Distributive impact on privatization in Latin America: Evidence from Four Countries David McKenzie: Stanford University and Senior Development Research Group Dilip Mookherjee: Boston University Economia

Paper The paper was an overview of a research project commissioned by the Poverty and Inequality Unit of the Inter-American Development Bank and the Public Policy and Development Studies Institute at Puebla Mexico

Question Would you expect mainstream Latin- Americans to support or reject privatization trends? Yes, No, Why?

Introduction-Background Street riots common following privatization reforms The main idea the anti-globalization activists believe in is that national values should not be taking by the profit driven global capitalists Survey information from (Latin Barometro) clearly shows a pattern that is uniform across countries, ages, gender and socioeconomic class opposing privatization Economists in general believe in privatization based on profitability, labor productivity, firm growth and market valuation

Justification Aim: to estimate the effects of privatization on customers and workers based on existing household and employment surveys Four countries were chosen (Argentina, Mexico, Bolivia and Nicaragua) All four countries have have undergone significant privatization since the late 1980s and have similar data sources that allow the application of common methodology

Evaluating the welfare impact on consumers Household surveys based on access to electricity, telephone and water Surveys don’t report total household expenditure so the data was obtained from a variety of sources According to authors:It is expected that privatization will result in more access to utility service 1-Unsatisfied demand under public ownership Examples: people in Mexico wait 2 years for a phone 2-More expansion of the networks or universal service obligations 3-private firms may be more apt to develop means to reduce the costs of network expansion

Shows that in all cases privatization resulted in more access to infrastructure

10 cases, prices fell in five and increased in five

“La Guerra del agua” in Cochabamba, Bolivia prices increased in 43 percent for poor consumer strikes and a declaration of a martial law and expulsion of a private firm Aguas Tunari

Quality: this table shows an improvement followed by less faults, better quality telephone lines and shorter waiting time for service

Inequality in Latin America Very high inequality Gini Index of 40s and 50s Compared to 20s and 30s of some European nations

inequality poor rich

Privatization has a very small effect on inequality with a change in the Gini of 0.02 or less

Summary and Conclusion Studies could not find disenchantment with the privatization process It is believed that the price increase is the main reason for privatization opposition but the study shows it is not the trend (expect for Cochabamba) When prices went up, these effects were outweighed by the corresponding increase in access at the lower end or lower middle end of the distribution Another negative effect is layoff of workers (not discussed in this article)

Policy implications 1-Design policy implications that have regulatory institutions for the privatized enterprises to keep lower prices, based on competitive pressure, and that the requirements are set for service expansion. 2-Cushioning employment impact by funding service packages, unemployment service benefits and job search assistance 3- Use privatization proceeds in the transparent fusion to retire public debt and increase social spending