Alberto Chong
All of these impact the reputation and credibility of privatizing politicians. In the last 15 years, concession contracts in developing countries have often led to renegotiations. In Latin America and the Caribbean, 40 percent of all concession contracts were renegotiated just over 2.2 years after they were signed. These opportunistic renegotiations of concessions are common because of what Engel et al. (2003) call a “privatize now, regulate later” approach. Cost overruns in concessions and unclear rules governing contingencies provide private owners with the opportunity to extract economic rents from the government. Finally, attempting to substantially alter the regulatory framework after the sale may also prove difficult as new constituencies against regulation are created at the time of privatization. Shareholders and managers of privatized SOEs are joined by workers and even consumers who could benefit from the protective regulatory status of firms (Chong and López-de-Silanes, 2005). Adequate regulation can make privatization work—for governments and for consumers. Assuring that privatized firms operate in a competitive environment at the service of their clients rather than their stockholders is key to achieving the goal of a more efficient, productive and equitable economy. It may also help change the face of privatization in the eyes of public opinion.
Conclusions While privatizations can be socially beneficial, delivering these benefits to the poor requires the power of government to adequately regulate the companies. This does not mean that Latin Americans are going to come out in favor of privatization, however, even if governments do things well. A relevant factor in shaping public opinion is the tendency to group together simultaneous events or trends and consider them the common cause of short-term changes. In the economic policy area, the “Washington Consensus” or the “neoliberal economic model” are the common denominator under which a set of policies are grouped whose separate effects are difficult for an observer to disentangle. An objection to one outcome can lead to a rejection of all policies that observer correctly or erroneously associates with it.
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