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Opinion

It depends what you mean by privatization

Privatization has been one of the strongest oars rowing the boat of global economic liberalization. By David Roche.

Privatization has been one of the strongest oars rowing the boat of global economic liberalization.


In the last two years alone, the privatization sale of assets reached $53 billion in Europe, over $5 billion in the Americas and nearly $9 billion in Asia. In eastern Europe privatization helped push the transition from communism to capitalism. As output from the non-state sector soared to 55% of GDP, assets with an estimated economic value of $200 billion were returned to the people.


Worldwide, in most countries where state-owned enterprises (SOEs) had played a significant role, selling them off added between 0.5% and 3% to equity market capitalization, on average amounting to 0.7% of GDP.


In restructuring and emerging economies such as Hungary, Indonesia and Poland, as well as in developed European countries such as Denmark, France and Italy, where the state had been a big producer, the ratios were even higher. But these figures don't convey the real economic significance of privatization. That lies in its role as a catalyst for greater economic efficiency. And, as I'll argue, it is greater economic efficiency that is the long-term argument for creating investor wealth too.


But to understand that, first let's analyze the economic role of SOEs before privatization.





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