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PRIVATIZATION?





    After Javier Milei's victory in the Argentine presidential elections, one of the first measures he announced was to privatize public and semi-public companies. The objective pursued is twofold:  improve the management of these companies and obtain funds for the state. A massive privatization of public companies is usually accompanied by other economic measures classified as “liberal”.


We are going to analyze two privatization processes. Both made in the last 40 years. One of them can be described as successful and the other was a failure.

Margaret Thatcher won the general election in 1979. He remained in power until 1990. His economic policy was based on the deregulation of the financial sector, the flexibility of the labor market, the reduction of the power of unions, tax cuts, the fight against inflation and the privatization of public companies. In addition, he sold numerous public housing units. The effects were mixed:  the privatization of water, gas, electricity, etc. distribution companies did not imply an increase in competition, but it did imply an improvement in the prices offered to consumers. Opinions are not unanimous, but it is considered that privatization together with financial deregulation produced great economic growth. On the other hand, there is unanimity that the privatization of British Rail    - carried out during the mandate of his successor, John Major - was a disaster. On the negative side, highlight the increase in social inequalities in the country and what some have described as the adoption of “casino capitalism.”

 

  The second process is the Russian one. After the fall of the Soviet Union, and its fragmentation, a privatization process that began during the mandate of Mikhail Gorbachev culminated. The first big wave was done through “vouchers”. Citizens received “vouchers,” which represented company shares. A disproportionate proportion ended up in the hands of the managers of these companies; Furthermore, since the workers received “vouchers” from the companies in which they worked, the managers were able to pressure them to sell them to them. The result was an accumulation of the capital of these companies in the hands of the former managers from the Soviet era, who became the new owners. A second batch of companies - the most important ones - were sold at auctions at very low prices to oligarchs well connected to the regime. The effect that these privatization processes had on the economy was not positive:  ownership was concentrated in a few hands; The owners, aware of the legal uncertainty in the country - of which they had been some of the main beneficiaries - carried out various maneuvers to transfer a good part of the assets abroad, harming the companies and the economy.


We can, therefore, conclude that for a privatization process to be successful, it is necessary:


a)     A robust state endowed with legal security, to ensure that the privatization process is not exposed to corruption, fraud, etc…

b)    That only those companies whose privatization makes sense be privatized. Privatizing British Rail was not wise.

c)     Privatization of public companies alone does not solve a country's economic problems.

The process needs to be accompanied by measures to improve the country's competitiveness, etc...



The H&B team.

 

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