Privatization has been one of the strongest oars rowing the boat of global economic liberalization.
In the last two years alone, the privatization sale of assets reached $53 billion in Europe, over $5 billion in the Americas and nearly $9 billion in Asia. In eastern Europe privatization helped push the transition from communism to capitalism. As output from the non-state sector soared to 55% of GDP, assets with an estimated economic value of $200 billion were returned to the people.
Worldwide, in most countries where state-owned enterprises (SOEs) had played a significant role, selling them off added between 0.5% and 3% to equity market capitalization, on average amounting to 0.7% of GDP.
In restructuring and emerging economies such as Hungary, Indonesia and Poland, as well as in developed European countries such as Denmark, France and Italy, where the state had been a big producer, the ratios were even higher. But these figures don't convey the real economic significance of privatization. That lies in its role as a catalyst for greater economic efficiency. And, as I'll argue, it is greater economic efficiency that is the long-term argument for creating investor wealth too.
But to understand that, first let's analyze the economic role of SOEs before privatization.