Methods of privatization.

Methods of privatization. Privatization privatization:see nationalization. privatizationTransfer of government services or assets to the private sector. State-owned assets may be sold to private owners, or statutory restrictions on competition between privately and publicly owned has been in fashion for more than 15 years, if wedate its recent flowering from Margaret Thatcher's initiatives inthe late 1970s. Shrinking the state's economic presence became partof the economic reform programs that characterized economic policythroughout much of the world in the 1980s. The collapse of communism inEastern Europe Eastern EuropeThe countries of eastern Europe, especially those that were allied with the USSR in the Warsaw Pact, which was established in 1955 and dissolved in 1991. and the former Soviet Union (FSU FSU Florida State UniversityFSU Former Soviet UnionFSU Ferris State UniversityFSU Fayetteville State University (North Carolina)FSU Frostburg State UniversityFSU Finance Sector Union ) moved privatizationissues onto a much larger stage in the 1990s. Privatization in the broadest sense means giving private actors agreater role in decisions about what, where, and how to produce goodsand services In economics, economic output is divided into physical goods and intangible services. Consumption of goods and services is assumed to produce utility (unless the "good" is a "bad"). It is often used when referring to a Goods and Services Tax. . A great deal of experience has now accumulated regardingthis process. Some of it shows the great potential that privatizationhas for increasing productivity, income and welfare.(1) However, it also reveals the complexity and difficulty ofeffective privatization. Privatization even in the narrower sense of"divestiture The breakup of AT&T. By federal court order, AT&T divested itself on January 1, 1984 of its 23 operating companies, which became known as the Regional Bell Operating Companies (RBOCs). "--the sale of state-owned enterprises (SOEs)--haspresented greater challenges than its early advocates envisaged. Relatively few countries account for most of the divestitureactivity in recent years. Thus, of the roughly $300 billion indivestitures between 1988 and 1994, two-thirds occurred in industrialcountries. (This excludes sales of small enterprises and give-aways suchas "mass privatization" programs.) The five biggestprivatizations--among them Japanese Railways, British Telecom The telephone and communications carrier that provides services in Great Britain and Northern Ireland. It used to be a division of the British Post Office, but was privatized in 1984 under Margaret Thatcher's administration. , andDeutsche Telekom--account for some $60 billion in proceeds. Of the $100billion in developing country privatizations This list of privatizations provides links to notable and/or major privatizations. See also: Privatization. ArgentinaAerol��neas Argentinas, the former national carrier , more than half took placein Latin America Latin America,the Spanish-speaking, Portuguese-speaking, and French-speaking countries (except Canada) of North America, South America, Central America, and the West Indies. .(2) In developing countries, macroeconomic mac��ro��ec��o��nom��ics?n. (used with a sing. verb)The study of the overall aspects and workings of a national economy, such as income, output, and the interrelationship among diverse economic sectors. impacts of privatizationactivity have been small in most cases. Despite the widespreadprivatization rhetoric and many formal structural adjustment programsunder World Bank sponsorship, the average public enterprise sector sharein gross domestic product for 40 low- and medium-income developingcountries between the late 1970s and the early 1990s remained unchanged,as did the sector's share in wage employment.(3) In the low-income developing countries (those with average percapita [Latin, By the heads or polls.] A term used in the Descent and Distribution of the estate of one who dies without a will. It means to share and share alike according to the number of individuals. incomes below $600 a year) the pace of privatization has beenparticularly slow. In sub-Saharan Africa, for example, only 1800 (mostlysmall) divestiture transactions took place between 1980 and 1995, with asale value of about $2 billion. In only six countries (Benin, Ghana,Guinea, Mozambique, Nigeria, South Africa South Africa,Afrikaans Suid-Afrika, officially Republic of South Africa, republic (2005 est. pop. 44,344,000), 471,442 sq mi (1,221,037 sq km), S Africa. and Uganda) did total salesthrough 1995 amount to more than $50 million, which suggestsinsignificant reductions in the relative size of the public enterprisesectors in most of the continent. Ghana, Nigeria and South Africaaccount for almost 70 percent of the total sales value of Africanprivatizations.(4) Overall progress has been much faster in Eastern Europe and theFSU. Most of these countries have succeeded in moving from almostcomplete domination by the state sector to predominantly privateeconomies.(5) However, only a few of these countries have been able todivest many state enterprises to new managers, and the problem of usingformer state assets more efficiently remains problematic in much of theregion. Many factors enter into the explanation of these patterns ofprivatization. In this paper, we focus on only one of these: therelationship between methods or techniques of privatization and theobjectives that governments seek to attain through privatization. Thishas two related dimensions: the fit between method and objectives, andthe incompatibilities between various objectives. The main objectives, explicit or implicit in Adj. 1. implicit in - in the nature of something though not readily apparent; "shortcomings inherent in our approach"; "an underlying meaning"underlying, inherent most privatizationprograms, are: fiscal relief by cutting government subsidies tomoney-losing SOEs and/or by generating new revenues from their sale;increased enterprise efficiency; increased efficiency of the entireeconomy through more competitive markets and better allocation ofresources allocation of resourcesApportionment of productive assets among different uses. The issue of resource allocation arises as societies seek to balance limited resources (capital, labour, land) against the various and often unlimited wants of their members. across firms and sectors; increased political support andbroadened institutional underpinnings for a market-based economy orfurther liberalization lib��er��al��ize?v. lib��er��al��ized, lib��er��al��iz��ing, lib��er��al��iz��esv.tr.To make liberal or more liberal: "Our standards of private conduct have been greatly liberalized . . . ; stronger financial markets; increased investmentand the stimulation of entrepreneurship. The main methods to be reviewed here fall into five broadcategories: sales of shares or assets; capital dilution;management-employee buy-outs (MEBOs); broad-based or mass privatization;and indirect or partial privatizations via management contracts, leasesor service contracts. These categories are convenient but not entirelymutually exclusive Adj. 1. mutually exclusive - unable to be both true at the same timecontradictoryincompatible - not compatible; "incompatible personalities"; "incompatible colors" : MEBOs are a type of sale, while mass privatizationinvolves some combination of the other methods with some type of freedistribution of shares or vouchers. Before we turn to a discussion of these techniques, we should notethat we are leaving out a number of privatization instruments, the mostimportant being privatization through liberalization.(6) The creationand growth of new private firms, along with a withering with��er��ing?adj.Tending to overwhelm or destroy; devastating: withering sarcasm.with of stateenterprises, has been even more important in many of the transitioncountries than privatization in terms of the reduction of thestate's ownership share. Consider two otherwise dissimilar examples: Poland and China.Poland's private sector has grown from 29 percent of gross domesticproduct (GDP GDP(guanosine diphosphate): see guanine. ) in 1989, largely in agriculture, to 56 percent in 1994.Though classification and data problems make the calculation difficult,most private sector growth in Poland appears to have come from thecreation and growth of new firms, not from privatization of existingfirms.(7) The workers and, in some cases, the assets for these privatefirms presumably pre��sum��a��ble?adj.That can be presumed or taken for granted; reasonable as a supposition: presumable causes of the disaster. originated in the state sector, but these were pushedout by economic pressures on state enterprises or pulled out by theattraction of high profits in the private sector. China is perhaps aneven more dramatic example, though definitional and measurement issuesare even more difficult. The share of the non-state sector, includingso-called township-and-village enterprises (TVEs), in gross industrialoutput rose from 24 percent in 1980 to 57 percent in 1994, solelythrough differential growth rates Growth RatesThe compounded annualized rate of growth of a company's revenues, earnings, dividends, or other figures.Notes:Remember, historically high growth rates don't always mean a high rate of growth looking into the future. following liberalization.(8) This is clearly privatization in the broadest sense, but a fulldiscussion of this method lies outside the scope of this paper. Sufficeit to say that macroeconomic stability, price and trade liberalization,elimination of restrictions on start-up firms and a real hardening ofthe budget constraints facing state enterprises appear to be required toallow fast privatization, as well, perhaps, as a tolerance for themethods by which assets find themselves in private hands.(9) Turning now to privatization itself, we consider each of the fivemethods in turn. We describe each briefly, provide relevant examples,indicate prevalence, summarize strengths and weaknesses and show howvarious methods entail trade-offs between government objectives. Sale of Shares or Assets The classic type of privatization is the sale of full or partialownership of a state enterprise by public offering on stock exchanges,by competitive bidding for shares or assets or by non-competitiveplacement of shares. Public Flotation of Shares Under this method, the state sells to the general public throughthe stock market and other financial institutions all or a substantialpart of the stock it holds in a going concern. The initial publicoffering (IPO (Initial Public Offering) The first time a company offers shares of stock to the public. While not a computer term per se, many founders, employees and insiders of computer companies have found this acronym more exciting than any tech term they ever heard. ) is often combined with other methods, such as the sale ofshares to employees on favorable terms. The public flotation is politically appealing and has greatrevenue-raising potential. It allows broad ownership, which is alwaysmore popular than a sale to powerful domestic or foreign buyers. Widerstock ownership is a common objective in most privatization programs, asit was for example in the United Kingdom, Jamaica, Chile and morerecently in Germany. It also has the effect of locking in privatizationactions. Most observers believe, for example, that renationalization ofChile's telecom SOE SOE - Standard Operating Environment is unlikely because, as a result of mandatedpreferences for small investors, one-third of the shares of the majortelecommunications company See telecom company. has passed to the general public. Public flotation is also flexible. It allows targeting ofparticular groups to meet political objectives or social purposes. Thus,in some Jamaican privatizations, as in Chile and elsewhere, small buyerswere given preference. In the sale of the Jamaican National CommercialBank, for example, no investor was allowed to own more than 7.5 percentof the outstanding shares.(10) Sale via public flotations can alsocontribute strongly to the development of local capital markets, as inJamaica, where the initial privatizations increased the capitalizationof traded shares by 40 percent. Public offerings are also more transparent than other methods.Prices are set by the market for all to see, and for anyone to buy.Since one of the main obstacles to privatization is widespread publicconcern about corruption and cronyism CronyismTammany HallManhattan Democratic political circle notorious for spoils system approach. [Am. Hist.: Jameson, 492] , this is no small advantage. Salethrough the stock market can be accompanied by private placements--topension funds, to disadvantaged groups or to employees, therebyincreasing the equity of the transaction. In addition, public offerings allow gradual approaches. Sales canbe organized in tranches, with first tranche TrancheOne of several related securities offered at the same time. Tranches from the same offering usually have different risk, reward, and/or maturity characteristics.trancheA class of bonds. prices and conditions beingdesigned to win acceptance, and later tranches set at higher prices tobenefit from improved enterprise performance and better knowledge in themarket about the privatized firm. The characteristics of IPOs that make them attractive also makethem hard to implement, especially if speed is an objective. Theirclarity and transparency bring tremendous transaction costs--such aspreparation for sale, valuations and managing the offer. As a result,only larger SOEs or large government holdings are usually appropriate.Moreover, firms have to be readied for sale. They must be madeattractive to buyers. At the same time, the diffuse ownership that tendsto result means management will likely not change, nor will owners exertstrong control after privatization. This often means restructuring,government absorption of debt and new investment. Also, marketconditions have to be right. Where markets are not buoyant, offeringscan fail. This happened recently in Indonesia, Brazil, Turkey and someother countries.(11) Conflicts of objectives are inherent in setting the offer price ofshares to be sold. Governments may seek a high price to achieve itsrevenue objective and to avoid later charges of giving away crown jewels crown jewelsOrnaments used at the coronation of a monarch and the formal ensigns of monarchy worn or carried on state occasions, as well as collections of personal jewelry consolidated by European sovereigns as valuable assets of their royal houses and the offices they at fire-sale prices. The objectives of winning political and marketacceptability, however, dictate a low price. But pricing shares too lownot only invites later political attack, but erodes another objective ofwidespread popular ownership. Low-income buyers and employees tend tosell their holdings if share prices rise rapidly after initialofferings. The case of Polish bank privatization illustrates the potentialimportance of this pricing problem. The government determined that itwould privatize pri��va��tize?tr.v. pri��va��tized, pri��va��tiz��ing, pri��va��tiz��esTo change (an industry or business, for example) from governmental or public ownership or control to private enterprise: "The strike ... the major commercial banks partly through IPOs, with therest sold to employees or to a strategic investor or remaining with theTreasury. After one successful offering in April 1993, the second banksale in December of that year turned out to be substantiallyunderpriced un��der��price?tr.v. un��der��priced, un��der��pric��ing, un��der��pric��es1. To price lower than the real, normal, or appropriate value.2. , with shares skyrocketing more than 13 times on the firstday of trading. The large windfall gain A windfall gain is any type of income that is unexpected.[1] Types of Windfall GainsThe list of windfall gains includes, but is not limited to: Lottery winnings Unexpected inheritance Gains from demutualization this provided to those who wereable to buy the shares initially, and in particular to the employees andmanagement who were able to purchase 10 percent, led to public outcry.Partly for this reason, the program was halted so that it could bereformulated. No further major banks have been privatized in Poland,despite forecasts in 1994 that the remaining seven large banks would beprivatized before 1997. These pricing dilemmas and how they have been handled havegenerated some disappointment with privatization in Europe. A recentarticle in the Economist laments the fact that, while privatization hasbroadened financial markets (since 1985 it has added about 1 percent ayear to the capitalization of listed shares in European stock markets),it has not been successful in turning Europe into a continent ofshareholders. While 20 percent of U.S. households own stocks, and around15 percent in Britain, the comparable figure for Germany and France isstill not much more than 5 percent. One reason is that small investorshave not always done well. In France, privatized company shares haveunderperformed the market; a consistent buyer of privatized shares since1990 would in fact have lost money.(12) There is also a conflict between providing financing for employeepurchase of shares (installment sales) and the risk that share priceswill fall, leaving employees with net losses and debt obligations. Thiscan be avoided by providing repurchase guarantees--buy-back arrangementsthat insure workers against losses. In recent flotations in Spain, Italyand Germany, all investors have been sheltered from falling share pricesby such devices. But such protective measures also entail a conflict. Asthe Economist noted: "Such tricks seem to subvert the point ofprivatization. What purpose, after all, is served by teaching potentialinvestors that owning equities is all profit and no risk?"(13) Public offerings result in diffuse ownership and give no assurancethat assets will be better-managed than under government ownership.Where SOEs have been operating in competitive markets and/orautonomously, and hence have not been notably inefficient, this may notmatter. This was apparently the case with the privatization of theNational Commercial Bank in Jamaica, where the goal of increasedefficiency at the enterprise level was secondary or absent; politicalacceptability through diffuse ownership mattered much more. However,sacrifice of efficiency objectives undermines a major rationale for someprivatization, especially in poorer and slower-growing countries. Manygovernments therefore try to combine public offerings with sale ofsubstantial ownership shares to core or strategic investors who canbring about restructuring through better management, new investment andaccess to new markets. One privatization story from Bangladesh illustrates how stockmarket flotations of minority ownership shares can fail to improvemanagement, while sale of majority ownership to a technical partner canlead to vastly better performance.(14) The stateowned Kohinoor ChemicalCompany, a major producer of soaps and cosmetics, sold 49 percent of itsshares in a public offering in 1988. Going public did not affectcorporate performance, however. Because of poor management andmarketing, annual sales fell by two-thirds between 1989 and 1992. Thelabor force grew from 350 to 1200, and overtime payments also grew. Awidely cited example of management laxity laxity/lax��i��ty/ (lak��si-te)1. slackness or looseness; a lack of tautness, firmness, or rigidity.2. slackness or displacement in the motion of a joint.lax��laxitylooseness. was the employment of 27drivers for the company's fleet of 5 cars; drivers and securitystaff nonetheless claimed substantial overtime. In July 1993, the Bangladesh government's 51 percent share inthe company was sold to the highest of four bidders. Soon after, thework force was cut to 650 people. Overtime disappeared. Productionprocesses were overhauled and new marketing efforts undertaken. Part ofthe terms of sale Terms of saleConditions under which a firm proposes to sell its goods or services for cash or credit. was that the company would retain the 650-person workforce for a year. Since only 350 employees were needed, the managementintroduced a scheme of team competition. The workers were divided intotwo teams, each working alternative weeks. Output per worker has shotup--five-fold, according to according toprep.1. As stated or indicated by; on the authority of: according to historians.2. In keeping with: according to instructions.3. some observers. Production has increased by30 percent. The company has offered continued employment to all itsworkers based on future profitability and expansion. Given the advantages and difficulties of public offerings, it isnot surprising that they are found principally in the developed worldand among the more advanced of the developing countries. Indeed, mostindustrialized in��dus��tri��al��ize?v. in��dus��tri��al��ized, in��dus��tri��al��iz��ing, in��dus��tri��al��iz��esv.tr.1. To develop industry in (a country or society, for example).2. country privatizations have been through publicofferings. In low-income and transition economies that have not hadwell-developed stock markets, financial institutions or regulatoryarrangements, IPOs have been much more infrequent.(15) They are notunknown in the more developed transition economies, especially inHungary, the Czech Republic Czech Republic,Czech Česká Republika (2005 est. pop. 10,241,000), republic, 29,677 sq mi (78,864 sq km), central Europe. It is bordered by Slovakia on the east, Austria on the south, Germany on the west, and Poland on the north. and Poland.(16) In sub-Saharan Africa, thereappear to have been fewer than 70 public flotations, in only fivecountries, namely Cote d'Ivoire, Ghana, Kenya, Nigeria andZambia.(17) Variants of public offerings have been devised in conjunction withmass-privatization approaches. Mass forms of IPOs have been rare for thesame reasons that it is difficult to arrange even one. Some countriesthat distributed vouchers widely allowed their use for the purchase ofshares in individual enterprises, most commonly in the form of auctions,such as in Russia, the Czech Republic and Mongolia. In Mongolia and inthe former Czechoslovakia, large enterprises were sold throughcentralized cen��tral��ize?v. cen��tral��ized, cen��tral��iz��ing, cen��tral��iz��esv.tr.1. To draw into or toward a center; consolidate.2. voucher auctions, with the resulting shares trading on astock exchange. Competitive Bidding Sale of either part or all of an SOE's shares or assets bypublic tender is the most common privatization instrument worldwide.Most small firms in the transition economies were privatized by auction,as were many firms in the developing countries. For small retail shops,small-scale transport and service operations generally, auctions arequick, present few valuation problems and can generate revenue for thestate budget. Problems of asymmetric information Asymmetric InformationInformation available to some people but not others.Notes:In other words, the asymmetric information is held by only one side, meaning someone is keeping a secret. , when present managersknow more about the firm than outsiders, are relatively small. In anycase, the markets in question are easily contestable; competition islikely to prevail. Competitive bidding is a component of most mass-privatizationschemes implemented in recent years in Eastern Europe and the FSU. InRussia, most medium and large enterprises have been privatized in partthrough public auctions of shares for vouchers (coupons), which had beendistributed nationwide for a nominal fee. There, and in Mongolia, thevouchers can be used to buy shares of privatized companies. In the CzechRepublic and Slovakia, investment funds Noun 1. investment funds - money that is invested with an expectation of profitinvestmentassets - anything of material value or usefulness that is owned by a person or company bid for shares in thousands ofmedium and large state enterprises in a carefully structured, multi-stepnationwide auction. Sales of medium- and large-scale enterprises and, in poorcountries, even smaller firms are usually done by formal tendering. Aswith share flotations, transaction costs can be substantial, if thetendering is done right. The accounts of the firms to be sold have to bebrought up-to-date and audited, outstanding liabilities and asset valuesdetermined and future profitability estimated. Pre-privatizationanalyses should yield suggested minimum selling prices and should resultin the preparation of an information memorandum Information memorandumA document detailing the project and project financing, usually inconnection with a syndication. for potential bidders.Governments are frequently interested in other terms of sale besidesprice--whether the transaction will be for cash, for example, and, moreimportantly, whether the buyer commits to maintaining employment orinjecting new investment. For larger firms, the pretransaction preparatory work is oftendone by investment banks The following is a list of investment banks Financial conglomeratesLarge financial-services conglomerates combine commercial banking and investment banking, and sometimes insurance. or management-consulting firms, and notinfrequently with financing from foreign aid sources. The consultantsalso help with marketing through contacting potential buyers and withadvertising. Tender announcements appear weekly in the Wall StreetJournal, the Economist, the Economist, TheWeekly magazine of news and opinion, founded in 1843 and published in London, generally regarded as one of the world's preeminent journals of its kind. International Herald Tribune International Herald TribuneDaily newspaper published in Paris. It has long been the staple source of English-language news for American expatriates, tourists, and businesspeople in Europe. , and similarpublications.(18) Sometimes assets are sold rather than shares in entire goingconcerns. This may be done because state entities are too small tojustify the costs of being corporatized--being put in joint stockcompany legal form--before privatization. But other reasons are moreimportant. The government may want to spin off unrelated or unprofitabledivisions or subsidiaries before selling the core enterprise. Sale ofassets allows this kind of unbundling A regulatory requirement that enables a competing service provider to purchase parts of the incumbent local exchange carrier's network in order to provide service to its customers. See ILEC. . It also may be the only way todeal with complicated situations. In the case of a Nicaraguanconstruction company, regional branches were sold to workers andmanagement as separate units; heavy equipment at the main site wastransferred to the state public works department Many governments worldwide have had departments or ministries referred to as the Public Works Department either formally or informally.In Australia: -New South Wales - Office of Public Works and Services, New South Wales , while the main officewas returned to the former owners.(19) Some companies cannot be privatized by share sales (in otherwords Adv. 1. in other words - otherwise stated; "in other words, we are broke"put differently , as going concerns) because uncertainties about their contingentliabilities are too great. In this case they can be dissolved andliquidated and their assets sold without attached liabilities. A newcompany (very often with the same name) then rises from the ashes. Thisis an extremely common phenomenon, as well a major source of confusionin statistics on numbers of privatizations and liquidations.(20) Sale of SOEs through competitive bidding avoids the majordeficiency of public flotations: uncertain impact on corporategovernance Corporate GovernanceThe relationship between all the stakeholders in a company. This includes the shareholders, directors, and management of a company, as defined by the corporate charter, bylaws, formal policy, and rule of law. and therefore on improved firm-level efficiency. Most ofthese transactions entail sales of going concerns; they are of the typecommonly called "trade sales." Buyers are technical partnersor core investors who will take over management and will have incentivesto enhance profitability. This presumably means cost-cutting, increasedproductivity through better organization and new investment and a searchfor new market opportunities. The objectives of increased investment andpenetration of new markets are especially likely to be achieved throughsales to foreign investors. The objective of raising revenue may also be achieved bycompetitive bidding. However, the proceeds will depend on whetherrestructuring costs and debt obligations have to be assumed by thecentral government. Proceeds depend also on how wide the net is cast inseeking buyers. Purchase can be restricted to nationals in order to meetthe political acceptability goal, but this will reduce the fiscalimpact. At least as important, and often overlooked, is the fact thatproceeds depend on the intensity and effectiveness of marketing. Toooften in the past, marketing efforts have been perfunctory per��func��to��ry?adj.1. Done routinely and with little interest or care: The operator answered the phone with a perfunctory greeting.2. Acting with indifference; showing little interest or care. , with few adsappearing in the international press. Few potential buyers appear, andthe selling price suffers accordingly. Tradeoffs often emerge in the bidding process itself. Politicalacceptability demands objective criteria and complete transparency--suchas the listing of bid prices and the publishing of bases of all awards.This works in the direction of acceptance of the highest bid. Butsubjective elements invariably in��var��i��a��ble?adj.Not changing or subject to change; constant.in��vari��a��bil cloud the decision. Some bidders are morecredible than others, and most governments have multiple selectioncriteria, such as whether injections of new investment will be made,debt obligations absorbed and commitments about employment entered into.In the end, bids are often not comparable. Thus, even wherewell-specified procedures are carefully followed and the process iswholly above-board, competitive bidding may not dissipate dis��si��pate?v. dis��si��pat��ed, dis��si��pat��ing, dis��si��patesv.tr.1. To drive away; disperse.2. all suspicionsof foul play foul playn.Unfair or treacherous action, especially when involving violence.foul playNoun1. violent activity esp. murder2. . It is nonetheless usually the most even-handed andtransparent option available. The most pervasive trade-off in the privatization process concernstime--the sacrifice of key objectives for speedy action. A recent studyof experience in privatizing telephone companies in Argentina, Jamaica,Mexico and Venezuela illustrates the point.(21) In some of thesecountries, haste and a desire for revenues crowded out other goals andled to deficient regulatory systems and concession agreements that were,in many instances, unfavorable to the privatizing governments.(22) In Argentina, the original plan had been to privatize with a viewto increasing competition. It had envisaged breaking up the nationaltelephone monopoly into two regional companies; free entry intolong-distance services was to be allowed immediately, with entry intoall services allowed after only five years. All cross-subsidies(financing low price domestic services by charging high prices for longdistance) were to be abandoned. However, as negotiation unfolded, theseideas were largely dropped to get a quicker sale. The goal of generatingrevenues, and demonstrating to investors that the economy was trulyopening up assumed higher priority. Very low targets were set forexpansion and quality, and post-privatization regulatory rules weresketchy. The cost of haste is most evident in the case of Jamaica, whichwas pressed to meet World Bank conditions regarding the amount ofrevenue derived from SOE sales. Buyers received a 24-year monopoly(compared to 6 years in Mexico), and no specific targets were set forexpansion of service, nor for quality of service; penalties fornon-performance were also inadequate. The Jamaican buyers wereguaranteed a real, after-tax annual rate of return of 17.5 to 20percent. More privatization transactions are completed globally bycompetitive bidding than by any other method. In industrializedcountries, which mainly use public flotations, it is not the most commonmethod but does occur. Examples include the sale of Leyland Bus Leyland Bus was a British bus manufacturer. It emerged from the Rover Group (formerly British Leyland) as a management buyout of the bus business. It was subsequently acquired by Volvo Buses and the name disappeared in 1993. andTruck in the United Kingdom in 1986, and more recent sales of water andpower companies. It is probably the most common method in middle-incomedeveloping countries. In the transition economies, competitive biddingusing vouchers was used to buy shares in Mongolia's first wave ofprivatization. Russia's sales also were by competitive bidding,using vouchers. In both cases, however, there are problems ofdefinition, since insiders received such preference that the processresembled management-employee buyouts more than competitive bidding. Trade sale-type bidding (one firm bidding to buy control of anSOE) has been infrequent in the transition economies. Only in Estoniaand Hungary have privatizations by sale to outsiders (non-employees ormanagers) been substantial. Data on transactions by technique applied are also available forsub-Saharan Africa.(23) Out of some 1800 transactions between 1980 andmid-1995, almost half were by competitive bids for all or part of goingconcerns. It has been the most frequently-used technique in that part ofthe world. Noncompetitive Sales or Transfers These kinds of sales take many forms. The state may find itadvisable to sell to a preselected buyer without competitive bidding.This is sometimes called a private placement. A good strategic investormay have made an offer that meets the government's price and otherrequirements, and officials may decide therefore that further bidding issuperfluous su��per��flu��ous?adj.Being beyond what is required or sufficient.[Middle English, from Old French superflueux, from Latin superfluus, from superfluere, to overflow : . Some or most of the shares (or assets) may change hands inthis kind of transaction, which may be accompanied by public flotation,award of preferential shares to employees, or other placements. A noncompetitive sale may follow a failed tender. In Guinea, fivebidders responded to a 1995 request for bids to purchase a controllingshare of the government telecommunications monopoly. After carefulassessment, all these bids were rejected. A later proposal by theMalaysian telecommunication company was accepted for want of a betteralternative.(24) Placement of shares with insurance companies, pension funds andother financial institutions is a common noncompetitive means ofprivatizing ownership. Restitution, the return of companies to formerowners, is of course noncompetitive. Joint ventures or mixed companiesare other noncompetitive methods. Private partners often have so-calledpreemptive pre��emp��tiveor pre-emp��tive ?adj.1. Of, relating to, or characteristic of preemption.2. Having or granted by the right of preemption.3. a. rights, the right of first offer when the public partnerdecides to sell shares. This is a common situation where private ownersretain some ownership after bouts of nationalization nationalization,acquisition and operation by a country of business enterprises formerly owned and operated by private individuals or corporations. State or local authorities have traditionally taken private property for such public purposes as the construction of , as for example inZambia, where recent privatization actions included numerous sales tothose with preemptive rights. A key problem here is determination of thesales price of shares, since there are no market values to go by. Finally, transfers of shares to trusts can be included in thiscategory of methods. Various kinds of transactions are currently inoperation. The most famous outside the transition economies is thespecial trust set up by the Malaysian government as part of itspreferential program for native Malays, the Bumiputra This article describes Bumiputra in terms of Malaysia. For the legal definition of Bumiputera as defined in Brunei, please see BumiputeraBumiputra or Bumiputera (Malay, from Sanskrit Bhumiputra . Shares of publiccorporations reserved for the Bumiputra are deposited in this trust,which now holds a significant share of the total capital stock in thecountry. The Zambian Privatization Trust Fund is a variation on thistheme.(25) It holds in storage, for future sale to small localinvestors, shares in privatized companies. Part of the rationale is todistance the government from the newly privatized activities; governmentno longer votes the transferred shares. The rationale also is that thefund's managers can operate without haste and in an environmentthat is better informed than at the time of implementation of theprivatization program. The fund can issue shares through publicofferings and by sales to pension funds, insurance companies, and otherintermediaries. It can give small investors special incentives and canset down ownership limits to avoid undue concentration. The board of thefund is drawn from the private sector and management is contracted bycompetitive bidding. If shares are not sold after five years, the fundwill become a unit trust and will be sold to Zambian investors. Unsoldshares could be given away free to Zambian citizens. Mass-privatization programs have also involved a transfer of salesto trusts. In Poland, the government established National InvestmentFunds (NIFs) and distributed shares from about 500 medium and largeenterprises to these NIFs. Each citizen was then allowed to purchase acertificate of ownership (voucher), which was essentially a share ineach of the NIFs, for a nominal fee. The benefit of noncompetitive sales is that they can be cheaper,easier and quicker than alternative methods. Particular technicalpartners with special competence can be sought out, creating goodprospects for more efficient management. Negotiations can be moreflexible than those in formal bids. Political and social objectives canbe well-targeted; for example, shares can be distributed tounderprivileged groups, or to employees and other stakeholders StakeholdersAll parties that have an interest, financial or otherwise, in a firm-stockholders, creditors, bondholders, employees, customers, management, the community, and the government. or toinsurance companies and pension funds. Entrepreneurship-nurturingobjectives can be served. The trusts may be able to serve some corporategovernance role. Noncompetitive approaches thus satisfy many objectives. Aside fromthe allocation to trusts, however, these noncompetitive approachessuffer from one major disability: they are inherently less transparentthan competitive methods, and such transactions are often attacked asunfair or corrupt. Negotiation with one potential buyer also oftenentails long and frustrating frus��trate?tr.v. frus��trat��ed, frus��trat��ing, frus��trates1. a. To prevent from accomplishing a purpose or fulfilling a desire; thwart: dealings with slippery partners.(26)Perhaps for these reasons, noncompetitive bidding in privatization isnot very prevalent in most countries. A sub-Saharan African inventorysuggests that about a third of the 1,800 transactions (1980-1995) thatinvolved sales of shares or assets were done noncompetitively.(27) Capital Dilution or Capitalization Privatization can occur without the state disposing of any of itsequity, but rather adding to it by allowing a private investor to buyin. The result is a capital increase, with the government's sharedeclining. Many joint ventures are formed this way. In Nicaragua, thegovernment put up the routes of its Aeronica Airline for a 51 percentshare in a joint venture, with the private sector partner contributingcash, equipment and management. Capital dilution is also an easy vehicleto transform partially private companies to more fully private firms, asin the case of the 1995 capital injection to the Guinea Industrial andCommercial Bank, which reduced government's equity from 89 percentto 12 percent of the total. Capital dilution/joint ventures are often politically acceptable,since the government retains a large or even majority share inownership. If the government is a passive owner, allowing full autonomyto the private management, economic efficiency goals are likely to bewell-served. This approach gives undercapitalized enterprises new life,although problems of working capital scarcity may remain. It is alsofast, especially where existing partial ownership by a core investor issupplemented by new capital injections. However, risks do existregarding transparency and equity, notably in setting share prices. Inmany countries there are no rules for how share prices should bedetermined in cases of internal acquisition. Using book values inprosperous enterprises (especially banks) can result in an underpricing UnderpricingIssuing securities at less than their market value.underpricingThe pricing of a new security issue at less than the prevailing price of the same security in the secondary market. Underpricing helps ensure a successful sale. of the government's shares. The Bolivian capitalization scheme is a variant of capitaldilution. The government is currently transferring to private hands halfthe ownership and all the management of the six biggest publicenterprises--the rail, air, power, phone and petroleum distributionmonopolies, and mining smelters. International investors invest newcapital for up to half the equity of the enterprise. Core investors signmanagement contracts, including an option to purchase additional shareslater. The new capital can be used for investment or working capital.The remaining half of the equity will be held by 5 to 10 new privatepension funds, which will provide retirement and disability benefits toshareholders.(28) The main disadvantage of the Bolivian approach is that, by givingaway its interests in SOEs, the government may be sacrificing therevenue-generating objective. This loss of revenue may be mitigated,however, to the extent that the transfer of assets to pension fundssubstitutes for other resources the government would have had to putinto the pension funds. The delays caused by the need to work out thedetails of the new pension scheme is a minor inconvenience. On the otherhand, powerful advantages are evident. The removal of government fromownership of the SOEs deepens the credibility of the government'scommitment to privatization and market reform. This increases theattractiveness of the firms to be sold, especially to foreign buyers.The privatized entity benefits from the availability of new resourcesfor working capital or investment. In addition, although not directly due to the capitalizationscheme, Bolivia has been able to adopt a near state-of-the-art strategyfor privatizing of its major public utilities involving the abandonmentof old notions about "natural monopolies." In the case ofelectric power, for example, monopolies can be broken into at leastthree components: generation of power, transmission and distribution tousers. The idea is to introduce competition on the generation anddistribution sides while giving equal access to the transmissionfacility. This approach to privatizing infrastructure has been pioneeredin the United Kingdom, New Zealand New Zealand(zē`lənd), island country (2005 est. pop. 4,035,000), 104,454 sq mi (270,534 sq km), in the S Pacific Ocean, over 1,000 mi (1,600 km) SE of Australia. The capital is Wellington; the largest city and leading port is Auckland. , Chile, Argentina and the UnitedStates United States,officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. . Bolivia now joins the front ranks of countries that areprivatizing infrastructure with an emphasis on competition. Thegovernment describes its program thus: The Ministry of Capitalization of Bolivia intends to transfer the electricity transmission network in the Bolivian interconnected system, currently owned by the state company ENDE ENDE Electromagnetic Non-Destructive Evaluation (workshop), to the private sector through an international public bidding to be completed in the first quarter of 1997. The transfer of the transmission network to the private sector is the latest stage in the wholesale restructuring of the Bolivian electricity system. This process has involved the passing of a new electricity law and regulations, the introduction of a new regulatory structure for the industry, the capitalization of three new electricity generating companies formed from the generation assets of ENDE (through the subscription of 50 percent share holdings in the capitalized companies and granting of management control to three leading US electricity operators) and the sale of two major distribution companies to Spanish and Chilean utilities.(29) Africa is the only region for which there is data regarding theincidence of privatization by joint ventures or capitalization. TheAfrican inventory data to which we have referred above records only 34joint ventures or capital dilution privatizations between 1980 and 1995,out of more than 1800 transactions. Management-Employee Buyouts (MEBOs) Three main types of Management-Employee Buyouts (MEBOs) can bedistinguished. In many developing and transition economies, smallestablishments--for example, retail outlets, restaurants, hotels,bookstores, trucks and buses--are sold to employees. Countlessprivatizations have taken place this way, though they do not seem toshow up in privatization inventories. One reason is that they are oftenunder $50,000. Another is that they may be listed as liquidations, sincestate enterprises are often legally dissolved before the assets passinto employee hands. In Eastern Europe and the former Soviet Union, tens of thousandsof small establishments were privatized by transfer to employees.(30) InGuinea and Mozambique, dozens of regional state food distributionoutlets became employee-owned or leased. In Nicaragua, buyouts wereencouraged by a policy that set 25 percent of each privatized firm asidefor employees. The assets of one gold mine in that country were sold toworkers employed anywhere in the mining industry; in the constructioncompany fragmentation, six regional entities were sold to employees.(31)The World Bank's recent study on African privatization was able toidentify only 22 MEBOs, about one percent of total privatizationtransactions. This is certainly very much below the true figures, forreasons suggested above. The second type of MEBO involves employee stock ownership ofmedium- and large-scale enterprises. These are fairly common inindustrial countries. The first major privatization of this type was inthe United Kingdom with the sale of the National Freight Corporation in1982 to a consortium of existing and retired employees and 4 banks, withemployees taking over 80 percent of the shares. Examples are also foundin developing countries. In Chile, employees bought most of the stock ofSoquimich, a sizeable producer of nitrates. When ENDESA, the state-ownedpower company in Chile, was broken up for privatization, one of theunits, EMEL, was sold to employees. There have been cases in Asia andelsewhere, though usually of middle-sized companies. A recent example from Pakistan gives the flavor of thesetransactions.(32) In January 1992, employees of Millat Tractor Limitedtook over management after purchase of 51 percent of the shares. Mostemployees participated, financing 40 percent of the purchase with cashand the rest with a bank loan secured by their pension funds. They wonout over four other bidders. The employees elected seven of the ninedirectors, although five of the seven are nominated by the lendingbanks. About half of the 49 percent nonemployee share is held bystockholders who purchased shares through the stock exchange, and theother half is held by government financial institutions. Of the 51percent worker share, about 30 percent is held by workers and 70 percentby executives. The company has made some difficult decisions since andappears to be thriving.(33) The third and numerically most significant form of MEBO is defacto [Latin, In fact.] In fact, in deed, actually.This phrase is used to characterize an officer, a government, a past action, or a state of affairs that must be accepted for all practical purposes, but is illegal or illegitimate. insider domination of nominally open privatizations Examples intransition economies abound. Most of Russian industry has beenprivatized this way. The Russian model took the form of a voucherprogram that gave special preferences to employees of state enterprises,usually resulting in MEBOs in practice. In Mongolia, workers (and theirfamilies) chose to buy shares largely in "their" enterprises,ending up with 45 percent of the total shares, according to onesurvey.(34) Most enterprises privatized in Poland have been privatizedthrough so-called liquidation The collection of assets belonging to a debtor to be applied to the discharge of his or her outstanding debts.A type of proceeding pursuant to federal Bankruptcy .(35) This has taken various forms, butinvolves the sale of either the enterprise or its assets through auctionfor cash. In most of these, the managers and/or the workers ended upowning controlling shares after privatization.(36) MEBOs address one of the central obstacles to privatization,particularly in the transition economies where ownership rights andtraditions are vague and not well-protected: the fact that finding newowners means disenfranchising existing stakeholders. Enterprise"insiders," such as workers and managers, have a traditionaland de facto claim on the enterprise. Which insiders are importantvaries from country to country: in Russia and Hungary, it was theenterprise managers and government bureaucrats who ran the enterprisesprior to the fall of the Soviet Union; in Poland, where this group waspartly disenfranchised by Solidarity, it was also workers. Insider powerderives from a variety of sources. One is political; in some countries,managers and/or workers have political power and can control theprivatization process, or at least block it. Another source of power islegal; in Poland, workers voted on privatization schemes for"their" enterprises. More generally, though, insiders bothcare more about "their" enterprise than most others and knowmore, which gives them bargaining leverage. Especially where courtsystems are weak and laws nonexistent non��ex��is��tence?n.1. The condition of not existing.2. Something that does not exist.non or incomplete, de facto controlcan be vital. In Russia, enterprise managers have at times simply lockedshareholders out of meetings or not informed them of the time and place. MEBOs of shops and other small establishments can be speedily andeasily done. There is no faster way to establish unambiguous privateproperty rights over state assets. They are also relatively equitableand favorable to employees and thus may be politically palatable pal��at��a��ble?adj.1. Acceptable to the taste; sufficiently agreeable in flavor to be eaten.2. Acceptable or agreeable to the mind or sensibilities: a palatable solution to the problem. .However, they fail the revenue generation test, with prices sometimes solow as to approach free distribution. MEBOs also have a mixed score onthe entrepreneurship-encouragement criterion. On the one hand, evidencefrom several studies suggests privatization that leaves the originalmanagement in charge results in much less entrepreneurial activity thanother methods.(37) On the other hand, entry of new investors over timeis presumably facilitated through the establishment of property rights,and in any case the counterfactual may be no privatization, notprivatization to outsiders. MEBOs are the vehicle of choice for small companies in general andfor doubtfully saleable sale��a��ble?adj.Variant of salable.saleableor US salableAdjectivefit for selling or capable of being soldsaleability or US enterprises in particular. Efficiency effectsshould be positive because of privatized ownership, although managementcompetence may not change, except if outsiders are brought in later.Moreover, insiders may have important information advantages over otherowners. Established industries with stable technologies and lowcapital-labor ratios, which are producing in competitive markets, aremost likely to have a successful MEBO. In any event, opportunity costs Opportunity costsThe difference in the actual performance of a particular investment and some other desired investment adjusted for fixed costs and execution costs. It often refers to the most valuable alternative that is given up. (sacrificed revenues and imported management) in these circumstances arelikely to be small, and few economic distortions will result. For larger enterprises, MEBOs are generally more problematic. Theycan entail obligations by the government to take over enterprise debts.Sales often have to be financed on credit of one variety or another, andthat can lead to drawn-out involvement, since many MEBOs of this kind donot succeed, and governments are often induced to take them over again.The evidence on the impact of MEBOs on enterprise restructuring is notyet clear. In one survey of Polish enterprises, employee-owned firmsrestructured much more aggressively than state-owned or outsider-ownedfirms, but this may have been due to the fact that insiders chose to buythe more promising enterprises.(38) Mass Privatization Mass privatization programs privatize hundreds or thousands ofenterprises at one time. To make this possible, they generally combineone or more of the above techniques with some sort of free distributionof assets, shares or buying power Buying PowerThe money an investor has available to buy securities. In a margin account, the buying power is the total cash held in the brokerage account plus maximum margin available.Also referred to as "Excess Equity. over assets (vouchers). Somethingalong these lines has been used or is under consideration in a number oftransition economies, including the former Czechoslovakia, Russia,Poland, Romania, Lithuania, Kazakhstan, Kyrgyzstan and Mongolia. It isthe subject of widening discussion as an option in other developingcountries, such as Tanzania and Uganda. It is easy to see why this approach is appealing. In thetransition economies, almost all industrial production and most outputin other sectors was generated in the state sector. The huge scale ofprivatization alone ruled out the "classical" sale as a singleor main method; it would take decades, except in the East German casewhere vast subsidies and willing buyers allowed the rapid privatizationof some 8,000 enterprises. There were other reasons for the appeal of this form ofprivatization. Valuation of state enterprises in these economies wasdifficult and uncertain, given the lack of a market track record andpersistent distortions that ruled out easy estimates of existingviability and future profitability. Also, small domestic savings, weakor nonexistent capital markets and embryonic market institutions madeprivate buyers few and wary. Foreign investment could and did play somerole, but the new governments and their publics found unacceptable theidea of selling off large parts of the economy to foreigners. In sorting through these various programs, it may be useful toconsider that each program has two components: a "supply side"which dictates how enterprises will be chosen and prepared forprivatization and what will be sold, and a "demand side" whichdetermines how ownership in the privatized enterprises will beallocated.(39) Each of these "sides" presents a number of key issues.On the supply side, the preparation of large numbers of enterprises forprivatization in a short amount of time can be extremely difficult. Forexample, the legal definition of the firm often must bedetermined--i.e., does it include shared assets such as a municipalpower plant? More importantly, the claims of various existingstakeholders such as workers and managers must be dealt with. Asdescribed in the section above on MEBOs, these insiders often havesubstantial de facto or de jure [Latin, In law.] Legitimate; lawful, as a Matter of Law. Having complied with all the requirements imposed by law.De jure is commonly paired with de facto, which means "in fact. power over "their" SOE. Theseaspects of the problem are related; preparation of enterprises forprivatization on a large scale requires the cooperation of the insiders. On the demand side, the problem is how to find owners for hundredsor thousands of enterprises rapidly and in ways that promote goodenterprise governance, equity, public support and capital marketdevelopment. A fundamental question is how widespread distribution ofshares or vouchers can translate into effective governance of theprivatized enterprise; when ownership is extremely diffuse, no one ownerhas much incentive to monitor or discipline management. More generally,the question remains as to whether the pattern that emerges will beconducive to capital market development, including a well-functioningstock market. To illustrate these issues, we will briefly describe themass-privatization programs in Poland, the Czech Republic, Russia andMongolia. The Polish program, proposed in 1991 but implemented only in 1996,cover approximately 500 medium and large enterprises. Enterpriseparticipation in the program required an affirmative vote by theworkers. Workers receive a relatively small share of the privatizedfirm--in effect, they receive 10 percent of the shares free ofcharge--and, while they anticipated some benefits from privatization,they also feared its effects. As a result, it has not been easy for thegovernment to convince large numbers of promising enterprises toparticipate, delaying the program's implementation. On the demand side, the designers of the Polish program wantedwidespread and fair distribution of ownership in the enterprises, butthey were concerned that diffuse ownership would fail to provide thestrong owners required to supervise difficult but necessary enterpriserestructuring. They therefore transferred most enterprise shares free ofcharge to 15 National Investment Funds (NIFs), to act as mutual funds ofsorts, owning most of the shares of each privatized enterprise and inturn owned by the population. The NIFs are managed by private fundmanagement companies, often with the participation of foreign financialinstitutions that were selected by the government and given incentivesto raise the value of their holdings. One-third of the shares of each company went as a block to oneNIF NIFSee: Note issuance facility , ensuring that each company had one owner with a substantialinterest and hence incentive to provide good corporate governance. Eachcitizen was allowed to purchase a voucher, essentially a share in eachof the NIFs, for a nominal fee. The initial Boards of Directors of theNIFs were appointed by the government, allowing some political controlover the NIFs. It is too early to judge how effective this program will be. Theprogram met with stiff political resistance, partly from enterpriseinsiders and partly from those fearing the power of the NIFs. Althoughits design was essentially complete in 1991, its implementation wasdelayed until 1995. Certificates became available for purchase inNovember of 1995 for 20 zlotys (about $7 now) and, by the end of thesubscription period in November 1995, certificates had been purchased by26 million people. With a current secondary market price of about 150zlotys, the government is encouraged and reportedly is consideringfurther rounds. The Czech Republic also distributed ownership widely, in this casethrough the sale of vouchers at nominal prices to each citizen. InCzechoslovakia in 1992, all adult citizens could buy for about $30 avoucher booklet allowing them to purchase 1,000 shares in up to 10companies. They could do this either through one of the many investmentfunds set up by banks and others, or could bid directly for the shares. On the "supply side," the powerful central governmenthad weak insiders to contend with as a result of a system that remainedhighly centralized until the end of 1989. Thus, the enterprises had nochoice as to which firms the government would identify to participate inthe program. For each enterprise, the government chose a privatizationproject from among those submitted to it, and anyone could submit aproject. Reflecting the insider advantage even in Czechoslovakia, theprojects that were eventually chosen in most cases had been submitted bythe managers of the firm. These projects specified how the shares in the enterprise would besold, whether through tender, voucher auction or cash purchase, amongother options. In the first wave of privatization ending in December1992, property worth more than $23 billion was sold, $7 billion of whichwas through vouchers.(40) Investment funds held approximately 70 percentof the shares sold in the first wave and a similar proportion of thevoucher points invested in the second wave, which was completed at theend of 1994. These two cases demonstrate the power of mass privatizationschemes to privatize large numbers of enterprises quickly through freedistribution and financial intermediaries Financial intermediariesinstitution that provide the market function of matching borrowers and lenders or traders. . They also show, in quitedifferent ways, the difficulties with such funds. Widespread ownershipof investment funds can pose problems somewhat similar to the problemsof diffuse ownership of enterprises themselves: who will control thebehavior of the fund managers when their ownership is divided amongthousands (or millions, in the case of Poland) of small shareholders?Poland chose a centralized approach, with the government creating thefunds and managing the selection of fund managers. This provedpolitically difficult and, for many observers, raised the specter ofgovernment interference in the control of the firms after privatization.The Czechoslovakian approach avoided such a strong government role andresulted in a more spontaneous ownership structure. It is too early, again, to say too much about how this emergingstructure is working. On the one hand, there are some signs that fundsmay be helping to provide the impetus to restructure enterprises. On theother, the ownership of Czech industry and banking is largelyconcentrated in a few funds, which are themselves mostly managed byCzech banks. This raises dangers of conflict of interest between banksas lenders and banks as fund managers. It also raises the question ofthe government's ongoing role in these enterprises, as thegovernment continues to own a large share of bank stocks. In recentmonths charges of lack of transparency in investment fund behavior, inparticular with unregulated Adj. 1. unregulated - not regulated; not subject to rule or discipline; "unregulated off-shore fishing"regulated - controlled or governed according to rule or principle or law; "well regulated industries"; "houses with regulated temperature"2. trading among investment funds, have spookedmarkets and perhaps discouraged some outside investors. In the Russian case, the vouchers could also be used at auction,but the role of investment funds was more limited, and the structure ofthe auctions led to much more worker/management control of theprivatized firm. The Russian mass privatization program ended in July1994. It involved 100,000 medium-sized and large firms, including 15,000in industry. More than 60 percent of the industrial labor force wasaffected. Each citizen born before 2 September 1992 (150 million people)received one voucher with a face value of 10,000 roubles. The voucherswere traceable and valid until mid- 1994, with the typical market pricevarying over time from 4,000 to 42,000 rubles. They could be used to buyshares in the enterprise where the owner worked, allocated to one of themany investment funds that emerged or used directly in voucher auctions.They could also be used to pay for housing and other property, and couldalso be bought and sold by anyone, including foreigners. In order to get insiders to cooperate, the program was structuredto provide them with substantial advantages. Employees had variousoptions for buying shares, including the right to buy 51 percent in aclosed subscription at a price of 1.7 times nominal value Nominal ValueThe stated value of an issued security that remains fixed, as opposed to its market value, which fluctuates.Notes:When referring to fixed-income securities, the nominal value is also the face value. per share,paid for with vouchers and cash. This and other options gave employeesand managers the possibility of acquiring majority voting Majority votingVoting system under which corporate shareholders vote for each director separately. Related: Cumulative voting.majority votingstock andcontrol of the firm. Typically, the legal minimum of company shares wereallocated for distribution through public voucher auctions. Massprivatization became largely a matter of MEBOs, with more thantwo-thirds of privatized firms coming under insider control. Not all vouchers went to purchase shares by employees in theirprivatized firm. According to surveys in mid- 1994, about a third of thevoucher recipients had sold their vouchers and about 30 percent hadexchanged vouchers for shares in voucher funds. It appears that about 10percent of the privatized medium-sized and large firms in Russiafollowed the open access route. In Russia, the voucher program was unquestionably un��ques��tion��a��ble?adj.Beyond question or doubt. See Synonyms at authentic.un��question��a��bil successful atprivatizing huge numbers of enterprises quickly. Despite insiderdominance, privatization has achieved some of its broader aims.(41)First, massive depoliticization has taken place. Control rights havebeen transferred from government ministries to managers and investors.The sectoral ministries, only a few years ago the kingpins in Russianindustry, have become irrelevant. The process of depoliticization isincomplete, since government still has many levers of influence such ascredit policy, heavy regulatory structures, tax policy, and localgovernments have stepped in to control the system out of interest insocial services social servicesNoun, plwelfare services provided by local authorities or a state agency for people with particular social needssocial servicesnpl → servicios mpl sociales. However, depoliticization has come a long way.(42)Secondly, Russia has made a giant step toward efficient ownershippatterns. Outsiders have apparently been accumulating shares in thevoucher and share markets. There are some signs of large shareholderactivism, including removal of general directors at initial meetings. The dominant role of insiders has nonetheless presented troublingfeatures. First, restructuring has been slow.(43) Indeed, there seems tobe little difference between the behavior of stateowned and worker- ormanager-dominated privatized firms. In insider-dominated firms, managershave been unwilling or unable to carry out deep reforms, particularly inreducing overemployment. De nuovo private firms, in contrast,demonstrated much more dynamism. Second, capital market development hasbeen hindered, with managers able to control the secondary market forshares and the behavior of boards of directors, thereby leaving littleroom for stock market discipline of poor managers. Part of the reason for the poor performance of privatized firmsmay be that the benefits of privatizations come only after a time lag.Nonetheless, in the words of some of those involved in the design of theprogram: The principal message we draw from our empirical evidence is that restructuring requires new people, who have new skills more suitable to a market economy. A secondary message is that, without new people, incentives for old people might not be particularly effective in bringing about significant change.... (C)ontinued control by old managers presents a problem for restructuring, and...more attention should have been paid to management turnover as opposed to shareholder oversight over the existing managers. To some extent, large investors have begun to force old managers out...(and)old managers have been given enough wealth that they can afford to retire in peace and let a new generation take over. This, however, is probably not enough.... If privatization were designed from scratch, these strategies should have received more attention than they have...(44) The Mongolian case is of special interest because Mongolia is botha transition and a developing economy. It is the only developing countrythat has used mass privatization/voucher methods. Coupons distributed in1991 to each citizen were used in a small privatization phase to buyagricultural and other assets other assetsAssets of relatively small value. For financial reporting purposes, firms frequently combine small assets into a single category rather than listing each item separately. in auctions. In principle these were openauctions, but workers had first rights to make a joint bid. By early1993, two years after the program was launched, all small urbanbusinesses--and 90 percent of the national total--had been privatized.All agricultural co-ops and more than 90 percent of state farms were inprivate hands. Privatization of Mongolia's large enterprises followed.Ownership in many of the large firms was transferred through auctionsfor vouchers. As with small privatization, these open auctions wereultimately dominated by the workers from the enterprise. Workers (andtheir families) chose to buy shares largely in "their"enterprises, ending up with 45 percent of the total shares, according toone survey.(45) However, changes in the way companies are managed havebeen slow in coming. The government retained control of many of theprivatized entities, and preexisting pre��ex��istor pre-ex��ist ?v. pre��ex��ist��ed, pre��ex��ist��ing, pre��ex��istsv.tr.To exist before (something); precede: Dinosaurs preexisted humans.v.intr. management and staff has remainedin place. Diffuse ownership has thus far failed to lead to shareholderconsolidation via secondary trading because the larger denomination DenominationThe stated value found on financial instruments.Notes:This term applies to most financial instruments with monetary values. The denomination for bonds and securities would be face value or par value. coupons are not traceable. The regulatory system surrounding capitalmarkets remains sketchy. Indirect Approaches Management contracts privatize management, leaving ownership instate hands. Some involve straight fees. In most cases, however,payments are tied also to performance. The key issues in success orfailure are whether performance is related to the contract terms, andwhether managers have true autonomy in hiring and firing. A recent WorldBank study found that management contracts have improved bothproductivity and profitability in most of the cases studied.(46) Lease contracts are of different types, varying mainly by who isresponsible for financing investment. Under straightforward leasing(sometimes called affermage) the contractor or lessee One who rents real property or Personal Property from another.A lessee of land is a tenant. Cross-referencesLandlord and Tenant. lesseen. the person renting property under a written lease from the owner (lessor). pays the publicowner a fee for the right to operate a public facility and bears thefinancial risks of its operation. This method is widely used in power,ports, urban transport, waste disposal and industry. The private firmfinances working capital and replaces nondurable non��du��ra��ble?adj.Not enduring; being in a state of constant consumption: nondurable items such as paper products.n.A consumable item: nondurables such as food.capital assets capital assetsn. equipment, property, and funds owned by a business. (See: capital, capital account) , withcontracts generally running 5 to 10 years. The contractors collecttariff revenues directly and pay a share to the government. Regulatoryburdens are considerable. The Russian "loans-for-shares" program of 1995 might beclassified as a leasing approach. Under this system, private banks lentmoney to the government for one year, with shares of large and valuablenatural resource-based SOEs serving as collateral. The banks bid for theshares at auctions, competing on the size of the loan they would make.If the government failed to repay the loan after one year, the bankscould auction the shares for a "market price." The government was evidently not up to the regulatory burdensimplied by this program. It proved difficult to avoid collusion An agreement between two or more people to defraud a person of his or her rights or to obtain something that is prohibited by law.A secret arrangement wherein two or more people whose legal interests seemingly conflict conspire to commit Fraud by thebanks in the auctions, resulting in low prices. When the governmentfailed to repay the loans, it also proved difficult to avoid insiderdealing in the resulting auctions of shares. The program is widelyconsidered to have led to the transfer of large quantities of valuableassets to a small number of private owners at low prices. Concessions involve greater contractor responsibility than leases,notably for replacement of fixed assets fixed assetsnpl → activo sg fijofixed assetsnpl → immobilisations fplfixed assetsfix npl → . They also last longer--normally15 to 30 years. Water supply, waste disposal, toll roads The following is a list of toll roads. Toll roads are roads on which a toll authority collects a fee for use. This list also contains toll bridges and toll tunnels. Lists of these subsets of toll roads can be found in List of toll bridges and List of toll tunnels. and ports areamong the common areas of usage. One variant coming into wide use is thecreation of two separate companies, a societe de patrimoine, which is anoperating company operating companyA business that engages in transactions with outsiders. that owns the assets and is 100 percent state-owned,and a societe d'exploitation, which is majority-owned by a privateoperator with minority state ownership. This approach has become popularin privatization of water supply and power facilities and state-ownedplantations. It has registered some striking successes--notably urbanwater supply power in Cote d'Ivoire and water in Guinea. But italso raises problems of coordination, since the societe de patrimoine isresponsible for new investment and may not always consult with theoperating company about investment policies. Contracting out (also known as outsourcing or subcontracting) iswidespread in public-sector service provision. It is an extremelydiverse form of privatization, especially common for municipal services,and is widespread in the United States. Examples include security andjanitorial services, maintenance services, data processing data processingor information processing,operations (e.g., handling, merging, sorting, and computing) performed upon data in accordance with strictly defined procedures, such as recording and summarizing the financial transactions of a , and foodservice. The main objection to indirect privatization methods is that theycan be and often are a reflection of government unwillingness to bitebullets, becoming a substitute for all-out privatization of ownership,or "real" privatization. However, management contracts, leasesand service contracts can be first steps, opening up furtherprivatization prospects in situations where full privatization is notfeasible or desirable. The partial and tentative nature of thesecontracting arrangements can be beneficial in that it makes them morepolitically acceptable than full divestiture. In addition, assetvaluation problems are reduced, because leases with low rental valuesare easier to swallow psychologically and politically than sales at deepdiscounts from book value. The arrangements are in any case temporary.They allow for joint learning and experimentation, easing the way toeffective privatization later. Implementation of management contracts and leases is not withoutproblems. Too often they are on a fixed-fee basis, divorcingremuneration from performance. Often, also, governments are unable todeliver on their promises to keep hands off and/or to provide investmentand other funds as specified in the contract. Capacity building is oftenneglected. Additionally, leases often suffer from ambiguity inspecification of responsibilities, as in the societed'exploitation--societe de patrimoine model mentioned earlier. Thiscan lead to disconnects between operational needs and investmentplanning; the asset-owning SOE remains responsible for investments, asituation that demands close coordination, which is not alwaysforthcoming. Contracting out has the same advantages as management contractsand leases in terms of tentativeness, experimentation and politicalacceptability. Where workers' trade unions oppose outsourcing, itspolitical acceptability is less complete. Efficiency impacts areespecially likely, because it is easier to assure privatization intocompetitive markets. It also has the crucial advantage of beingwell-designed to meet the entrepreneurship-nurturing goals that shouldhave highest priority in low-income countries. Contracting out has other efficiency-raising advantages that areof special value in low-income country environments. It allows SOEs orcentral governments to employ specialized skills they cannot otherwiseafford to recruit or retain because of low salaries in the publicsector. It also allows use of specialized skills that are not neededfull-time. It raises economy-wide efficiency by increasingspecialization and by permitting greater exploitation of economies ofscale and scope for specialized activities or functions, and createsyardsticks for cost comparisons with in-house operations. It tends,finally, to use less capital-intensive methods of service delivery andproductions: it encourages taxis instead of big bus companies, cornertraders rather than big state trading operators, decentralized de��cen��tral��ize?v. de��cen��tral��ized, de��cen��tral��iz��ing, de��cen��tral��iz��esv.tr.1. To distribute the administrative functions or powers of (a central authority) among several local authorities. maintenance shops rather than concentrated, large workshops. Three main problems beset contracting-out privatization. First, itrequires substantial decentralized capacity in bid preparation,specification of norms for contracted services and payment systems thatare prompt. Second, it is open to abuse and corruption. And, finally,public employees, like private sector workers, generally dislikeoutsourcing. None of this is excessively constraining, as the growth ofsubcontracting in many poor countries attests. But it does mean thatspecial efforts are required to facilitate its wider use, and specialprecautions are essential to avoid corruption and favoritism. Information on the extent of indirect privatization is incompleteand diffuse; it is not tracked as carefully as other types ofprivatization. A recent worldwide search came up with about 160management contracts, a quarter of them in the hotel industry andanother quarter in agriculture. More are found in Africa thanelsewhere.(47) A survey in the early 1990s could identify only about 40leases and concessions in infrastructure sectors, divided between power,transport, and water/sewerage and about the same number ofcontracting-out arrangements, almost all of them in transport and mostin Africa.(48) However, these are surely underestimated.(49) The best evidence for the incidence of contracting-outarrangements is in cities in the United States. Data shows that localgovernments are rapidly shifting to contracting out for manyservices.(50) The federal government is also a major user of contractingout. Its versatility is illustrated by John Glenn's comment afterhis space flight, that he could not keep from worrying a little bit whenhe reflected that his spaceship was built with components from 50,000subcontractors. Conclusion No privatization glove fits all hands everybody; all parties.See also: Hand . A public offering may beright where the priority objectives are development of the stock marketand wider spread of share ownership, and where government has adequatetime and resources. Where overall economic growth is slow and publicsector assets are poorly used, sale to an outside investor may be themost promising route; it is likely to lead to the fastest restructuring,especially in the case of trade sales to foreign investors. For therapid sale of a large number of small- and medium-sized enterprises,auctions are the obvious method. Where speed is high on the prioritylist, as in transition economies with ambiguous property rights and weakcontrols where insiders have a strong stake, MEBOs are appropriate, inparticular for small- and medium-sized firms. To privatize large numbersof enterprises rapidly, there is no practical alternative to massprivatization schemes involving widespread distribution of ownership.Where there is a very small supply of modern sector capitalists andentrepreneurs, methods that give the highest priority toentrepreneur-creation should move to the fore. Here small-scaleopportunities have to be generated through the fragmentation of publicsector activities and through the leasing and contracting out. Much of the frustration that can surround privatization derivesfrom the inability of any method to fully satisfy the multipleobjectives that characterize typical programs. Public flotationsgenerate revenues for the state, invigorate in��vig��or��ate?tr.v. in��vig��or��at��ed, in��vig��or��at��ing, in��vig��or��atesTo impart vigor, strength, or vitality to; animate: "A few whiffs of the raw, strong scent of phlox invigorated her"capital markets and broadenshare ownership, but hasty hast��y?adj. hast��i��er, hast��i��est1. Characterized by speed; rapid. See Synonyms at fast1.2. Done or made too quickly to be accurate or wise; rash: a hasty decision. implementation and poor price-setting mayseriously dilute positive impacts for corporate governance. Trade sales,often the most efficient in terms of enterprise governance, raisenationalist hackles hacklesthe hairs over the neck and back that are elevated by arrector pili muscles in response to fright or anger. A mechanism to threaten opponents, perhaps by appearing larger. if foreign buyers appear, disturb egalitariansbecause of benefits to rich people and also may suffer from too-speedyimplementation or insufficient transparency. Politically attractive andsocially equitable instruments, such as mass distribution or transfersto trusts, often end up with insider-dominated buy-outs or concentratedownership by investment funds; effects on productivity through bettercorporate governance are uncertain. Two persistent trade-offs emerge--one between speed and thequality of privatization transactions, and the other between equity andimproved corporate governance.(51) As the discussion of Latin Americantelecommunications privatizations indicated, pressure to implementquickly can often lead to relatively unfavorable terms for privatizinggovernments and to situations where regulatory arrangements are poorlydefined. In the mass-privatization schemes of transition economies, fromMongolia to Russia where political conditions required insidercooperation, positive effects on enterprise productivity remain to beseen. The analysis provokes two other general observations. First, it iseasy to be simplistic sim��plism?n.The tendency to oversimplify an issue or a problem by ignoring complexities or complications.[French simplisme, from simple, simple, from Old French; see simple in judging the "success" or"failure" of privatization programs. What is probably the mostimportant criterion in most cases is the extent to which privatizationsets the stage for future private-sector development--that is, whetherit creates the political and/or institutional conditions that arefavorable to further liberalization or marketization This article or section is in need of attention from an expert on the subject.Please help recruit one or [ improve this article] yourself. See the talk page for details. . Judgements on this point are not simple. The approach ofencouraging expansion around the state enterprise sector, as in Chinaand Poland, has clearly led to extraordinary growth of the non-statesector, but the problem of inefficient public enterprises remainsunresolved and is worsening. The Russian approach so far has not led tosignificant improvements in corporate governance, but whether it hasblocked further change or made change easier is not yet clear. An emphasis on laying the groundwork for future private sectorgrowth implies a related conclusion. Policies regarding price and tradeliberalization, demonopolization and deregulation DeregulationThe reduction or elimination of government power in a particular industry, usually enacted to create more competition within the industry.Notes:Traditional areas that have been deregulated are the telephone and airline industries. , a hardening of budgetconstraints on SOEs, and regulatory systems that encourage externalshareholder participation may be more critical for private sectordevelopment than privatization of ownership by itself. Second, it is essential to prioritize pri��or��i��tize?v. pri��or��i��tized, pri��or��i��tiz��ing, pri��or��i��tiz��es Usage Problemv.tr.To arrange or deal with in order of importance.v.intr. objectives in definingprivatization strategies. In many low-income countries, aid donors andlocal policymakers are now considering the adoption of massprivatization methods as a way to get lagging privatization effortsmoving again. They may be right. But where, as in sub-Saharan Africa,the chief problem is the stimulation of entrepreneurship, it may bewiser to concentrate on methods that hit that target better, such asfragmentation or unbundling of functions, wider resort to leasing andcontracting-out arrangements and creating an environment in which newprivate firms can thrive. (1) Ahmed Galal et al., Welfare Consequencesof Selling Public Enterprises (Oxford: Oxford University Press, 1994)(2) World Bank, Bureaucrats in Business. The Economics and Politicsof Government Ownership. (Washington, DC: World Bank, 1995).(3) ibid.(4) World Bank, African Economic and Social Indicators (Washington,DC: World Bank, 1996).(5) See European Bank for Reconstruction and Development, TransitionReport, (London: European Bank for Reconstruction and Development,1995).(6) We also leave out privatization of finance (shifting payments forpublic goods and services from government budgets to private users) andmany issues specific to privatization of infrastructure and thefinancial sector.(7) Luca Barbone, Domenico Marchetti, and Sefano Paternostro,Structural Adjustment, Ownership Transformation, and Size in PolishIndustry, (Washington, DC: World Bank, 1996).(8) W. Tseng, E. K. Hoe, et al., "Economic Reform in China: ANew Phase" (Washington, DC: International Monetary Fund, 1994);W.T. Woo, The Art of Reforming Centrally-Planned Economies: ComparingChina, Poland and Russia," Journal of Comparative Economics (June1994) pp. 276-308; W.T. Woo, Chinese Economic Growth: Sources andProspects (University of California The University of California has a combined student body of more than 191,000 students, over 1,340,000 living alumni, and a combined systemwide and campus endowment of just over $7.3 billion (8th largest in the United States). , 1996).(9) This privatization through liberalization is clearly related toso-called "nomenklatura no��men��kla��tu��ra?n.1. The system of patronage to senior positions in the bureaucracy of the Soviet Union and some other Communist states, controlled by committees at various levels of the Communist Party.2. (used with a pl. privatization" in some transitioneconomies, in which enterprise insiders (especially managers andbureaucrats) appropriate physical assets or profit streams from thestate enterprises they control. However, such practices are only part ofthe story; state enterprises will also release assets and workers ifthey are under enough financial pressure. See A. Berg "DoesMacroeconomic Reform Cause Structural Adjustment? Lessons FromPoland," Journal of Comparative Economics (1994) pp. 376-409.(10) Roger Leeds, Privatization Through Public Offerings: LessonsFrom Two Jamaican Cases," Privatization and Control of State-OwnedEnterprises, R. Ramamurti and R. Vernon, eds. (Washington, DC: EconomicDevelopment Institute of the World Bank, 1991) p. 98.(11) Joseph Borgatti, "Methods of Privatization of State-OwnedEnterprises," paper presented at the Methods and Practices ofPrivatization Conference (New York New York, state, United StatesNew York,Middle Atlantic state of the United States. It is bordered by Vermont, Massachusetts, Connecticut, and the Atlantic Ocean (E), New Jersey and Pennsylvania (S), Lakes Erie and Ontario and the Canadian province of , 1993).(12) "Privatisation Noun 1. privatisation - changing something from state to private ownership or controldenationalisation, denationalization, privatizationsocial control - control exerted (actively or passively) by group action in Europe: Is the Price Right?"Economist (23 November 1996) p. 87.(13) ibid.(14) M. Mohiuddin, Reform of the Bangladeshi Para-Public Sector:Situation and Prospects, (Clermont-Ferrand, France: CERDI, University ofthe Auvergne The University of the Auvergne (Universit�� d'Auvergne) is a French university, based in Clermont-Ferrand. It is under the Academy of Clermont-Ferrand. See alsoUniversity of Clermont-Ferrand List of public universities in France by academy , 1996).(15) It is also possible, of course, to use regional or even richcountry stock markets. Ghana's Ashanti Goldfields Co. is listed inNew York, for example, as are many privatized Latin American utilities.(16) World Bank, From Plan to Market: World Development Report 1996(Washington, DC: World Bank, 1996), p. 53 provides data on the incidenceof privatizations in transition economies broken down by method.(17) These typically were used only for small companies. Only 2 ofthe 20 biggest privatizations in sub-Saharan Africa as of the end of1995 used public flotations (World Bank, 1996).(18) In one week in October 1996, the International Herald Tribuneadvertised the sale of cotton ginneries in Uganda, and the Economist hadan advertisement seeking qualified firms that could prequalify to bidfor a 31 percent interest in Mozambique National Airlines. (19)Borgatti, p. 53(20) There also may be tax reasons to sell assets rather than goingconcerns through share transfers--benefits from tax loss carryovers, forexample.(21) R. Ramamurti, ed., Privatizing Infrastructure in DevelopingCountries: Lessons from the Telecom and Transport Sectors in LatinAmerica (Baltimore, MD: Johns Hopkins University Johns Hopkins University,mainly at Baltimore, Md. Johns Hopkins in 1867 had a group of his associates incorporated as the trustees of a university and a hospital, endowing each with $3.5 million. Daniel C. Press, 1994).(22) In Mexico, political and nationalist objectives led tostipulations that bidding consortia be controlled by Mexican nationals;the result was almost surely a lower price than might have beenachieved. The other three countries allowed foreign control.(23) World Bank data from a special study on privatization insub-Saharan Africa (unpublished). Preliminary results are in World Bank,1996.(24) Helen Nankani, "Techniques of Privatization of State-ownedEnterprises," World Bank Technical Paper no. 89, vol. 2(Washington, DC: World Bank, 1988).(25) World Bank, Private Sector Development in Low-Income Countries,Development in Practice (Washington, DC: World Bank, 1995).(26) In Honduras, a steel-rolling mill that had never opened was soldfirst on a debt swap Debt swapA set of transactions in which a firm buys a country's dollar bank debt at a discount and swaps this debt with the central bank for local currency that it can use to acquire local equity. Also called a debt-equity swap. basis to a U.S. fabricator fab��ri��cate?tr.v. fab��ri��cat��ed, fab��ri��cat��ing, fab��ri��cates1. To make; create.2. To construct by combining or assembling diverse, typically standardized parts: , who planned to use theplant to cast rail crossings. After a while this technical partner fellout, supposedly because it had been bought out by a French company thatwas not interested in the Honduras deal. The mill was then sold by debtswap to a Miami bank that was associated with the two original promotersof the first deal. The new group spent years searching for money andtechnical partners, while the mill remained unopened (Borgatti, p. 47).These kinds of problems are not restricted to noncompetitive sales; theyalso occur after formal tenders.(27) Of 549 noncompetitive transactions, almost 300 were sales ofshares, 135 were sales of assets, 77 entailed preemptive rights and 30restitutions, while sales to trusts numbered 13.(28) Example: A power company's assets are valued at $100million. A buyer puts up $50 million in cash for 50 percent of theequity. The remaining state-owned 50 percent is given to pension funds.The new $50 million is available for company use.(29) Advertisement by Bolvian authorities, International HeraldTribune (October 1996) p.8(30) John S. Earle et al., "Small Privatization: TheTransformation of Retail Trade and Consumer Services Consumer Services refers to the formulation, deformulation, technical consulting and testing of most consumer products, such as food, herbs, beverages, vitamins, pharmaceuticals, cosmetics, hair products, household cleaners, [paints, plastics, metals, waxes, coatings, minerals, in the CzechRepublic, Hungary, and Poland," CEU CEU Continuing Education UnitCEU Central European UniversityCEU College of Eastern Utah (Price, UT)CEU Centro Escolar University (Manila, Philippines)CEU Centro Escolar University Privatization Reports vol. 3(Budapest: Central European University CEU was established in 1991 with campuses in Prague, Czech Republic, and Budapest, Hungary, after an idea of several Central European intellectuals received financial support from George Soros. Press, 1994).(31) Borgatti, p. 49(32) As described by Sharit K. Bhowmik, "Takeovers by Employees:A Response to Privatization in Pakistan," Economic and PoliticalWeekly (29 April 1995) p. 931-933.(33) The company had 830 employees when it was taken over, of whom athird were executives. Some 250 employees were quickly fired, withgenerous severance payments. Staffing in 1994 was 533, of whom 170 wereexecutives. Labor productivity is said to have much increased; outputhas more than doubled; profitability has returned and the firm isdiversifying its output and expanding.(34) Georges Korsun and Peter Murrell, Ownership and Governance onthe Morning After: The Initial Results of Privatization in Mongolia(College Park, MD: Center for Institutional Reform and the InformalSector University of Maryland University of Maryland can refer to: University of Maryland, College Park, a research-extensive and flagship university; when the term "University of Maryland" is used without any qualification, it generally refers to this school , 1994).(35) Of the 3,075 enterprises privatized or in the process of beingprivatized from 1990 through 1994, 2,231 of them were done through"liquidation." See Central Statistical Office, RocznikStatystyczny (Statistical Yearbook) (Warsaw: Central Statistical Office,1995).(36) Andrew, Berg, "The Logistics of Privatization inPoland," Jeffrey Sachs Jeffrey David Sachs (born November 5, 1954, in Detroit, Michigan) is an American economist known for his work as an economic advisor to governments in Latin America, Eastern Europe, the former Yugoslavia, the former Soviet Union, Asia, and Africa. , Olivier Blanchard Olivier Jean Blanchard (born December 27, 1948, Amiens, France) [1] is currently the Class of 1941 Professor of Economics at MIT.Blanchard earned his Ph.D. in Economics in 1977 at MIT. , and Ken Front eds. NBER NBER National Bureau of Economic Research (Cambridge, MA)NBER Nittany and Bald Eagle Railroad Company Conference on Transition in Eastern Europe, (Chicago: University ofChicago Press The University of Chicago Press is the largest university press in the United States. It is operated by the University of Chicago and publishes a wide variety of academic titles, including The Chicago Manual of Style, dozens of academic journals, including , 1994). (37) Earle, page xxviii, says that they "havefound clear evidence that the entry of new entrepreneurs, not connectedwith the predecessor retail establishments, is the most significantfactor in increasing the levels of post-privatization investment."See also Barberis et. al.(38) John S. Earle and Saul Estrin, "Employee Ownership inTransition," Froman Frydman, Cheryl W. Gray and AndrzejRapaczynski, eds., Corporate Governance in Central Europe Central Europe is the region lying between the variously and vaguely defined areas of Eastern and Western Europe. In addition, Northern, Southern and Southeastern Europe may variously delimit or overlap into Central Europe. and Russia,(Budapest: Central European University Press, 1996) pp. 62-77.(39) It is worth noting that "voucher privatization" is nota useful category, as it fails to specify what will be sold (the supplyside) or even how the vouchers are to be used (MEBOs, auctions, IPOs andso on).(40) Many of the best enterprises were apparently sold throughtender, not through vouchers. In part, this reflects the fact thatinterested buyers and the enterprise management could negotiate a salein the context of the proposed plan.(41) See Maxim Boycko, Andrei Shleifer Andrei Shleifer (born February 20, 1961) is a prominent academic economist. He was born in Russia and emigrated to Rochester, NY as a teenager. He then studied economics, obtaining his Ph.D. at MIT in 1986. , and Robert Vishney,Privatizing Russia (Cambridge: The MIT MIT - Massachusetts Institute of Technology Press, 1995).(42) A 1994 survey of some 400 Russian enterprises provides supportfor these conclusions. For example, privatized firms did indeed havefewer links with the government than state-owned firms. See SimonCommander, Qimiao Fan, and Mark E. Schaffer, Enterprise Restructuringand Economic Policy in Russia (Washington, DC: World Bank, 1996).(43) These conclusions are based in part on Commander, Fan andSchaffer.(44) Barbaris et. al.(45) Georges Korsun and Peter Murrell.(46) A. H. Shaikh and M. Minovi, Management Contracts: A Review ofInternational Experience, (Washington, DC: World Bank, 1994).(47) ibid.(48) Christine Kessides, Institutional Arrangements for the Provisionof Infrastructure: A Frame-work for Analysis and Decision-Making,(Washington, DC: World Bank, 1993).(49) Elliot Berg, "Privatization in sub-Saharan Africa: Results,Prospects, and New Approaches," JoAnn Paulson, ed., The Role of theState in Key Markets, (London: MacMillan, 1996).(50) Between 1987 and 1995, the percentage of local governmentscontracting out rose as follows: janitorial services, 52 to 70 percent;garbage collection A software routine that searches memory for areas of inactive data and instructions in order to reclaim that space for the general memory pool (the heap). Operating systems may or may not provide this feature. , 30 to 50 percent; building maintenance, 32 to 42percent; security services Security services are state institutions for the provision of intelligence, primarily of a strategic nature, but also including protective security intelligence. Examples include the Security Service (MI5) and the Secret Intelligence Service (MI6) in the United Kingdom, and the , 27 to 40 percent; street maintenance andrepair, 19 to 37 percent and data processing, 16 to 31 percent. (Datafrom Mercer Group, Inc.).(51) The generality gen��er��al��i��ty?n. pl. gen��er��al��i��ties1. The state or quality of being general.2. An observation or principle having general application; a generalization.3. of the trade-off between speed and quality isindicated by its frequency in the case studies detailed in ChristopherAdams, W.P. Cavendish, and Percy Mistry, Adjusting Privatization: CaseStudies form Developing Countries, (London: James Currey, 1992).