This is a review of the World Bank’s use of privatization as a means to improve the performance of state-owned enterprises (SOEs) in its client countries. SOEs became matters of great concern to client governments of the World Bank in the 1970s and early 1980s, as their financial losses and poor quantity and quality of production mounted. The World Bank first approached the problem through policy, financial, and managerial reforms in SOEs and their supervising agencies. Most efforts were short of ownership change; privatization was only tentatively discussed. Positive results were modest and, more important, generally unsustainable. The World Bank—and indeed much of the world—turned to divestiture in the mid-1980s, and especially in the period 1990-2005. By the end of the 1990s, over half of World Bank SOE-related operations contained a privatization component. In the ensuing period, privatization lost its luster; the number and scope of World Bank-sponsored privatization actions declined greatly. The World Bank then employed, far more extensively than in the previous period, corporate governance actions, competition enhancement measures and SOE financing reforms.
This paper describes the course of the rise and fall of privatization in the World Bank. While acknowledging that privatization was far more difficult than anticipated to implement correctly, particularly in low-income and institutionally weak countries, the continuing difficulty of applying technical fixes to still large, still underperforming, and still capital-short SOE sectors justifies a renewed attempt at privatization.
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