The Privatisation Phenomenon and Its Relevance to Developing Countries

By Jiban Mukhopadhyay

Summary

In this Forum of Free Enterprise booklet, economist Jiban K. Mukhopadhyay surveys the global wave of privatisation of the 1980s and argues for its relevance to developing economies, especially India. He frames privatisation as a worldwide counter-movement to the four-decade experiment with nationalisation, tracing the nationalisation doctrine to the Fabian rather than Marxist strand of socialism and to Herbert Morrison’s post-war British model. Drawing on D. R. Pendse, he sets out a broad eight-point definition of privatisation that extends well beyond mere divestiture to include denationalisation, leasing of state-owned enterprises (SOEs), transfer of management, abandonment of new SOE proposals, and contracting-out of services.

The essay then maps the spread of privatisation: Margaret Thatcher’s ideologically-driven programme in Britain after 1979; liberalising reforms under Gorbachev’s glasnost and perestroika in the USSR; Deng Xiaoping’s open-door reforms in China; and parallel openings across Eastern Europe. Turning to the developing world, Mukhopadhyay attributes the trend largely to fiscal pressures and budget deficits, and notes the prescriptive role of the IMF, World Bank and Asian Development Bank.

Mukhopadhyay supplements the fiscal argument with a ‘new management ethos’ rationale, contending that private enterprise is run more dynamically than over-administered SOEs, and that even profitable Indian SOEs in petroleum, power and telecommunications could be candidates for privatisation. He closes on a note of economic pragmatism, citing South Korea’s non-ideological approach to argue that privatisation in developing countries has spread on grounds of need and usefulness rather than right-wing ideological fervour.

Key points

• Privatisation is framed as a worldwide 1980s counter-wave to four decades of nationalisation.

• Nationalisation is traced to the Fabian strand of socialism (Jevons, J.S. Mill, Sidney Webb) and Herbert Morrison’s British model, ‘not necessarily Karl Marx’.

• Adopts D. R. Pendse’s broad eight-point definition: divestiture, denationalisation, IPR relaxation, SOE closure/leasing, management transfer, abandoning new SOEs, and contracting-out.

• Margaret Thatcher’s 1979 Conservative manifesto is identified as the pioneering ideological drive.

• Cites reform in the USSR (Gorbachev), China (Deng Xiaoping), and Eastern Europe as evidence of a global shift.

• In developing countries, privatisation is driven mainly by fiscal deficits, with IMF/World Bank/ADB prescribing it.

• Adds a ‘new management ethos’ argument: private firms outperform over-administered SOEs.

• Concludes with ‘economic pragmatism’ over ideology, citing South Korea’s Bon Ho Koo.

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