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FOR THE ISSUES OF THE STATE OWNERSHIP AND PHENOMENON OF PRIVATIZATION

FOR THE ISSUES OF THE STATE OWNERSHIP AND PHENOMENON OF PRIVATIZATION
Varshanidze Tamta, докторант

Батумский государственный университет им. Ш. Руставели, Грузия

Участник конференции

UDC 334+338.02+338.3
 
The present paper outlines privatization, especially in transitional and developing economies, is seen as fundamentally unfair both in conception and execution, and it is widely and increasingly unpopular  in spite of the fact that most technical assessments classify privatization as a success. The paper sets out a simple framework for assessing the equity and efficiency gains from privatization, and for understanding any tradeoff between the two. The paper then reviews what is known about the distributional effects of privatization, focusing on changes in asset ownership, employment and returns to labor, access to and prices of utility and infrastructure services, and the selling government’s fiscal position. The author concludes, that many privatization programs have worsened the distribution of assets and income, at least in the short-run. This is more evident in transitional economies than in provinces country. It is less clear for utilities such as electricity and telecommunications – where privatization has resulted in greatly increased access for the poor – than for banks, oil companies and other natural resource producers, where the benefits have been concentrated.
Keywords: State ownership, market economy, private ownership, privatization, pass into ownership, economy, economic policy, business, privately-owned company.
 
It is known, that ownership structure is widely accepted in the finance and economics literature as an instrumental determinant of firm performance. What results does the State ownership bring for economy of country? We may discussion the impact of state ownership on performance differences in privately-owned versus state-owned banking system assay sample. For  example, a  specific feature of  ownership structure that has received much attention is how insiders versus outsiders can  affect a firm’s  performance. In addition to insider versus outsider stock  ownership, another important dimension of ownership structure is state or public ownership versus private ownership structure.
As an American Economist and Professor of Economics at Harvard University Andrei Shleifer in his work on the economics of transition points out, “private ownership should generally be preferred to pu blic ownership when incentives to innovate and  to contain costs  are strong, and especially when competition between suppliers, reputational mechanisms, and the possibility of provision by private not-for-profit firms,  as well as political patronage and corruption, are brought into play.  There  may  be  some situations in which private ownership is not  optimal” [1, pp. 107-108]. An American Economist concludes, that state ownership of banks tends to be associated with more poorly developed banks, nonbanks, and securities markets. As an American Economist and Professor of Finance at the University of Chicago Booth School of Business Robert Ward Vishny explains, that “monopoly power, externalities, or distributional issues can  raise concerns that private ownership may  not  be in the  best interests of all parties served” [2, pp. 40-41]. He argues, that private firms with large investors might underprovide quality or otherwise shortchange the firm’s stakeholders because of their single-minded focus on profits, and a publicly spirited politician can then improve efficiency by controlling the decisions of firms.
Here it needs to be noticed, that in few studies of the benefits of state ownership have the efficiency arguments for state ownership been supported. In contrast, most studies have found that state-owned firms do not  better serve the public interest and,  in fact,  that state-owned firms are  typically extremely inefficient. The conclusion from these studies is  generally that state-owned companies’ disregard of social objectives combined with their extreme inefficiency is inconsistent with the idea that state ownership can  lead to  performance efficiency that profit maximizing privately-owned firms cannot achieve. Additionally, political bureaucrats often have goals that are in conflict with social welfare improvements  but  are   dictated by  political interests. An American Economist and Professor of Finance at the PHD University of Chicago Kathryn Deventer finds, that “public offerings of stock by state-owned companies are significantly more underpriced than public offerings of stock by privately-owned companies, and the underpricing in the less developed capital markets is consistent with various political objectives of government officials rather than social welfare maximization” [3, pp. 71-72]. Using  country-level data, she finds  that higher state ownership of firms is associated with slower subsequent financial development and lower economic growth for  a sample of  several countries. Kathryn Deventer provides evidence that when governments convert state-owned firms to privately-owned firms via public share offerings, they underprice share issue privatization offers, allocate the shares to favored domestic investors, impose control restrictions on privatized firms, and typically use fixed price offers rather than competitive tender offers, all to further political and economic policy objectives. In  addition to  papers that examine state ownership versus private ownership in  nonfinancial industries, more recent papers investigate the impact of government ownership in the banking industry. 
From the point of An American Economist and Professor of Finance at the Kellogg School of Management and Northwestern University Paola Sapienza “the party affiliation of state-owned banks’ chairpersons in reality has a positive impact on the interest rate discount given by state-owned banks in provinces where the associated party is stronger” [4. pp. 56-57]. The empirical results of her works indicate, that government-owned banks increase their lending in election years relative to private banks in major emerging markets in contemporary world, and these actions are  influenced by political motivations other than differences between privately-owned banks and government-owned banks in efficiency. An American Economist finds,  that failing banks are  much less  likely  to be  taken over  by  the government or  to  lose  their licenses before elections than after. 
Thus, we examine how government ownership and government involvement in a country’s banking system affect bank performance. We find  that state-owned banks closed the gap  with privately-owned banks on  cash flow  returns, core  capital, and nonperforming loans in  the post-crisis period. In addition, our  results on  banks’ holding of government securities corroborate and extend our findings and suggest that state-owned banks finance the government to  a greater degree than do privately-owned banks in countries where the government is involved heavily in the banking system. Both  theories attribute the inferior performance of state-owned banks to  the perverse incentives of political bureaucrats who manage or  influence the operation of  state-owned  banks. The  changing patterns  of  the performance differences between state-owned and privately-owned banks of a regulation-induced  banking crisis. In addition, our  result that state-owned banks had similar performance to  privately-owned banks in the post-crisis period is consistent with the implication of life-cycle model that increasing globalization of financial services competition may have the salutary effect of disciplining inefficient regulators and improving the performance of state-owned banks. We  acknowledge that our  findings could be consistent with other explanations as well.  For example,  state-owned banks may be  more exposed to  a different set  of firms such as local  or small firms that got  hit  harder by the crisis in banking system. It is also  possible that subsidies to  poor individuals or to  particular sectors may have been  funneled through  government  banks to   improve  social welfare. Although our research cannot completely rule out  these possibilities, our  findings that the performance gap  between state-owned and privately-owned banks is greater for the countries with less  economic freedom in  the banking sector, and state-owned banks finance the government to  a greater degree than do privately-owned banks in countries where the government is involved heavily in the banking system, are  more consistent with the agency-cost explanations.
Here it is interesting for us the issues of the economic and social impact of privatization of state-owned enterprises in world economy. Defining privatization has turned out, in the literature, not to be as simple as the concept appears to be. To Gerard J. van den Berg, Doctor of Economy, Professor of University of Mannheim, “the concept of privatization is a lot more complicated than the selling of state-owned enterprises, the more so as there is no clean dichotomy between public and private sectors, and no nicely homogenous area of economic activity separated by a clear frontier” [5, pp. 701-702]. Rather, to him, every economic activity is a blend of public and private elements, each of which is itself more or less ‘impure’. Others have viewed the concept in a similar vein: as having predictably become a problem; a fuzzy concept that evokes sharp political reactions; a term used to convey a variety of ideas, and as an umbrella term covering a number of government microeconomic policies. And  a Professor of Economics and former Director-General of the Nigerian Centre for Economic Management and Administration Mike I. Obadan considers privatization in terms of change in the role, responsibilities, priorities and authority of the state, rather than narrowly to denote change of ownership. “The difficulties implied by these perspectives notwithstanding, it is possible to delineate two lines of definitions of privatization: the broad definition and the narrow definition” [6, pp. 54-55]. Accordingly, privatization, in a broad sense, refers to all policy initiatives and measures designed to alter the balance between public and private sectors in favor of the latter and hence strengthen or broaden the scope of private sector activity in the economy. The broadening of the private sector’s role implies the reduction or elimination of the public sector’s role in economic activity. The policies and actions of the government range from denationalization, divestiture to leasing and franchising, to deregulation and liberalization.
Accordingly, the following are considered as privatization under the broad perspective: 
- Sale of a public enterprise in full to private buyers, or introduction of private capital into the public enterprise either through a sale of some government equity or in the course of its expansion. The larger the private equity proposition, the greater the privatization; 
- Privatizing the management of state activities through contracts. Management of contracts involve the use of management expertise from the private sector to manage government entities through the payment of a fee; 
- Transferring of the provision of a good or service from the public to the private sector while the government retains the ultimate responsibility for supplying the service; for example, franchising or contracting out of public service and leasing of public assets. The contracting out of activities is often seen as likely to provoke less opposition than the sale of assets, and it may yield equal or greater outcomes/returns; 
- Build-operate-transfer or build-own-operate system. This is one method used for new projects, which are normally undertaken by the public sector, such as infrastructure projects and public utilities. Under this method, the public facility concerned is built by private-sector firms using their own resources and is run by them under a period of concession; 
- Liberalization or deregulation of entry into an activity previously restricted to public enterprises. The removal of restrictions implied by this is to allow private operators to compete in sectors that have been the exclusive domain of public enterprises. To the extent that private enterprises are successful in entering the hitherto protected markets, a variant of privatization would have occurred, even though no transfer of ownership of assets had been involved [6. pp. 41-44]. 
It is best known for us, that governments all over the world were confronted in the up to this date by the problems inherent in state ownership. Because state-owned companies have no profit motive, they lack the incentive that private companies have to produce goods that consumers want and to do so at low cost. An additional problem is that state companies often supply their products and services without direct charges to consumers. Therefore, even if they want to satisfy consumer demands, they have no way of knowing what consumers want, because consumers indicate their preferences most clearly by their purchases. The result is misallocation of resources. Management tends to respond to political, rather than to commercial, pressures. The capital assets of state businesses are often of poor quality because, it is claimed, it is always easier for governments to attend to more urgent claims on limited resources than the renewal of capital equipment. In the absence of any effective pressure from consumers whose money is taken in taxation, state industries tend to be dominated by producer interests.
As a British researcher, president of the Adam Smith Institute in London Duncan Madsen Pirie points out, “the government "bid" for the support of virtually every group that might have objected. This pattern was to be repeated and refined in subsequent privatizations. The local government could take this tack because the private sector performed so much better than the state sector that the gains could be shared among many groups while still leaving a huge bonus for the government. Not only were subsidized losses converted into taxable profits, but the revenue from the sales accrued to the public treasury” [7, pp. 80-81]; the policy of identifying and satisfying various groups made privatization a popular strategy, and a difficult one for subsequent governments to reverse.  As an American libertarian Economist John C. Goodman points out, “the state privatization of nearly four dozen major businesses and several hundred small ones set an example not only of the techniques that could be used, but also of the success that could be anticipated. The formerly underachieving state-owned  industries outperformed the market average once they entered the private sector. With the exception of the oil businesses, which were marketed to professional investors because of their high-risk nature, the privatized stocks rose in value faster than the stock market average, as shown by periodic surveys in state Financial Times and Privatization International” [8. pp. 314-315]. For this reason the formerly socialist economies found themselves forced to blaze a new trail of privatization, sometimes using the distribution of "coupons" to the population as a means of spreading ownership. Very often some degree of "informal" privatization was permitted, in which management effectively expropriated what had been state property. 
At present, hardly a country in the world did not have a privatization program. Many countries learned from the experience of the early leaders. These included the techniques of writing off past debts, splitting monopolies into competing elements, and establishing new regulatory agencies to calm public fears about the behavior of the newly privatized operations. From the point of a Canadian Economist, the founder of the Fraser Institute Michael Walker, “by restoring market incentives and commercial reality, privatization achieved a worldwide reinvigoration of ailing state-owned industries. It diverted billions of dollars from the support of loss-making government concerns into the expansion of wealth-creating private businesses. It augmented growth rates and made tax reductions possible” [9, pp. 89-90]. It went from one of the highest-taxed countries to one of the lowest. Privatization contributed, in large measure, to the revival of confidence in capitalism and the market economy, evidenced by the large number of countries which turned in that direction, and to its eventual triumph over the rival system of central planning and state ownership.
Reasoning from the previously mentioned we conclude with three points regarding future policy of privatization of firms producing goods and services sold in competitive markets has not posed a distributional problem, even in low-income countries. This form of divestiture generally opens the way for small and medium businesses to thrive. All developing and transitional countries should move forward and conclude this sort of divestiture. Second, privatization’s distributional record even in infrastructure is not as bad as popularly thought. Where attention has been given to creating the right regulatory framework, these transactions have led to increased access, especially for the poor. Our third, admittedly less concrete point is that selling governments can and should do more in their privatization programs to maximize the potential distributional gains. We believe it is desirable and possible for governments - and those that assist them – to design and implement privatization to obtain gains in both distributional and efficiency terms. It is folly to dismiss equity problems as an unavoidable, temporary price to be paid for putting assets back to productive use. Equity can be enhanced without harm to efficiency; indeed, short-term attention to equity concerns can boost medium-term efficiency. Societies might reasonably choose an initially less efficiency-oriented approach, in order to diminish long-run risks to efficiency and growth that initial resulting inequities would undermine (through corruption or rent-seeking, for example). Minimizing the sometimes real unfairness produced by privatization and just as important – countering the misperception that privatization is always and inevitably unfair, is worthwhile, so as to preserve the political possibility of deepening and extending reforms. In the end, a democratic government cannot implement reform when masses of people are in the streets attacking that reform and, of course, no government can enact reform if it is not in power.
 
References:
  • 1. Shleifer Andrei, The Effect of international Institutional Factors on Properties of Accounting Earninigs,  New York, “Abbeville Press”, 2000  (In English).
  • 2. Vishny Robert Ward, Ownership Structure and Voting on Antitakeover Amendments, 4th Edittion, Cambridge-shire, “Cambridge University Press”, 2004 (In English).
  • 3. Dewenter Kathryn, Public Offerings of State-Owned and Privately Enterprises: an International Comparison, Journal “Finance”, №9 (October), San Francisco, Published by Editing House “Ignatius Press”, 2002 (In English).
  • 4. Sapienza Paola, State-owned and Privately-owned Firms: an Empirical Analysis of Profitability, leverage and Labor Intensity, International Series in “Operations Research & Management Science”, Boston, “Kluwer Academic Publishers”, 2001 (In English). 
  • 5. Gerard J. van den Berg, The Impact of Early Life Economic Conditions on Cause-Specific Mortality during Adulthood, Institute for the Study of Labor, Bonn, Published in: Journal of Population Economics, №27 (3), 2014 (In English).
  • 6. Obadan Mike I., The Economic and Social Impact of Privitization of State-owned Enterprises in Africa, Senegal, Publisher “Codesria”, 2008 (In English).
  • 7. Pirie, Madsen. Privatization: Theory, Practice and Choice // The Manual on Privatization, Detroit, publisher “Wildwood House”, 1999 (In English).
  • 8. Goodman, John C., Privatization, Dallas, publisher, “National Center for Policy Analysis”, 1995 (In English).
9. Walker, Michael, Privatization: Tactics and Techniques, the Third Edition, Vancouver, Publisher “Fraser Institute”, 2006 (In English).UDC 334+338.02+338.3
 
The present paper outlines privatization, especially in transitional and developing economies, is seen as fundamentally unfair both in conception and execution, and it is widely and increasingly unpopular  in spite of the fact that most technical assessments classify privatization as a success. The paper sets out a simple framework for assessing the equity and efficiency gains from privatization, and for understanding any tradeoff between the two. The paper then reviews what is known about the distributional effects of privatization, focusing on changes in asset ownership, employment and returns to labor, access to and prices of utility and infrastructure services, and the selling government’s fiscal position. The author concludes, that many privatization programs have worsened the distribution of assets and income, at least in the short-run. This is more evident in transitional economies than in provinces country. It is less clear for utilities such as electricity and telecommunications – where privatization has resulted in greatly increased access for the poor – than for banks, oil companies and other natural resource producers, where the benefits have been concentrated.
Keywords: State ownership, market economy, private ownership, privatization, pass into ownership, economy, economic policy, business, privately-owned company.
 
It is known, that ownership structure is widely accepted in the finance and economics literature as an instrumental determinant of firm performance. What results does the State ownership bring for economy of country? We may discussion the impact of state ownership on performance differences in privately-owned versus state-owned banking system assay sample. For  example, a  specific feature of  ownership structure that has received much attention is how insiders versus outsiders can  affect a firm’s  performance. In addition to insider versus outsider stock  ownership, another important dimension of ownership structure is state or public ownership versus private ownership structure.
As an American Economist and Professor of Economics at Harvard University Andrei Shleifer in his work on the economics of transition points out, “private ownership should generally be preferred to pu blic ownership when incentives to innovate and  to contain costs  are strong, and especially when competition between suppliers, reputational mechanisms, and the possibility of provision by private not-for-profit firms,  as well as political patronage and corruption, are brought into play.  There  may  be  some situations in which private ownership is not  optimal” [1, pp. 107-108]. An American Economist concludes, that state ownership of banks tends to be associated with more poorly developed banks, nonbanks, and securities markets. As an American Economist and Professor of Finance at the University of Chicago Booth School of Business Robert Ward Vishny explains, that “monopoly power, externalities, or distributional issues can  raise concerns that private ownership may  not  be in the  best interests of all parties served” [2, pp. 40-41]. He argues, that private firms with large investors might underprovide quality or otherwise shortchange the firm’s stakeholders because of their single-minded focus on profits, and a publicly spirited politician can then improve efficiency by controlling the decisions of firms.
Here it needs to be noticed, that in few studies of the benefits of state ownership have the efficiency arguments for state ownership been supported. In contrast, most studies have found that state-owned firms do not  better serve the public interest and,  in fact,  that state-owned firms are  typically extremely inefficient. The conclusion from these studies is  generally that state-owned companies’ disregard of social objectives combined with their extreme inefficiency is inconsistent with the idea that state ownership can  lead to  performance efficiency that profit maximizing privately-owned firms cannot achieve. Additionally, political bureaucrats often have goals that are in conflict with social welfare improvements  but  are   dictated by  political interests. An American Economist and Professor of Finance at the PHD University of Chicago Kathryn Deventer finds, that “public offerings of stock by state-owned companies are significantly more underpriced than public offerings of stock by privately-owned companies, and the underpricing in the less developed capital markets is consistent with various political objectives of government officials rather than social welfare maximization” [3, pp. 71-72]. Using  country-level data, she finds  that higher state ownership of firms is associated with slower subsequent financial development and lower economic growth for  a sample of  several countries. Kathryn Deventer provides evidence that when governments convert state-owned firms to privately-owned firms via public share offerings, they underprice share issue privatization offers, allocate the shares to favored domestic investors, impose control restrictions on privatized firms, and typically use fixed price offers rather than competitive tender offers, all to further political and economic policy objectives. In  addition to  papers that examine state ownership versus private ownership in  nonfinancial industries, more recent papers investigate the impact of government ownership in the banking industry. 
From the point of An American Economist and Professor of Finance at the Kellogg School of Management and Northwestern University Paola Sapienza “the party affiliation of state-owned banks’ chairpersons in reality has a positive impact on the interest rate discount given by state-owned banks in provinces where the associated party is stronger” [4. pp. 56-57]. The empirical results of her works indicate, that government-owned banks increase their lending in election years relative to private banks in major emerging markets in contemporary world, and these actions are  influenced by political motivations other than differences between privately-owned banks and government-owned banks in efficiency. An American Economist finds,  that failing banks are  much less  likely  to be  taken over  by  the government or  to  lose  their licenses before elections than after. 
Thus, we examine how government ownership and government involvement in a country’s banking system affect bank performance. We find  that state-owned banks closed the gap  with privately-owned banks on  cash flow  returns, core  capital, and nonperforming loans in  the post-crisis period. In addition, our  results on  banks’ holding of government securities corroborate and extend our findings and suggest that state-owned banks finance the government to  a greater degree than do privately-owned banks in countries where the government is involved heavily in the banking system. Both  theories attribute the inferior performance of state-owned banks to  the perverse incentives of political bureaucrats who manage or  influence the operation of  state-owned  banks. The  changing patterns  of  the performance differences between state-owned and privately-owned banks of a regulation-induced  banking crisis. In addition, our  result that state-owned banks had similar performance to  privately-owned banks in the post-crisis period is consistent with the implication of life-cycle model that increasing globalization of financial services competition may have the salutary effect of disciplining inefficient regulators and improving the performance of state-owned banks. We  acknowledge that our  findings could be consistent with other explanations as well.  For example,  state-owned banks may be  more exposed to  a different set  of firms such as local  or small firms that got  hit  harder by the crisis in banking system. It is also  possible that subsidies to  poor individuals or to  particular sectors may have been  funneled through  government  banks to   improve  social welfare. Although our research cannot completely rule out  these possibilities, our  findings that the performance gap  between state-owned and privately-owned banks is greater for the countries with less  economic freedom in  the banking sector, and state-owned banks finance the government to  a greater degree than do privately-owned banks in countries where the government is involved heavily in the banking system, are  more consistent with the agency-cost explanations.
Here it is interesting for us the issues of the economic and social impact of privatization of state-owned enterprises in world economy. Defining privatization has turned out, in the literature, not to be as simple as the concept appears to be. To Gerard J. van den Berg, Doctor of Economy, Professor of University of Mannheim, “the concept of privatization is a lot more complicated than the selling of state-owned enterprises, the more so as there is no clean dichotomy between public and private sectors, and no nicely homogenous area of economic activity separated by a clear frontier” [5, pp. 701-702]. Rather, to him, every economic activity is a blend of public and private elements, each of which is itself more or less ‘impure’. Others have viewed the concept in a similar vein: as having predictably become a problem; a fuzzy concept that evokes sharp political reactions; a term used to convey a variety of ideas, and as an umbrella term covering a number of government microeconomic policies. And  a Professor of Economics and former Director-General of the Nigerian Centre for Economic Management and Administration Mike I. Obadan considers privatization in terms of change in the role, responsibilities, priorities and authority of the state, rather than narrowly to denote change of ownership. “The difficulties implied by these perspectives notwithstanding, it is possible to delineate two lines of definitions of privatization: the broad definition and the narrow definition” [6, pp. 54-55]. Accordingly, privatization, in a broad sense, refers to all policy initiatives and measures designed to alter the balance between public and private sectors in favor of the latter and hence strengthen or broaden the scope of private sector activity in the economy. The broadening of the private sector’s role implies the reduction or elimination of the public sector’s role in economic activity. The policies and actions of the government range from denationalization, divestiture to leasing and franchising, to deregulation and liberalization.
Accordingly, the following are considered as privatization under the broad perspective: 
- Sale of a public enterprise in full to private buyers, or introduction of private capital into the public enterprise either through a sale of some government equity or in the course of its expansion. The larger the private equity proposition, the greater the privatization; 
- Privatizing the management of state activities through contracts. Management of contracts involve the use of management expertise from the private sector to manage government entities through the payment of a fee; 
- Transferring of the provision of a good or service from the public to the private sector while the government retains the ultimate responsibility for supplying the service; for example, franchising or contracting out of public service and leasing of public assets. The contracting out of activities is often seen as likely to provoke less opposition than the sale of assets, and it may yield equal or greater outcomes/returns; 
- Build-operate-transfer or build-own-operate system. This is one method used for new projects, which are normally undertaken by the public sector, such as infrastructure projects and public utilities. Under this method, the public facility concerned is built by private-sector firms using their own resources and is run by them under a period of concession; 
- Liberalization or deregulation of entry into an activity previously restricted to public enterprises. The removal of restrictions implied by this is to allow private operators to compete in sectors that have been the exclusive domain of public enterprises. To the extent that private enterprises are successful in entering the hitherto protected markets, a variant of privatization would have occurred, even though no transfer of ownership of assets had been involved [6. pp. 41-44]. 
It is best known for us, that governments all over the world were confronted in the up to this date by the problems inherent in state ownership. Because state-owned companies have no profit motive, they lack the incentive that private companies have to produce goods that consumers want and to do so at low cost. An additional problem is that state companies often supply their products and services without direct charges to consumers. Therefore, even if they want to satisfy consumer demands, they have no way of knowing what consumers want, because consumers indicate their preferences most clearly by their purchases. The result is misallocation of resources. Management tends to respond to political, rather than to commercial, pressures. The capital assets of state businesses are often of poor quality because, it is claimed, it is always easier for governments to attend to more urgent claims on limited resources than the renewal of capital equipment. In the absence of any effective pressure from consumers whose money is taken in taxation, state industries tend to be dominated by producer interests.
As a British researcher, president of the Adam Smith Institute in London Duncan Madsen Pirie points out, “the government "bid" for the support of virtually every group that might have objected. This pattern was to be repeated and refined in subsequent privatizations. The local government could take this tack because the private sector performed so much better than the state sector that the gains could be shared among many groups while still leaving a huge bonus for the government. Not only were subsidized losses converted into taxable profits, but the revenue from the sales accrued to the public treasury” [7, pp. 80-81]; the policy of identifying and satisfying various groups made privatization a popular strategy, and a difficult one for subsequent governments to reverse.  As an American libertarian Economist John C. Goodman points out, “the state privatization of nearly four dozen major businesses and several hundred small ones set an example not only of the techniques that could be used, but also of the success that could be anticipated. The formerly underachieving state-owned  industries outperformed the market average once they entered the private sector. With the exception of the oil businesses, which were marketed to professional investors because of their high-risk nature, the privatized stocks rose in value faster than the stock market average, as shown by periodic surveys in state Financial Times and Privatization International” [8. pp. 314-315]. For this reason the formerly socialist economies found themselves forced to blaze a new trail of privatization, sometimes using the distribution of "coupons" to the population as a means of spreading ownership. Very often some degree of "informal" privatization was permitted, in which management effectively expropriated what had been state property. 
At present, hardly a country in the world did not have a privatization program. Many countries learned from the experience of the early leaders. These included the techniques of writing off past debts, splitting monopolies into competing elements, and establishing new regulatory agencies to calm public fears about the behavior of the newly privatized operations. From the point of a Canadian Economist, the founder of the Fraser Institute Michael Walker, “by restoring market incentives and commercial reality, privatization achieved a worldwide reinvigoration of ailing state-owned industries. It diverted billions of dollars from the support of loss-making government concerns into the expansion of wealth-creating private businesses. It augmented growth rates and made tax reductions possible” [9, pp. 89-90]. It went from one of the highest-taxed countries to one of the lowest. Privatization contributed, in large measure, to the revival of confidence in capitalism and the market economy, evidenced by the large number of countries which turned in that direction, and to its eventual triumph over the rival system of central planning and state ownership.
Reasoning from the previously mentioned we conclude with three points regarding future policy of privatization of firms producing goods and services sold in competitive markets has not posed a distributional problem, even in low-income countries. This form of divestiture generally opens the way for small and medium businesses to thrive. All developing and transitional countries should move forward and conclude this sort of divestiture. Second, privatization’s distributional record even in infrastructure is not as bad as popularly thought. Where attention has been given to creating the right regulatory framework, these transactions have led to increased access, especially for the poor. Our third, admittedly less concrete point is that selling governments can and should do more in their privatization programs to maximize the potential distributional gains. We believe it is desirable and possible for governments - and those that assist them – to design and implement privatization to obtain gains in both distributional and efficiency terms. It is folly to dismiss equity problems as an unavoidable, temporary price to be paid for putting assets back to productive use. Equity can be enhanced without harm to efficiency; indeed, short-term attention to equity concerns can boost medium-term efficiency. Societies might reasonably choose an initially less efficiency-oriented approach, in order to diminish long-run risks to efficiency and growth that initial resulting inequities would undermine (through corruption or rent-seeking, for example). Minimizing the sometimes real unfairness produced by privatization and just as important – countering the misperception that privatization is always and inevitably unfair, is worthwhile, so as to preserve the political possibility of deepening and extending reforms. In the end, a democratic government cannot implement reform when masses of people are in the streets attacking that reform and, of course, no government can enact reform if it is not in power.
 
References:
1. Shleifer Andrei, The Effect of international Institutional Factors on Properties of Accounting Earninigs,  New York, “Abbeville Press”, 2000  (In English).
2. Vishny Robert Ward, Ownership Structure and Voting on Antitakeover Amendments, 4th Edittion, Cambridge-shire, “Cambridge University Press”, 2004 (In English).
3. Dewenter Kathryn, Public Offerings of State-Owned and Privately Enterprises: an International Comparison, Journal “Finance”, №9 (October), San Francisco, Published by Editing House “Ignatius Press”, 2002 (In English).
4. Sapienza Paola, State-owned and Privately-owned Firms: an Empirical Analysis of Profitability, leverage and Labor Intensity, International Series in “Operations Research & Management Science”, Boston, “Kluwer Academic Publishers”, 2001 (In English). 
5. Gerard J. van den Berg, The Impact of Early Life Economic Conditions on Cause-Specific Mortality during Adulthood, Institute for the Study of Labor, Bonn, Published in: Journal of Population Economics, №27 (3), 2014 (In English).
6. Obadan Mike I., The Economic and Social Impact of Privitization of State-owned Enterprises in Africa, Senegal, Publisher “Codesria”, 2008 (In English).
7. Pirie, Madsen. Privatization: Theory, Practice and Choice // The Manual on Privatization, Detroit, publisher “Wildwood House”, 1999 (In English).
8. Goodman, John C., Privatization, Dallas, publisher, “National Center for Policy Analysis”, 1995 (In English).
9. Walker, Michael, Privatization: Tactics and Techniques, the Third Edition, Vancouver, Publisher “Fraser Institute”, 2006 (In English).
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