Privatization & economic growth in developing countries by paul cook and uichiro uchida

Article review – ‘Privatization & Economic Growth in Developing Countries’ by Paul Cook and Uichiro Uchida The article, ‘Privatization and Economic Growth in Developing Countries’ were

aimed at the many possibilities that rises out of the privatization of certain government

services in developing countries and how it could steer the wider developing country’s

economy to be more efficient and stabilized. Both the authors argue that there are many

benefits that can be seen over such measures and how effective such measures can be

correlated according to the development of the country. All of the studies quoted by the

article showed data collection methods to be significantly long term and concentrated on

the study alone while also relying on statistical patterns on a significant period of time

between the pre-privatization and the privatization of said companies itself.

The authors argue citing different sources that the privatization of government

services such as communication becomes more efficient as publicly owned companies

are more likely to be capital constrained due to the lack of investors1. The authors

examine the situation of such publicly owned companies prior to privatization and find

that because of capitals constraints they are unable to improve their services better and

the quality of work is not up to par as is the case in privately owned companies.

Privatization then brings forth more capital investments that allow better services as well

as a better range of work quality among employees. It is also a known fact that

privatization limits or even gets rid of the monopoly of services as well as inviting

economic competition. The advantage of economic competition is that it pushes private

companies to provide better services and products to attract their customers. However, it

also must be noted that private companies in service to the government are more likely to

be regulated to protect consumer interests. It has been shown that the privatization of

services within the developing world actually boosted GDP per capita of the country and

allowing a better quality of life as investors flows cash into the companies. Privatization

of the said companies also boosted employment opportunities. The article goes on to

measure the correlation of GDP and the number of years privatization of companies has

occurred, using a regression formula. There is also evidence that privatization especially

in Malaysia, Peru and Argentina2 showed also lesser government budget deficits as they

no longer have to provide capital for publicly owned companies.

There is much to agree with the privatization of companies in the developing

world as the benefits outweigh the negative impacts that could proceed out such ventures.

Although privatization is agreeable to the majority as whole such government procedures

largely ignore minority populations who either cannot cope with the problems brought

forth by privatization and henceforth brings them to become even more further

marginalized in their own society. Privatization does bring forth economic growth but it

also provides a negative outlook for small and medium enterprises which are unable to

cope with the aggressive competition by the bigger companies thus either eliminating

SMEs or limiting them to a smaller number and if proper regulatory systems are not

implemented will in turn become large scale monopolization. Another problem with rapid

economic growth is that there are larger wealth gaps between the richer classes and the

poorer classes.

In conclusion, although there are negative effects of economic growth and the

marginalization of certain people within the economy as a whole (at times homemakers

who’s work is not counted as GDP) but developing countries need privatization to pull in

investors to pour money into the country to improve the quality of life of their people as a



Cook, Paul, and Uchida, Uichiro ‘Privatisation and Economic Growth in

Developing Countries’, Journal of Development Studies, 39: 6, 121-154, 2007