ASSESSING THE SOCIAL IMPACT OF PRIVATIZATION John Nellis Center for Global Development Washington, DC - PowerPoint PPT Presentation

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ASSESSING THE SOCIAL IMPACT OF PRIVATIZATION John Nellis Center for Global Development Washington, DC. MOST STUDIES RATE PRIVATIZATION A MICROECONOMIC SUCCESS. PROFITABILITY, EFFICIENCY & RETURNS TO SHAREHOLDERS GENERALLY INCREASE. MACROECONOMIC IMPACT POSITIVE (IMF).

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ASSESSING THE SOCIAL IMPACT OF PRIVATIZATION John NellisCenter for Global DevelopmentWashington, DC


Most studies rate privatization a microeconomic success l.jpg

MOST STUDIES RATE PRIVATIZATION A MICROECONOMIC SUCCESS


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PROFITABILITY, EFFICIENCY & RETURNS TO SHAREHOLDERS GENERALLY INCREASE


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MACROECONOMIC IMPACT POSITIVE (IMF)

  • Net proceeds = 2 % GDP; generally saved, not spent

  • Growth impact positive (?)

  • Good proxy for liberalizing reform

  • Financial flows to govt. often increase post-privatization


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Continuing debate on the extent ownership change--- or other factors--- explains performance improvements


Privatization highly increasingly unpopular in latin america south asia africa transition countries l.jpg

PRIVATIZATION HIGHLY & INCREASINGLY UNPOPULAR---- IN LATIN AMERICA, SOUTH ASIA, AFRICA & TRANSITION COUNTRIES


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Sri Lanka:Attitudes Towards Privatization (2000)


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IN RUSSIA, 2/3 INTERVIEWED: “LOST MORE THAN GAINED FROM PRIVATIZATION”2001; 1600 respondents; only 5 % said opposite


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PRINCIPAL SOCIAL CRITICISMS OF PRIVATIZATION:

  • UNFAIR IN CONCEPTION & DESIGN

  • BENEFITS RICH, FOREIGN & CORRUPT

  • INCREASES INEQUALITY & POVERTY


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QUESTIONS:

  • IS PRIVATIZATION INCREASING INEQUALITY?

  • IF SO, HOW & TO WHAT EXTENT? &

  • WHAT CAN & SHOULD BE DONE ABOUT IT?


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ISSUE UNDER REVIEW BY:

  • UNU/WIDER

  • IADB

  • CGD

  • WORLD BANK

  • INDEPENDENT SCHOLARS


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HOW MIGHT PRIVATIZATION AFFECT EQUALITY?

  • DISTRIBUTION OF ASSETS

  • EMPLOYMENT & RETURNS TO LABOR

  • ACCESS (COVERAGE) & PRICES

  • FISCAL POSITION & RESOURCE ALLOCATION OF GOVERNMENT


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MOST STUDIES CONCENTRATE ON EMPLOYMENT & ACCESS/PRICES


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MOST STUDIES FROM LAC

  • LARGE AMOUNT OF INFRASTRUCTURE PRIVATIZATION

  • HOUSEHOLD EXP. & CONSUMP. SURVEYS AVAILABLE

  • LARGE # OF LOCAL RESEARCHERS


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FEW ATTEMPT ‘FULL’ COUNTERFACTUAL

  • DATA LIMITATIONS

  • FEW & SIMPLE ASSUMPTIONS (e.g., no price changes)

  • RELIANCE ON ‘BREAK POINTS’ IN PREVIOUS TRENDS

  • HINT THAT ELABORATE COUNTERFACTUALS SOMEWHAT SUBJECTIVE


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M. Torero & A. Pasco-Font, “Social Impact of Privatization & Regulation of Utilities in Peru.” WIDER DP 2001/17D. Mckenzie & D. Mookherjee, “Distributive Impact of Privatization in Latin America: Evidence from Four Countries,” draft, BU, 2003J. A. Delfino & A. A. Casarin, “Reform of the Utilities Sector in Argentina,” WIDER DP 2001/74G. Barja & M. Urquiola, “Capitalization and Privatization in Bolivia: An Approximation to an Evaluation,” IADB-CGD paper, 2003


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MCKENZIE & MOOKHERJEE TRY TO:

  • MEASURE IMPACT ON ACCESS, PRICE & QUALITY

  • CALCULATE VALUE OF CHANGES FOR CONSUMERS ACROSS INCOME DECILES

  • MEASURE CONSEQUENCES FOR INEQUALITY & POVERTY


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Universe: 10 infrastructure privatizations in Argentina, Bolivia, Mexico, Nicaragua


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Use of surveys poses problems:

  • Report expenditure, not price info

  • Most limited to urban households

  • Limited number (2 – 4)


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Forces simplifying assumptions, e.g. :

  • Use aggregate price indices

  • Estimate demand elasticities

  • Assume rural responses match urban

  • Assume few observations yield trend

  • Assume laid off workers never re-employed (‘upper bound’)


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FINDINGS:

  • ACCESS UP IN ALL CASES

  • WATER, ELECTRICITY EXPANSION PARTICULARLY BENEFICIAL TO POOR

  • T-COMM EXPANSION TO MID-TOP OF DISTRIBUTION

  • PRICES UP IN 5 CASES, DOWN IN OTHER 5

  • SERVICE QUALITY IMPROVES MARKEDLY


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QUALITY SHIFT CAN BE VERY IMPORTANT

Argentina: infant mortality down 5 to 7 % in areas where water privatized

Poorer the area, greater the decline (up to 24%)

(Galiani, Gertler, Schargrodsky, 2002)


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WELFARE CHANGES:

  • Infrastructure costs small part of normal household budget---effects small

  • Value of access outweighs price increases

  • Water price rises neg. affect welfare---again, effects small


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IMPROVED ACCESS

  • Peru telecom+ 167 %

    electricity+ 33 %

  • Bolivia telecom+ 123 %

    electricity+ 2.7 %

    water+ 15 %

  • Argentina telecom+ 30 %

    electricity+ 11 %

    natural gas+ 30 %


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Figure 7

Department capitals: percentage of households that have access to telephone

services, by income quintile: 1989-1999

80.0

70.0

Highest income

60.0

50.0

40.0

30.0

Lowest income

20.0

10.0

0.0

1989

1994

1999

Year


Even when welfare poor consumers can do suffer e g ending illegal hook ups argentina l.jpg

EVEN WHEN WELFARE +,POOR CONSUMERS CAN & DO SUFFERE.G., ENDING ILLEGAL HOOK-UPS (Argentina)


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Ownership effects unlikely to effect bottom end of income distributionEmployment/consumer effects more important


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EMPLOYMENT:

EMPLOYEE #s DECLINEBEFORE & AFTER SALE

50 % loss rate in Argentina & Mexico


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SURVEY OF 308 PRIVATIZED FIRMS:EMPLOYMENT LOSS IN 79%EMPLOYMENT NEUTRAL OR GAIN IN 21%(Chong & Lopez-de-Silanes, 2002)


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EMPLOYMENT:

  • RETAINED EARN ABOUT SAME

  • WORK MORE HOURS; LESS SECURITY

  • MEN, YOUTH, BETTER EDUCATED THE WINNERS; WOMEN, THOSE > 45 THE LOSERS


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BUT…..•# DISMISSED SMALL % OF WORKFORCE •PRIVATIZATION NOT PRIME CAUSE OF HIGH POST-REFORM UNEMPLOYMENT


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FISCAL EFFECTS

  • Positive “flow of funds” (despite “underpricing”)

  • More from end of subsidies & new corporate taxes than from sales proceeds

  • Public debt down; social expenditures up in many cases

  • Privatization a fiscal opportunity


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CONCLUSION:IN SHORT RUN, PRIVATIZATION WORSENS DISTRIBUTION& HEIGHTENS PERCEPTION OF UNFAIRNESS


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SO WHAT?


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RISING INEQUALITY THE NECESSARY (HOPEFULLY TEMPORARY) PRICE TO PAY FOR PUTTING THE ECONOMY BACK TO WORK?


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• Wealth effects mainly important in transition economies •Income effects small & perhaps temporary•Increased access outweighs price increases


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• Poor sometimes primary beneficiaries•More often, all benefit;but upper deciles more than lower• General welfare increases, & inequality as well


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In best-studied Latin American cases…….

  • “…privatization has a very small effect on inequality…”

  • changes to Ginis 0.02 or less

  • “Privatization either reduces poverty or has no effect on it…..”


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SEVERELY NEGATIVE PUBLIC PERCEPTION NOT SUPPORTED BY EMPIRICAL ANALYSES


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