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When a state-run company is sold to private interests, the result is generally a more efficient, cost effective operation. But who reaps the benefits--a small group of wealthy shareholders, or society as a whole? It all depends on how well government regulators do their job, according to a study on the outcome of utilities privatizations in Argentina. The World Bank study, which was the subject of a recent seminar at the IDB's Washington, D.C., headquarters, assesses the potential impacts of privatization in electricity, gas, water and sanitation, and telecom-munications sectors in Argentina since 1989. It was carried out by researchers Omar Chisari and Carlos Romero from Universidad Argentina de la Empresa, along with World Bank specialist Antonio Estache. Analyzing data from 1993 through 1995, the authors conclude that economic rates of return for utilities privatizations are extremely high. They also show that the "shadow price" for corresponding regulatory activity is also very high. This essential function of government is often ignored in privatization exercises. "How serious governments are about the fair distribution of gains of reforms is revealed by how serious they are about regulation," say the authors. Where regulators have been effective, operational gains clearly benefit all sectors and all income classes. Moreover, the poorest classes tend to gain relatively more than the richest classes, and income distribution improves as well. Where regulators have not been effective, the owners of capital in the utilities sector end up retaining a disproportionate share of the gains from reform. While the general public does see some benefits, they are likely to be insignificant. In the case of the Argentine privatizations, ineffective regulations reduced the gains by $1 billion from what they would have been, representing an implicit tax of 16 percent on the average consumer paid directly to the owner of the utility. At the same time, the study finds that the privatization of utilities "cannot be blamed for the significant increase in unemployment observed since 1993." On the contrary, most simulations show that effective regulation can lead to a small drop in unemployment.
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