Seizing YPF appears to be a popular move in Argentina, where caps on residential energy prices and a growing economy have helped push energy demand to new highs. Many Argentines still resent the privatization of state-owned companies in the s, so taking on YPF gives Mrs. Kirchner the opportunity to go after a symbol of that time.
Privatization and Democracy in Argentina
Kirchner has already nationalized Argentine Airlines and pension funds, while also pressuring companies here to repatriate export proceeds in an effort to slow capital flight. Huge discoveries of shale oil resources were made in the last year in Argentina. The French oil giant Total and the American companies Exxon Mobil and Apache are among those making investments in Argentine shale fields.
View all New York Times newsletters. Energy experts warned that the expropriation of YPF could curb the activities of companies seeking to replicate in Argentina the rapid increase in shale oil production that is happening in the United States. Gheit said. While Repsol subsequently made investments in other emerging markets, it also sold part of its Brazilian business to Sinopec of China in The tussle with Buenos Aires comes at a bad economic time for Repsol and Spain more broadly. Despite the move against YPF and more government intervention, Argentina still has a diversified market economy with far fewer nationalizations than in Venezuela, where authorities have also expropriated energy concerns.
Now it is even harder. But public anxiety regarding the state of the economy is being skillfully dealt with, mostly by placing blame for the current situation firmly at the door of the Kirchner governments. Macri ran on a business-friendly platform focused mainly on sweeping economic change, and appointed several technocrats and former private-sector individuals to enact these policies.
All this is to say that, contrary to expectations, the government's management of politics has superseded its management of the economy. Addressing the sizeable economic challenges that remain will require austere, politically unviable policy changes. External factors will hinder the return to growth, although they may also bring opportunities going forward. At the end of a year marked by populist earthquakes and antiglobalization rhetoric, it will be more important than ever for Argentina to pursue diversification of commercial partnerships.
A more pragmatic and globalist approach to governance has won Macri universal praise from ideological allies. This may in itself represent a chance for Argentina to emerge as a bright spot in Latin America, particularly at a time when Brazil and Mexico are coping with major political and economic challenges. Argentina also has an opportunity to demonstrate regional leadership and to play a key role in integrating Latin American countries—for example by forging ahead with an EU-Mercosur trade deal, and integrating Mercosur with the Pacific Alliance.
After privatization, with revenues and profitability rising, British Airways increased its employment to serve expanding markets. That pattern of cost cutting, increased efficiency, and then growth is common among privatized firms. British consumers benefited as privatization and competition reduced prices and improved service quality. A British Treasury study found that real prices after a decade of privatization had fallen 50 percent for telecommunications, 50 percent for industrial gas, and 25 percent for residential gas.
The Treasury study found that "most indicators of service quality have improved" in privatized businesses. Millions of British savers gained from investing in the privatized companies. The government made share offerings appealing to small retail investors, which fit with Thatcher's belief in "popular capitalism. The government itself gained from privatization because money-losing companies, such as British Steel, were removed from the budget.
Also, the government gained revenues from the share offerings and direct sales, and from the taxes paid by the newly privatized firms. A few British privatizations were particularly controversial. State-owned British Rail had long consumed taxpayer subsidies, and it faced a long-term decline in its transportation market share.
In the government split up the company and privatized separate pieces: Railtrack took control of tracks and stations; 3 firms took control of rail freight; and 25 firms received franchises to operate passenger services. In the late s, a few high-profile rail accidents raised concerns about the industry's new structure. Some accidents may have been due to insufficient track maintenance — in both the years before and the years after privatization.
Those problems led to the renationalization of Railtrack in as Network Rail. Some experts believe that undoing the industry's vertical integration was a mistake. Despite uncertainty about the optimal structure for the industry, British rail has flourished since passenger services were privatized in the s.
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Total passenger trips bottomed out in and then began rising. By , total passenger trips had more than doubled since privatization, from million to 1. Despite the rise in passengers, the on-time performance of British passenger rail improved after privatization. In a study, the European Commission found that the United Kingdom's railways were the "most improved" in all of Europe since the s and were second only to Finland's in customer satisfaction. The privatization of British water and sewer provision has also been criticized.
The government privatized 10 regional water and sewer agencies in and created a new regulatory authority to oversee them. After the reforms, people complained that water prices rose. But those increases stemmed from the private firms' increased capital investment to modernize very old government infrastructure and from increased European regulation. Privatization gave the companies access to the capital they needed to upgrade.
After increases in the first six years following privatization, British water prices have risen just 9 percent in real terms over the past two decades.
Furthermore, water industry efficiency and service quality have increased. Wasteful leaks in the British water system have fallen by one-third since privatization, supply interruptions are down, and the number of customers with low water pressure has plummeted. In sum, the overall quality of the British water system has substantially improved since privatization.
In dollar value, the bulk of privatization has occurred in developed nations. In those countries, some of the largest reformers relative to the size of their economies have been Australia, New Zealand, Portugal, Spain, and the United Kingdom.
For governments, a main benefit of pursuing privatization is to raise revenue. But for citizens, the main benefit is the positive effect on economic growth from increased efficiency and greater innovation. Businesses that are more productive can pay workers better and cut prices for consumers. Also, by reducing waste they are better environmental stewards.
Many statistical studies have examined the performance of businesses before and after privatization. A study in the Journal of Finance looked at 61 privatizations in 18 countries and found "strong performance improvements, achieved surprisingly without sacrificing employment security. Specifically, after being privatized, firms increase real sales, become more profitable, increase their capital investment spending, improve their operating efficiency, and increase their work forces.
A study in the Journal of Finance compared the performance of 85 firms across 28 countries before and after privatization. It found that privatization increased "profitability, output, and operating efficiency.
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The statistical results "strongly suggest that privatization yields significant performance improvements," concluded the authors. A study on privatization in the Journal of Public Economics found that "the empirical literature has provided systematic evidence that privately-owned companies outperform state-owned enterprises. A study by the Inter-American Development Bank of Mexico's reforms found that "privatization leads to dramatic improvements in firm performance and that they are the result of efficiency gains, not transfers from workers or exploitation of consumers.
A study looked at more than 50 Canadian businesses privatized during the s and s, including an airline, a railroad, manufacturers, and energy and telecommunications firms. It found, "[T]he overall impacts have been largely positive, in many cases impressively so. Key economic indicators such as capital expenditures, dividends, tax revenues and sales per employee tended to increase.
In Canada, none of the more than 50 major privatizations have been reversed. A review by privatization expert John Nellis found that "the vast majority but not all of firm studies or surveys in most countries and sectors [have] continued to find positive post-privatization performance changes in terms of lowered costs, improved labor efficiency, increased outputs, higher returns to owners and shareholders, and, very often, increased investment. A Journal of Economic Literature article by William Megginson and Jeffry Netter provides a detailed international review of academic studies.
They found studies "almost unanimously report increases in performance. Privatization appears to improve performance measured in many different ways, in many different countries. Megginson examined hundreds of studies for his book, The Financial Economics of Privatization. He concluded, "Private ownership must be considered superior to state ownership in all but the most narrowly defined fields or under very special circumstances. This is true even for natural monopolies. Most academic studies on privatization examine quantitative factors, such as efficiency and output.
But privatization also creates qualitative improvements, such as greater transparency and improved customer service. The following sections describe a dozen advantages of privatization. Private businesses in competitive markets have strong incentives to increase efficiency — to produce more and better products at lower costs.
Businesses seek profits, which are a measure of net value creation.
If a business performs poorly, it will lose money and have to change course, or ultimately face bankruptcy or a takeover. By contrast, government entities are usually not penalized for excess costs, misjudging public needs, or other failures. They can deliver bad results year after year and still receive funding. Government workers are rarely fired, and there is no imperative for managers to generate net value. The superiority of private enterprise is not just a static efficiency advantage.
Instead, businesses in competitive markets must pursue continuous improvements. They learn by doing and adjust to changes in society, a process called adaptive efficiency. Businesses routinely abandon low-value activities, but "the moment government undertakes anything, it becomes entrenched and permanent," noted management expert Peter Drucker.
Private businesses make such adjustments all the time as demand for their products fluctuates. Government organizations undermine growth by keeping resources employed in low-value activities, even as tastes and technologies change. That is why Drucker said, "[T]he strongest argument for private enterprise is not the function of profit.