2 - The Decline of State-Owned Enterprise and the New Foundations of the State-Industry Relationship

Summary

This essay deals with the decline in the role of the state as the owner of enterprises. This decline has come about through privatization policies in most industrialized countries as well as in many less advanced countries. This essay does not intend to provide a comprehensive account of such a wide and complex phenomenon. Rather, it attempts to identify and discuss the key issues in the historical analysis of privatization.

The historical record of privatization is impressive by any standard. The importance of the state's retreat from ownership and management of business activities in certain fields can hardly be underestimated. Undoubtedly this retreat implies an unprecedented opportunity for the private sector. It redrafts national political economics and injects profit-oriented and competition-minded entrepreneurship into the mix.

The quantitative dimension of the phenomenon can be only approximately estimated. The most authoritative source, the World Bank, presented figures indicating a clear escalation in the number of transactions. These reached 2,655 in 1988–93, significantly (but not solely) affected by the “transition economies” of formerly Communist countries. In terms of value, divestitures in industrial countries represent the largest share (about 65 percent) of the worldwide phenomenon (Table 2.1). More recent data confirm the growing trend. According to press sources, 240 privatization operations were accomplished worldwide in 1996 alone, with a value of almost $90 billion.