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ASSESSING THE SOCIAL IMPACT OF PRIVATIZATION John Nellis Center for Global Development Washington, DC

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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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slide1
ASSESSING THE SOCIAL IMPACT OF PRIVATIZATION John NellisCenter for Global DevelopmentWashington, DC
macroeconomic impact positive imf
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
continuing debate on the extent ownership change or other factors explains performance improvements
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
PRIVATIZATION HIGHLY & INCREASINGLY UNPOPULAR---- IN LATIN AMERICA, SOUTH ASIA, AFRICA & TRANSITION COUNTRIES
slide9
IN RUSSIA, 2/3 INTERVIEWED: “LOST MORE THAN GAINED FROM PRIVATIZATION”2001; 1600 respondents; only 5 % said opposite
principal social criticisms of privatization
PRINCIPAL SOCIAL CRITICISMS OF PRIVATIZATION:
  • UNFAIR IN CONCEPTION & DESIGN
  • BENEFITS RICH, FOREIGN & CORRUPT
  • INCREASES INEQUALITY & POVERTY
questions
QUESTIONS:
  • IS PRIVATIZATION INCREASING INEQUALITY?
  • IF SO, HOW & TO WHAT EXTENT? &
  • WHAT CAN & SHOULD BE DONE ABOUT IT?
issue under review by
ISSUE UNDER REVIEW BY:
  • UNU/WIDER
  • IADB
  • CGD
  • WORLD BANK
  • INDEPENDENT SCHOLARS
how might privatization affect equality
HOW MIGHT PRIVATIZATION AFFECT EQUALITY?
  • DISTRIBUTION OF ASSETS
  • EMPLOYMENT & RETURNS TO LABOR
  • ACCESS (COVERAGE) & PRICES
  • FISCAL POSITION & RESOURCE ALLOCATION OF GOVERNMENT
most studies from lac
MOST STUDIES FROM LAC
  • LARGE AMOUNT OF INFRASTRUCTURE PRIVATIZATION
  • HOUSEHOLD EXP. & CONSUMP. SURVEYS AVAILABLE
  • LARGE # OF LOCAL RESEARCHERS
few attempt full counterfactual
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
slide17
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
mckenzie mookherjee try to
MCKENZIE & MOOKHERJEE TRY TO:
  • MEASURE IMPACT ON ACCESS, PRICE & QUALITY
  • CALCULATE VALUE OF CHANGES FOR CONSUMERS ACROSS INCOME DECILES
  • MEASURE CONSEQUENCES FOR INEQUALITY & POVERTY
use of surveys poses problems
Use of surveys poses problems:
  • Report expenditure, not price info
  • Most limited to urban households
  • Limited number (2 – 4)
forces simplifying assumptions e g
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’)
findings
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
quality shift can be very important
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)

welfare changes
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
improved access
IMPROVED ACCESS
  • Peru telecom + 167 %

electricity + 33 %

  • Bolivia telecom + 123 %

electricity + 2.7 %

water + 15 %

  • Argentina telecom + 30 %

electricity + 11 %

natural gas + 30 %

slide26
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

slide29
Ownership effects unlikely to effect bottom end of income distributionEmployment/consumer effects more important
employment
EMPLOYMENT:

EMPLOYEE #s DECLINEBEFORE & AFTER SALE

50 % loss rate in Argentina & Mexico

slide31
SURVEY OF 308 PRIVATIZED FIRMS:EMPLOYMENT LOSS IN 79%EMPLOYMENT NEUTRAL OR GAIN IN 21%(Chong & Lopez-de-Silanes, 2002)
employment32
EMPLOYMENT:
  • RETAINED EARN ABOUT SAME
  • WORK MORE HOURS; LESS SECURITY
  • MEN, YOUTH, BETTER EDUCATED THE WINNERS; WOMEN, THOSE > 45 THE LOSERS
but dismissed small of workforce privatization not prime cause of high post reform unemployment
BUT…..• # DISMISSED SMALL % OF WORKFORCE • PRIVATIZATION NOT PRIME CAUSE OF HIGH POST-REFORM UNEMPLOYMENT
fiscal effects
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
conclusion in short run privatization worsens distribution heightens perception of unfairness
CONCLUSION:IN SHORT RUN, PRIVATIZATION WORSENS DISTRIBUTION& HEIGHTENS PERCEPTION OF UNFAIRNESS
slide37
RISING INEQUALITY THE NECESSARY (HOPEFULLY TEMPORARY) PRICE TO PAY FOR PUTTING THE ECONOMY BACK TO WORK?
slide38
• Wealth effects mainly important in transition economies • Income effects small & perhaps temporary• Increased access outweighs price increases
slide39
• Poor sometimes primary beneficiaries• More often, all benefit; but upper deciles more than lower• General welfare increases, & inequality as well
in best studied latin american cases
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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