The most commonly used theoretical rationale for the promotion of markets or a reduction in the role of the state refers to the welfare optimality of a perfectly competitive marketplace. Under this neoclassical paradigm, a shift to private-sector ownership, in and of itself, may offer slim benefits unless market structures are conducive to competition. In a competitive marketplace where there are a large number of firms, all of whom individually have no influence over the price of the good or service but decide only the quantity they will produce, then a welfare-maximizing outcome is predicted. The unlikelihood of perfectly competitive markets is widely recognized, but it is often argued that although the market may fail, the outcome will still be a relatively efficient one and probably better than that resulting from a non-market solution. Institutional economics approaches the argument from a rather different perspective. Its focus on property rights suggests that private ownership may have an intrinsic effect by providing appropriate incentives to the service providers; efficient service results in higher profits. It is argued that generally the lack of property rights in the public sector leads to inadequate incentives for efficient behaviour.
Political theory provides another type of rationale for a realignment of the state. The ascendancy of neo-liberal thinking has reasserted the rights of individuals to trade and to purchase the goods and services upon which they place high priority. Thus Andreano (1993) suggests that as an individual’s preferences, rights and values are central to most societies, private markets are also essential. In this context the global wave of democratization, both in former communist countries and in previously single-party states in Africa, has been an important impetus to reconsidering the role of the state.
Although trends in economic and political theory provide an in-tellectual climate more conducive to private ownership and markets than previously, pragmatic solutions to external and internal political pressures are probably more responsible for effecting actual change. In many developing countries there is a disillusionment with models of extensive state intervention in the market; the results achieved by government in sectors as diverse as health, textile production and agricultural marketing are perceived to be disappointing. Bureaucracies have been viewed as functioning on the basis of patronage, furthering the interests of employees rather than service recipients or the general population. At the same time the fiscal situation in developing countries a has come under pressure both from greater spending commitments and declining tax bases. The obvious response to these problems is to downsize government.
Arguments focusing upon the failure of government to produce ef-fidendy goods and services are obviously more true for some sectors and some countries than for others. In the industrial sectors where there may be a limited degree of market failure and weak welfare I arguments for government intervention, criticisms of the role which government has played are perhaps strongest. In the sodal sectors these I arguments deserve more critical examination. During the 1980s and 1990s, sodal sectors such as health and education have, despite recent efforts to buffer them, been progressively squeezed financially (Pinstrup-Andersen et al. 1987). Shrinking government budgets and burgeoning debt-servicing commitments have meant that in some countries sodal services have functioned with insuffident resources available to meet operating costs. For example, in Zambia during the 1980s real expenditure on education fell by two-thirds and expenditure on health by approximately one-half. As much as 70 per cent of government healthcare recurrent expenditures in Zambia have been absorbed by staff salaries (World Bank 1992.). The inability of governments to fund the operating costs of existing facilities has clearly contributed to the image of an ‘over-extended’ state. Despite this fiscal context and the undeniable deterioration of government services in many countries, remarkable achievements have been made in the social sectors by active government intervention. Health indicators for countries such as Sri Lanka and Cuba, and some states in Southern India such as Kerala, are much better than would be anticipated on the basis of income alone. This relative advantage has been achieved through high levels of public investment in primary health care and other social services (Cumper 1983).
In response to the different rationales for privatization and the very different characteristics of sectors there are a variety of privatization strategies. The literature on privatization in developing countries distinguishes between incremental privatization, which is a largely unplanned response to the failure of the public sector, and programmed privatization which originates from the implementation of pro-private government policies. On the whole, both in the productive and social sectors, it seems that incremental privatization is more widespread than programmed privatization, despite much discussion of the latter.
Commander and Killick (1988) distinguish five types of (programmed) privatization including:
• divestiture (sale of public-sector assets)
• franchising/contracting out
• market liberalization/deregulation
• withdrawal from state provision.
Incremental privatization occurs in association with the last of these, where withdrawal from state provision has happened on a de facto rather than programmed basis. Households and enterprises find their own market or collective solutions, often through the use of parallel markets (DAG/ODG/HPU 1994).
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