Why Does Privatization More Successful in Some Countries Than in Others - Essay Example

As privatization of state-owned enterprises becomes a common phenomenon in the globalizing world, it must be remembered that privatization is not equally carried out among countries. Countries differ as far as privatization is concerned and this has resulted in some countries realizing profound success as compared to other countries. Therefore, different factors interplay and operate in the wider environment with regard to a specific country as far as privatization is concerned.

          Unsuccessful privatization has largely been associated with developing states as compared to developed states (Boulle 2009). Different varying but common factors have been provided for this. Most states that have realized unsuccessful results with regard to privatization have been associated with political and institutional factors that normally complicate the success of implementing goals of privatization. These political factors are captured in aspects such as corruption; manipulation of regulatory agencies; limited technological expertise; and weak auditing, accounting, and tax systems (Boulle 2009). On their part, Kikeri, Nellis, and Shirley (1994) identify two categories of factors that make privatization successful (Boubakri and Cosset 1999). According to the authors country’s conditions and market conditions combine to dictate the success or failure of any privatization initiative. Accordingly, the country conditions that lead to successful privatization include open trade regime, a stable and predictable environment for investment, and enhancement of a developed institutional and regulatory capacity (Boubakri and Cosset 1999). On the other hand, market conditions congregate around the creation of an environment that is competitive which also promotes efficiency (Boubakri and Cosset 1999). In addition, market conditions need to promote and make it effective for tradable goods and services to be carried out an aspect that motivates the private sector.

          It can be noted that countries in the developing world that have largely failed in their privatization initiatives exhibit greatly rigid regulation structure and competition policy is dysfunctional. More so, these states are faced with the problem of lack of certain critical economic conditions such as developed capital markets, competitive goods, and services markets, and effective regulatory capacity, which when present can help the states to establish effective and successful privatization policy (Boubakri and Cosset 1999). At the same time, the success of the government and implementation of its policies has been associated with success in privatization. For example, many states in less developed countries are characterized by failed governments and as a result, the adoption of privatization programs has been hindered. To further complicate matters, the failed governments have been the reason for the lack of reforms that would otherwise increase the competitiveness of the economy and also have been associated with corruption at all levels. Therefore, due to failed governance, the overall environment that would have supported the thriving of privatization in less developed countries has been diluted if not corrupted.

          As a way of realizing success in privatization, less developed countries have been advised to effectively create an enabling environment in which the private sector can successfully operate. To do this, less developed countries need to undertake macroeconomic reforms, improve the regulatory framework, strengthen the financial system, reduce barriers to competition, deregulate product and factor markets, and lastly, improve governance (Boubakri and Cosset 1999). In summary, it can be said that less developed countries have been victims of the failure of privatization initiatives as compared to their counterparts in developed nations.