Brief Review


The Promise of Privatization, edited by Raymond Vernon, New York: Council on Foreign Relations, 295 pages, $22.95.

Samuel Johnson once observed that the prospect of being hung in a fortnight wonderfully concentrates the mind. This bit of wisdom, writes Raymond Vernon in the introduction to his edited collection, The Promise of Privatization, goes a long way toward explaining the sudden privatization trend of the 1980s. Worldwide, decades of spendthrift national policies found nations reeling from high deficits and debts. By 1980, public-sector resources were drying up. Privatization has become an attractive alternative in this context.

To explore the significance of this trend, Vernon, a professor of international relations at Harvard University, compiled case studies by nine scholars on privatization around the globe. In his overview, he assesses the causes of privatization and its implications for U.S. foreign policy. Other authors look at privatization in Britain, Venezuela, the Philippines, Brazil, Turkey, and Africa, as well as the role of the World Bank and the International Monetary Fund in promoting it.

Vernon views the trend primarily as a pragmatic rather than an ideological one. Privatization, he claims, is "based on explicit calculations of political or economic gain." It is because of this pragmatic orientation that Vernon believes privatization efforts will endure.

He is correct in observing that these efforts are not in the main motivated by ideology. Communist and socialist governments, for example, have begun to privatize some economic activities, largely for practical reasons. Yet Vernon understates the role of ideology. Indeed, even the conclusions of some contributors to this volume confirm its importance. For example, Yair Aharoni emphasizes the ideological component of Britain's extensive privatization efforts, which resulted in net proceeds to the British government of $20 billion in 1987 alone. Janet Kelly De Escobar likewise points to the emergence of forces in Venezuela that have rekindled discussions of classical liberal ideas there. Vernon himself seems to acknowledge that political ideology is important when he advises that pushing privatization per se ought to be a less important policy goal for the United States than encouraging developing nations to alter "fundamental national values such as respect for law and for property rights."

Though actual privatization in many countries remains limited, the authors see it as a long-term trend, largely because of growing disappointment with the record of state-owned enterprises and, more generally, "with the role the state has played in many poor countries." The volume provides an excellent account of the political and economic factors—interest-group pressures, technical issues, financial limits, and so on—that both frustrate and encourage privatization efforts.

Above all, the book demonstrates that privatization alone cannot be the cure-all for lagging economic development. It must be part of a larger process of market liberalization that fosters economic competition. Indeed, as contributors Thomas Callaghy and Ernest James Wilson point out in their chapter on Africa, "African governments face the challenge of redefining the relationship between state and market, between politics and economics—a difficult endeavor at best." Without this redefinition, privatization "may just create new private monopolies."