Yes, Privatization Makes Us Better Off
“Private property creates for the individual a sphere in which he is free of the state. It sets limits to the operation of the authoritarian will. It allows other forces to arise side by side with and in opposition to political power.” –Ludwig von Mises
In Latin America, it is rare for an academic or public intellectual to argue in favor of privatization as an economic policy. Some have even claimed that the failure of “neoliberal” policies, especially privatizations, was the cause of the violent demonstrations in Chile last year. Is there any kind of evidence that supports this series of claims? Has privatization always failed?
Although it is not possible to definitively prove with data a causal relationship between the private and public sectors’ differences in incentives and their differences in profitability or efficiency, the academic literature shows that in many countries and sectors this type of economic policy has had successful results.
Privatization around the World
In Privatization in Mexico, Alberto Chong and Florencio López-de-Silanes show that in the Mexican case, privatization generated a 24 percent increase in the companies’ profitability. Although they explain that a small percentage of this increase was due to price increases (approximately 5 percent), these authors also point out that 64 percent was the result of an increase in productivity. Furthermore, in “The Effects of Privatization and Competitive Pressure on Firms’ Price-Cost Margins: Micro Evidence from Emerging Economies,” Jozef Konings, Patrick Van Cayseele, and Frederic Warzynski indicate that in Romania and Bulgaria hundreds of privatized companies experienced increases in their price-cost margins without a rise in the prices of their products.
Sunita Kikery and John Nellis in Privatization in Competiti
Article from Mises Wire