Buiter, Willem; Vagliasindi, Maria --- "The case of privatization of network utilities" [2003] ELECD 120; in Tumpel-Gugerell, Gertrude; Mooslechner, Peter (eds), "Structural Challenges for Europe" (Edward Elgar Publishing, 2003)

Book Title: Structural Challenges for Europe

Editor(s): Tumpel-Gugerell, Gertrude; Mooslechner, Peter

Publisher: Edward Elgar Publishing

ISBN (hard cover): 9781843764748

Section: Chapter 20

Section Title: The case of privatization of network utilities

Author(s): Buiter, Willem; Vagliasindi, Maria

Number of pages: 33

Extract:

20. The case of privatization of
network utilities
Willem Buiter1 and Maria Vagliasindi2

1. INTRODUCTION

The sale of state-owned enterprises to private investors during the past two
decades represents a political, social and economic phenomenon of the first
order. It has been associated with major redistributions of wealth, power and
influence ­ economic as well as political. It also has had important social
consequences, both through the reduction in (and often the complete ending
of) the role of the privatized enterprises in the provision of the social safety
net and of other public goods and services, and through the large-scale
redundancies often associated with the restructuring that preceded or fol-
lowed privatization. These privatizations were part of a broader reversal of
public policy ­ a withdrawal by the government from direct economic
engagement in many industries that had come to be regarded as `strategic'.
The financial consequences of these privatizations have also been significant.
The financial impact of the privatization of network utilities, in terms of
market capitalization, trading volumes and investor participation, has been
remarkable. In particular, telecom share issues often accounted for 30 per
cent of total capitalization and even a greater share of total trading value.
As the experience of the Western and Eastern European countries dem-
onstrated, in order to be effective, privatization should be complemented by
reforms stimulating competition and by broader regulatory reforms. For
instance, public policy should take into account the fact that a privatized
monopoly will often attempt to use its money ...