The Political Economy of Privatization in Postwar Developing Countries: Assessing the Acceptability by Liberian Stakeholders

CHAPTER 2

LITERATURE REVIEW

This chapter presents the review of literature on privatization and the political economy in which most privatization of state owned companies occur , as well as the hindrances to successful privatization . The chapter discusses the implications of the existing literature to the present study of privatization in Liberia

Introduction

Privatization has become the predominant public sector reform tool used by many governments irrespective of their particular socio , economic , or political condition . It is becoming the latest fashion on bloc especially since the 1980s (Debebe , 2000 Deme

, 1997 and Biglaiser Danis , 2002 ) when it gained political and ideological favor first in Britain and then the United States . Ever since that time , major international development and financial institutions like the World Bank and the International Monetary Fund (IMF ) have made it a precondition for receiving assistance or loans

The evidence of the success of this public management reform tool has not been overwhelming especially for developing and low-income countries (Deme , 1997 ) which face far greater issues than what privatization attempts to mitigate . In spite of this , nearly every has been embarking on privation not because of the merits of it but because of the imposition of these international organizations . In this regard Liberia , a country just returning from a 15 year civil war with some of the worst macroeconomic conditions in the world , is been advised to undertake some level of privatization as means of achieving economic growth

The following sections will discuss how privatization efforts had been studied in different parts of the world beginning with the definition of privatization , followed by the political economy in which privatization had been occurring . In this way , Liberian reality of economic reform can be situated within the privatization continuum and how it can be studied in this context

Privatization Defined

Privatization has been defined as the process and method of transferring the functions and assets from the public sector or those provided by the government to private entities and corporations (Adam , 2006 . The process is complex and incurs a lot of negotiations , dialogue and public consultation in most countries . Privatization had been touted as a necessary ingredient to economic reform and growth especially in countries that seek assistance from the International Monetary Fund as well as from investors . In the recent past , more and more countries have adopted privatization regardless of the political system of the state it has spread from the powerful capitalist economies to those who have recently gained democratic freedom and in postwar countries

Privatization had been found to be useful in the rehabilitation of countries undergoing drastic political and economic changes because it involves the restructuring of the economy and the economic and political policies governing the corporations and property rights of the country (Harsch , 2000 . Privatization however can only occur in free market economies wherein individual decision making lead to individual incentives which in effect is dependent on the property rights mandated by the government . According to Hernando de Soto (1996 ) modern market economies promote growth...