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MotivationPrivatization – central element of reforms in the last
25 years from Mexico to Indonesia to Kyrgyzstan
More generally, secure property rights critical to economic development and political stability.
Benefits seem to outweigh the costs in most, but not all settings (Netter and Megginson 2005)
But Everyone hates privatization
Majorities in every post-communist country prefer revising privatization to keeping the status quo
Road Map
Public Opinion toward Privatization
Almost everyone hates privatization, but why?
What can be done?
Co-authors: Irina Denisova, Ekaterina Zhuravskaya and Markus Eller
Data“Life in Transition” Survey, EBRD and WB, 200628 post-communist countries in Europe and
Central Asia
Representative sample of 1000 individuals in each country, face-to-face interviews Information on HH income and assets, individual
education, employment history, hardships during transition, and attitudes towards markets, democracy, and privatization
Individual attitudes towards revising privatization
“In your opinion, what should be done with most privatized companies? They should be…
1. Left in the hands of current owners with no change
2. Renationalized and kept in state hands3. Renationalized and then re-privatized again using
a more transparent process4. Left in the hands of current owners provided they
pay privatized assets’ worth.”
Responses
Renationalize and keep in state hands
Renationalize & re-privatize
using a more transparent
process
Leave with current owners provided that
they pay privatized
assets’ worth
Leave with of current
owners with no change
PERCENT 29.0 16.7 34.8 19.4
Cumulative 29.0 45.7 80.6 100
Responses in selected 10 countries
2443
20
5237 31 41
12 22 20
2913
14
1113 32
26
20 11 7
41 3253
2332 14 9
3723 26
0102030405060708090
100
Croat
ia
Ukrai
ne
Roman
ia
Uzbek
istan
Russia
Geo
rgia
Azerb
aijan
Slove
nia
Eston
ia
Belar
us
Make current owners pay Renationalize and then re-privatize Renationalize and keep in state hands
% o
f re
spon
dent
s
Interpreting the Data
Eighty percent of respondents favor revising privatization in some way…
A Majority in every country favor revising privatization in some way
But…
Less than a third favor having privatized assets ultimately reside in state hands
Inappropriate to equate opposition to privatization with support for nationalization
Who supports expropriation?
Even if we consider support for expropriation, that is
renationalize or reprivatize == 46%
Versus
pay tax or leave in hands of current owners == 53%
Part II. WhyMacro Level ExplanationsNot type of privatization (although badly
measured)
Voucher/non-voucher, sales versus giveaways
Weak evidence that early privatizers have less opposition
Not Economic PerformanceNot Economic performance
E.g., economic growth and inflation rates unrelated
Not surprisingHard for economists to pinpoint effects
Privatization policies differ Non-random selection of firms into privatization
Politicians among others exaggerate costs and benefits of privatization
Not a Soviet Legacy
in 17 Latin American countries Latino Barometer
Percent Agree with statement “Privatization has been beneficial to the country.”
1998 46% 2000 35%2002 28%
Privatization Paradox
Even beneficiaries of privatization don’t like it.World Bank 2005
But See Di Tella (2010)
Institutions Matter on AverageAverage citizen in more democratic and
better governed countries expresses less opposition to expropriating privatized property in postcommunist world.
For some groups institutions matter a great deal
• Under democracy high skilled more strongly oppose revising privatization
(low skilled equally opposed under autocracy and democracy)
Interact Democracy with Market SkillsControl for individual level variablesAnd extent of privatization and country wealth
Predicted effect of interaction between democracy and market skills on public support for revising privatization
0.2
0.3
0.4
0.5
0.6
0.7
0.8
1 1.6 2.2 2.8 3.4 4 4.6 5.2 5.8 6.4 7
X Const
Pre
dic
ted
pro
bab
ility
Entrepreneurs+professionals
Non-entrepreneurs+non-professionals
Change in probability of supporting a revision of privatization moving from high to low skilled...
-0.15
-0.1
-0.05
0
0.05
0.1
0.15
0.2
0.25
1 1.6 2.2 2.8 3.4 4 4.6 5.2 5.8 6.4 7
X Const
Ch
ang
e in
pre
dic
ted
pro
bab
ility
: en
trep
ren
eur
or
pro
fess
ion
al t
o n
on
-en
trep
ren
eur
and
no
n-p
rofe
ssio
nal
pm plo phi
More Generally.,,
Suggests a complementarity of economic and political reform
Suggests that different coalitions might be needed to support reforms in democracies and autocracies
Individual Level ExplanationsOlder, less skilled, and less healthy support revising
privatization
More wealthy, and home-owners oppose revising privatization
Controlling for country-fixed effects
Empirical strategy
Renationalize and keep in state hands
Renationalize and then re-
privatize
Make current
owners pay
Leave with no change
(1) (2) (3) (4)
Preference for or against privatization revision:
For For For Against B1+B2+B3>B4
Reason - prefer state property: State Private Private Private B1>B2+B3+B4
Reason - unfair privatization: Unfair Unfair Fair B2+B3>B4
Test:
Run Multinomial Logit regressions with probability of choosing each of the 4 outcomes as dependent variable on the variables of interest (i.e., individual characteristics)
Perform the following tests on the marginal effects
Results, direct effects: human capital and wealth
Age For *** State ***Low-skills occupation For * State ***Self-reported poor health status [1-excellent, …, 5-poor] For *** State *** Unfair **Education="Secondary" - comparison group ="Below secondary" Against ** Fair ** ="Professional, vocational training" For * ="Higher" Private ** Unfair *
Ownership of a house or apartment Against ** Private ***Wealth (Decile of per capita household consumption) Private *** Unfair ***Self-accessed increase in wealth 1989-2006 Against *** Private ***
Preference for or against revision of
privatization:
Reason: Superior
property type
Reason: Fairness of
privatization
• Older, less skilled, and less healthy are in favor of privatization revision and have preference for state property (losses from wage decompression)
• Education level increases the sense of unfairness
• Assets, wealth, and income => against revision and prefer private property; relative income => unfairness (the richest are not in the sample)
Part III. What is to be done?Is privatization unpopular because of the
process of privatization?
Can privatized assets be made more legitimate after privatization?
Legitimacy of initial distribution of property unimportant
“They (factory managers) steal and steal and steal. They are stealing absolutely everything and it is impossible to stop them. But let them steal and take their property. They will then become owners and decent administrators of this property.”
Anatolii Chubais, Head of State Committee on Property of the Russian Federation.
An Alternative View: Legitimacy matters
“This golden watch remains mine only as long as everybody around me agrees that it really belongs to me. If 90% of my neighbors should think different, I wouldn’t be able to sleep soundly anymore.”
Anonymous Banker in Russia
Two arguments:Can providing Public Goods increase support
for privatization? (Good Works)
Can investing in the firm increase support for privatization?(Good Use)
Survey Details
Levada Center
1600 respondents in a nationally representative sample in October 2006
Face to Face Interviews
Response Rate 57 percent
Call Back 20 percent
Survey Based ExperimentRandomly assigned 8 versions of a question.
Manipulate type of good works, investment and severity of violations of privatization
Differences in responses only due to small changes in question wording.
Clean Test
A Survey Experiment on Privatization Let’s say that an industrial firm was privatized in the mid-1990s. After privatization, the managers of the firm invested [almost none/a great deal] of their own capital in the modernization and restructuring of their firm and they have provided [no/many] social programs for the development of the region. It turns out that the firm was privatized with [minor/major] violations of the Law on Privatization. Do you believe that this matter should be turned over to the courts?
1. Yes 2. More or less Yes 3. More or Less No 4. No If the respondents answered “yes” or “more less yes” then the interviewers asked: What steps should the judge take in this matter?
1) Firm should be returned to state ownership 2) Firm should be privatized to new owners 3) The guilty should pay a significant fine 4) The guilty should pay a small fine 5) Since so much time has passed nothing should be done
Percentage in Support for Revising Privatization when Violations are Major and….
Percentage in Support for Revising Privatization when violations are Minor and …
Results from Survey Experiment
Public goods provision can increase legitimacy of property rights, but …
Only 20 percent of respondents know which firms are providing public goods to the community.
Other Results
On its own good use of an asset has little effect on the legitimacy of privatization. No Sweat Equity effect.
Process Matters. More severe violations provoke more opposition to privatization.
Conclusion1990’s era of privatization, 2000’s era of
renationalization
Algeria, Bolivia, Chad, Dubai, Ecuador, Kazakhstan, Russia, Ukraine, Senegal, Venezuela, Zimbabwe and elsewhere
Why so few renationalizations?Is threat of renationalization sufficient?Spillover effects of renationalization
Who Expropriates
Broader Literature autocracies and resource booms promote
renationalization (Guriev et al. 2011)
Autocrats in Latin America use renationalization to their supporters to signal commitment to them Albertus and Menaldo (2011)
Optimistic NoteMuch opposition from those without market
skillsShould ease over timeOlder workers with market skills oppose
privatization significantly less
Opposition from losses during transitionShould also ease over time
Support for private property is relative high, even as support for privatization is low
Thank you.
Privatization vs PrivatizationPrivatization of the 1990s in Russia, had
many unique features – essentially a political project
In some respects, privatization today has more economic basis
President Kirchner on his own privatization “There are companies, like Aguas Argentinas,
that should acknowledge that what they did to us is shameful, because they have taken five thousand million dollars and did not even built two pipes”
Impacts of Revising Privatization
Sonin and Goryayev (2011) on impact of YUKOS on stick prices of other firms
Depressed private oil price, loans for shares firms, and boosted share prices of Gazprom
Minor violations Good Use No Good Use
Public Goods .63 .71 Provided N= 164, 147 No Public Goods .71 .72 Provided N = 154, 144 Percent “yes” or “more or less yes” responses.
(Minor) versus Major violations Good Use No Good Use
Public Goods .65 .72 Provided (.63) (.71) No Public Goods .84 .83 Provided (.71) (.72) Percent “yes” or “more or less yes” responses. Bold indicates responses when violations were minor.
Major ViolationsGood Use No Good Use
Public Goods ProvidedN= 176, 160
.24 = renationalization.17 = reprivatization
.19 = big fine.03 = small fine .03 = do nothing
.36 = do not review
.39 = do nothing/no review
.34 = renationalization.17 = reprivatization
.14 = big fine.04 = small fine .03= do nothing.33 = no review
.36 = do nothing/no review
No Public Goods ProvidedN = 179, 164
.33 = renationalization.23 = reprivatization
.19 = big fine.06 = small fine.04 = do nothing
.16 = do not review
.20 = do nothing/no review
.32 = renationalization.20 = reprivatization
.18 = big fine.04 = small fine .03 = do nothing
16= do not review
.19 = do nothing/no review
Probability of Supporting Revision
Minor Violations
No Good Use
Good Use
No Public Goods
.67
.67
t = .08
Public Goods
.63
.53
t = 1.8
t = .52
t = 2.5
Major Violations
No Good Use
Good Use
No Public Goods
.75
.75
t = .06
Public Goods
.64
.59
t = 1.0
t = 2.1
t = 3.2
Minor ViolationsInvestment No Investment
Public GoodsN= 157, 147
.31 = renationalization.10 = reprivatization
.12 = big fine.04 = small fine .04 = do nothing
.39 = do not review
.43 = do nothing/no review
.22 = renationalization.18 = reprivatization
.22 = big fine.03 = small fine .05= do nothing.32 = no review
.37 = do nothing/no review
No Public GoodsN = 144, 138
.32 = renationalization.11 = reprivatization
.24 = big fine.01 = small fine.04 = do nothing
.27 = do not review
.31 = do nothing/no review
.32 = renationalization.20 = reprivatization
.15 = big fine.03 = small fine .00 = do nothing
.22 = do not review
.22 = do nothing/no review
Results: major violations Good Use No Good Use
Public Goods .65 .72 Provided N= 181, 165 No Public Goods .84 .83 Provided N= 184, 169 Percent “yes” or “more less yes” responses.
Coasian View of Privatization
“They (factory managers) steal and steal and steal. They are stealing absolutely everything and it is impossible to stop them. But let them steal and take their property. They will then become owners and decent administrators of this property.”
Anatolii C hubais, Head of State C ommittee on Property of the Russian Federation.
Legitimacy of initial distribution of property unimportant
