chapter  9
Reviewing the Effectiveness of Privatization as Enterprise Sales
ByGraeme A. Hodge
Pages 55

This chapter addresses the following question: What is the general relationship between performance and privatization when people view privatization as the sale of a government enterprise? To the extent that performance is improved with private ownership, the sale of an enterprise may offer a permanent change for the better. A major foundation underpinning privatization is the belief that enterprise efficiency will improve. The sale of enterprises was confirmed as generally being associated with improvements in total factor productivity. Many of the most significant improvements in total factor productivity in the monopoly utilities took place before privatization. Several studies concluded that privatization was clearly followed by higher profitability. D. Parker and K. Hartley pointed to a weak relationship between privatization and improved profitability. The former shareholders consistently lose at least some of the value of the enterprise. The tradition of welfare economics enables projected welfare changes for all groups in the community to be made explicit.