal
and debt constraints, in their
efforts to mimic new Anglo-
American criteria of economic
progress.
Demonizing SOEs
Globally, inflation was
attributed to excessive government
intervention, public sector
expansion and state-owned
enterprise (SOE) inefficiency.
It was claimed, with uneven
and dubious evidence, that
SOEs were inherently likely to
be inefficient, corrupt, subject
to abuse, and so on.
In the 1970s, the motives
of many involved in the preceding
public sector expansion
— enabled by high commodity
prices and earnings as well as
low real interest rates due to
easy credit, with the need to
‘recycle petro-dollars’ (invest
revenues from petroleum
exports) — were developmental
and noble.
Regardless of their original
rationale or intent, many SOEs
become problematic and often
inefficient. Yet, privatization is
not, and has never been a universal
panacea for the myriad
problems faced by SOEs.
Only more pragmatic and
appropriate approaches — recognizing
their origins, roles,
functioning, impacts and problems
— can realistically expect
to address and overcome the
burdens they have come to
impose on many developing
economies.
Various meanings
Privatization usually refers
to a change of ownership from
public to private hands. Over
recent decades, the term has
been used more loosely. For
example, it may only involve
minority private ownership
after the corporatization of an
SOE, and the sale of a minority
share of its stock, or even
a majority share with control
remaining in state hands by
various means such as the use
of a ‘golden share.’
It sometimes also refers to
contracting out services previously
undertaken solely by
the government. The definition
may include cases where
private enterprises are awarded
licenses to participate in
activities previously reserved
for the public sector.
Strictly speaking, however,
privatization involves the
transfer of at least a majority
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share of and a controlling
interest in a public enterprise
or SOE and its assets, or an
entity (such as a government
department, a statutory body
or a government company)
previously controlled and typically
at least majority-owned
by the government, either
directly or indirectly.
Mainstreaming
privatization
Following the oil price
shocks of the mid- and late
1970s, inflation spread
through much of the world.
US President Jimmy Carter
appointed Paul Volcker as
Chairman of the US Federal
Reserve in 1980. The US Fed
sharply raised interest rates to
stem inflation, which precipitated
the fiscal and debt crises
of the early 1980s in many
parts of the world, especially
in Latin America, Africa and
Eastern Europe.
The unexpected sovereign
debt crises forced many countries
to seek emergency financial
support from the International
Monetary Fund (IMF)
and the World Bank (WB),
both headquartered in Washington,
DC. The IMF provided
emergency credit facilities
requiring (price) stabilization
programmes to bring down
inflation, typically blamed on
‘deficit financing’ due to ‘macroeconomic
populism.’
Generally, the WB worked
closely to provide medium- and
long-term credit to these governments
on condition that
they adopted structural adjustment
programmes (SAPs). The
SAPs generally prescribed economic
globalization (especially
of international trade and
finance), national (or domestic)
deregulation and privatization.
Since then, these international
financial institutions
have been more powerful in
relation to developing countries
than ever before. Soon,
privatization became a standard
requirement of SAPs. Thus,
many governments of developing
countries were forced to
privatize by the SAPs’ loan
conditions.
Many other governments
voluntarily adopted such policies
which became standard
pillars of the emerging ‘Washington
Consensus’ associated
with the WB, the IMF and the
US policy consensus of the
1980s. Privatization in developing
countries was preceded
by the political ‘counter-revolution’
associated with the
rise and election of Margaret
Thatcher as the Prime Minister
of the United Kingdom and
Ronald Reagan as the President
of the United States of
America.
Jomo Kwame Sundaram, a
former economics professor,
was United Nations assistant
secretary-general for economic
development, and received
the Wassily Leontief Prize for
Advancing the Frontiers of
Economic Thought.
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Jomo Kwame Sundaram.
en network Masbia, which has
locations in Borough Park,
Flatbush, and Forest Hills;
Massage Outpost, a clinical
massage therapy studio with
locations in DUMBO, Greenpoint
and Williamsburg; and
Sweet Chick, a popular chicken
and waffles destination coowned
by Nas that has locations
in Prospect Heights and
Williamsburg.
Adams said each of these
entities provided free assistance
to some of the tens of
thousands of federal workers
who live in the New York City
metropolitan area during the
government shutdown, which
began in the holiday season
and stretched into the new
year.
Catholic Charities of
Brooklyn and Queens organized
a special food pantry with
thousands of dollars’ worth of
food for affected government
employees, Adams said.
He said Masbia gave out fliers
to Transportation Security
Administration (TSA) agents
at John F. Kennedy (JFK) and
LaGuardia airports, “letting
them know they could eat for
free and pick up groceries at
their pantries.”
Additionally, Massage Outpost
offered free one-hour
massages, and Sweet Chick
“cooked up free meals for government
workers who were
out of a paycheck,” Adams
said.
“The federal shutdown had
a deep impact on so many
Brooklynites, from residents
of NYCHA (New York City
Housing Authority) to food
stamp recipients, and it disrupted
everything from air
travel to tax collection,”
Adams said.
“Thankfully, a number of
groups stepped in with acts of
kindness, both big and small,
that really helped to fill the
gap and restore workers’ dignity,”
he added.
Continued from Page 3
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