Privatization And Poverty: The Distributional Impact of Utility Privatization

Abstract

This article examines the e¡ects on poverty of privatization, an impact to which donors have given little attention in their concern with e⁄ciency and markets. The analysis of the distributional impact of privatization activities draws on empirical cases in the utilities sector in a wide range of developing economies, principally in Africa and Latin America. After a critical consideration of the World Bank position on privatization strategies, and the arguments presented by donors on the pro-poor e¡ects of these economic reforms, the article turns to the negative distributional e¡ects. It is argued that privatization has demonstrably damaged the poor, whether through loss of employment and income, or through exclusion from, or reduced access to, basic services. This is mainly because private ¢rms are principally concerned with pro¢ts, prices and costs, and are highly selective as to sectors and types of consumer. Meanwhile, the weakness of governance and regulatory capacity in many developing countries lead to poor control of market abuses. The article concludes by proposing that donors should take more account of local variations in state^market relations, and be prepared to give consideration to alternative economic strategies where privatization is not working as intended.

Partnerships for Development: Four Models of Business Involvement

“…Not only has investment not been forthcoming, but also critics have argued that firms have basically cherry-picked the best opportunities. Insofar as the best opportunities tend to lie in higher income countries, this means that the countries most in need of investment tend to get less (Bayliss, 2002;Estache, 2007;Prasad, 2005). With regard to the cost-recovery conditions, this is generally implemented in all CBPs.…”

“…The effect of these measures combined with higher tariffs has been to effectively cut off large sectors of the poor to essential services (especially water). In addition, the emphasis on costrecovery has probably contributed to the failure of firms to live up to service obligations targets (Bayliss, 2002;Loftus and McDonald, 2001).…”

“…Third, it is not clear that privatization has had any impact on reducing the role of corruption (Estache, 2007). To the contrary, corporate watchdogs and other critics point out that suspicion of corruption and bribery remains very high, though actual evidence is hard to come by (Bayliss, 2002;Loftus and McDonald, 2001;Transparency International, 2008).…”

IMF Lending and Poverty in Developing Countries

“… Extensive privatization schemes, agreed upon between impotent and corrupted local governments, and powerful multinationals with a blatantly higher negotiating power, are claimed to have led to an unprecedented raise of unemployment (Weissman, 1990;Adedeji, 1999;Banchiringah, 2006), large-scale forceful population displacements (Hilson and Potter, 2005) and denial of access to basic goods like water and electricity for vast parts of the domestic populations (Ismi, 2004;Saprin, 2001). It is also debatable whether the privatized services' overall performance has at all been improved, or instead severely deteriorated (Bayliss, 2002). Regarding infant mortality, it should in no case be deemed as a merely demographic indicator since it embraces even more of the 'causal influences on the quality of life and the survival chances of people' (Sen, 1995: 11) than the ones captured by some of the traditionally used purely economic variables.…”

Governance Structures and Mechanisms in Public Service Organizations Theories, Evidence and Future Directions

“…These gains are claimed to be extracted from consumers through the use of market power (Bayliss, 2002). Moreover, the most serious concern with privatization, as it has so often been practiced, is corruption .…”